Interpreting and understanding accounts
An ACCA case study

Page 1: Introduction

How much is the business worth? Are sales growing or declining? What about cash flow? These and many other vital questions are regularly tackled by qualified accountants of the Association of Chartered Certified Accountants (ACCA). Some of the answers are found fairly easily, others are much tougher to uncover and need the skills and expertise of a qualified accountant. ACCA is the largest...
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Page 2: Accounting: the big picture

Whether it is in a high street retailer or a bespoke product store, when you walk away from the till with something you want, you have made a purchase. You have the product and the company has the revenue from the sale. A gain has been made by both sides. Put another way, value has been added. The whole purpose of business activity in using resources is to add value in this way. But how much value...
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Page 3: The Income Statement

Profitable trading is what most business is all about. So, at regular intervals, a firm needs to know: This is exactly the information that accountants, and the law, demand. The key document is called the Income Statement. Here is the Income Statement for Halfords plc. After a period as a private company, the business was floated on the stock exchange in 2004. Today it is a leading supplier of...
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Page 4: The Balance Sheet

Is £1 million a good profit? The question, of course, is meaningless. For a local family firm, a million pounds would be astounding. However, for a large company like Halfords it would be a disaster. We need to relate profit to the value of resources used in its generation. So, what is the value of the resources contained within a business? And how were they financed? These are the two...
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Page 5: The Cash Flow Statement

A healthy business generates a continuous flow of cash through its trading operations. Every business needs cash to pay for its on-going expenses and to settle debts as they arise. Running out of cash would mean being unable to make these payments. This could lead to a business entering into liquidation. The Cash Flow Statement tracks how cash has moved into and out of the business over the...
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Page 6: Conclusion

Accounting statements are not the neat packages that they can appear to be. They are just a final scorecard in relation to countless transactions across an ever-shifting market. Nor was any one scorecard inevitable. Other strategies for the company could have been chosen – with very different results. ACCA qualified accountants always do their best to present a picture that is true and fair...
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