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The format of the income statement 90 Unlimited (perpetual) life 143
Key terms 91 Limited liability 144
Classifying expenses 92 Legal safeguards 144
The reporting period 93 Public and proprietary (private) companies 145
Profit measurement and the recognition of Transferring share ownership—the role of the stock
revenues and expenses 94 exchange 145
Recognition of revenues 94 Separation of ownership and management 146
Recognition of expenses 98 Extensive regulation 146
Profit, cash and accruals accounting—a review 101 Advantages and disadvantages of the company
Profit measurement and the calculation entity structure 148
of depreciation 102 Equity and borrowings in a company context 150
Calculating depreciation 102 Equity/capital (owners’ claim) of limited companies 150
Selecting a depreciation method 107 Reserves 154
Impairment and depreciation 108 Bonus shares 155
Depreciation and the replacement of fixed assets 108 Raising share capital 156
Depreciation and judgement 109 Borrowings 156
Profit measurement and the valuation of Restrictions on the rights of shareholders to make
inventory 110 drawings or reductions of capital 157
What is inventory? 110 The main financial statements 161
What is the cost of inventory? 110 The income statement 162
What is the basis for transferring the inventory The statement of financial position 163
cost to cost of sales? 110 Dividends 163
The net realisable value of inventory 113 Summary 165
Profit measurement and the problem of bad and Discussion questions 165
doubtful debts 115 Application exercises 166
The traditional approach 115 Case study 172
The impairment of assets approach 116 Concept check answers 174
Preparing an income statement from relevant Solutions to activities 174
financial information 118
Uses and usefulness of the income statement 121 CHAPTER 5
Summary 127 Regulatory framework
Discussion questions 128
Application exercises 129 for companies 177
Case study 135
The directors’ duty to account—the role
Concept check answers 136
of company law (Corporations Act) 178
Solutions to activities 136
Auditors 179
Sources of rules and regulation 181
CHAPTER 4 The need for accounting rules 181
Introduction to limited companies 142 Sources of accounting rules 181
Corporate governance 182
The main features of companies 143 Presentation of published financial statements 188
Legal nature 143 Statement of financial position 188
CONTENTS vii
Statement of comprehensive income 188 Stakeholder concept 258
Statement of changes in equity 191 What is social responsibility? 260
Statement of cash flows 192 Corporate social responsibility (CSR)—
Notes 192 what does it mean? 262
Accounting for groups of companies 193 Accounting for corporate social responsibilities 266
Triple bottom line reporting 268
Summary 198
The Global Reporting Initiative (GRI) 270
Discussion questions 198
Application exercises 200 General background 270
Case study 207 Background and development of the GRI Guidelines 270
Concept check answers 208 Current position—the GRI Standards 272
Solutions to activities 208 Integrated reporting 280
The balanced scorecard approach 282
CHAPTER 6 The financial perspective 284
The business process perspective 284
Measuring and reporting cash flows 211 The customer perspective 284
The learning and growth perspective 285
The importance of cash and cash flow 213
Overall conclusion 286
The statement of cash flows 216
Preparation of the statement Summary 287
of cash flows—a simple example 220 References 287
Deducing cash flows from operating activities 221 Discussion questions 288
Deducing cash flows from investing activities 223 Application exercises 289
Deducing cash flows from financing activities 223 Case study 292
Reconciling profit for the year with cash
from operating activities 227
Some complexities in statement preparation 232
The investing section 232 CHAPTER 8
The financing section 233
What does the statement of cash flows tell us? 235
Analysis and interpretation
of financial statements 297
Summary 239
Discussion questions 239 Financial ratios 298
Application exercises 240 Financial ratio classification 298
Case study 251 The need for comparison 299
The key steps in financial ratio analysis 300
The ratios calculated 300
A brief overview 302
CHAPTER 7 Profitability ratios 304
Corporate social responsibility Return on ordinary shareholders’ funds (ROSF)
and sustainability accounting 257 (also known as return on equity (ROE)) 304
Return on capital employed (ROCE) 304
Social issues in accounting 258 Operating profit margin 305
General background 258 Gross profit margin 305
viii ACCOUNTING FOR NON-SPECIALISTS
Efficiency ratios 307 Break-even analysis 351
Average inventories turnover period 308 Contribution 355
Average settlement period for accounts receivable (debtors) 308 Profit–volume charts 356
Average settlement period for accounts payable (creditors) 308 Margin of safety and operating gearing 357
Sales revenue to capital employed 309 Weaknesses of break-even analysis 359
Sales revenue per employee 309 Expected costs rather than historic costs 360
Alternative formats 310 Use of spreadsheets 360
The relationship between profitability and efficiency 310 Relevant cost, outlay cost and opportunity cost 362
Liquidity 312 Marginal analysis/relevant costing 365
Current ratio 312 Accepting/rejecting special contracts 366
Acid test ratio 313 The most efficient use of scarce resources 367
Financial gearing (leverage) ratios 314 Make or buy decisions 367
Gearing ratio 316 Closing or continuing a section or department 369
Interest cover ratio (times interest earned) 316
Summary 373
An aside on personal debt 318 Discussion questions 373
Investment ratios 319 Application exercises 375
Dividend payout ratio 320 Case study 381
Dividend yield ratio 320 Concept check answers 382
Earnings per share ratio 321 Solutions to activities 382
Price/earnings ratio 321
Other aspects of ratio analysis 323 CHAPTER 10
Trend analysis 323
Index or percentage analysis 324 Full costing 385
Ratios and prediction models 325
The nature of full costing 386
Limitations of ratio analysis 327
Deriving full costs in a single or multi-product
Summary 332 or service operation 387
Discussion questions 333 Single-product businesses 387
Application exercises 334 Multi-product operations 388
Case study 342 Segmenting the overheads 396
Concept check answers 342 Dealing with overheads on a departmental
Solutions to activities 342 (cost centre) basis 396
Batch costing 399
Full/absorption cost as the break-even price 399
CHAPTER 9 The forward-looking nature of full costing 399
Cost–volume–profit analysis Activity-based costing (ABC) 400
and relevant costing 346 Costing and pricing: the traditional way 400
Costing and pricing: the new environment 401
The behaviour of costs 347 An alternative approach to full costing 402
Fixed costs 347 ABC contrasted with the traditional approach 402
Variable costs 348 Attributing overheads using ABC 403
Semi-fixed (semi-variable) costs 349 Benefits of ABC 404
CONTENTS ix
Criticisms of ABC 407 Limitations of the traditional approach
Uses and criticisms of full costing 409 to control 454
Uses of full cost information 409 General limitations concerning budgeting systems 454
Criticisms of full costing 409 Behavioural aspects of budgetary control 454
Beyond Budgeting 455
Summary 413
Overall review 458
References 414
Discussion questions 414 Summary 460
Application exercises 416 References 460
Case study 423 Discussion questions 461
Concept check answers 424 Application exercises 462
Solutions to activities 425 Case study 472
CHAPTER 11 Solutions to activities 473
Budgeting 428 CHAPTER 12

Planning and control 429 Capital investment decisions 476
Corporate objectives, long-term plans and
budgets—their relationship 429 Features of investment decisions and
Exercising control 430 associated appraisal methods 477
Budgets and forecasts 431 The nature of investment decisions 477
Time horizons of plans and budgets 431 Methods of investment appraisal 478
Limiting factors 432 Accounting rate of return (ARR) 480
The interrelationship of various budgets 432 ARR and ROCE 480
The budget-setting process 433 Problems with ARR 481
Incremental and zero-based budgeting 434 Payback period (PP) 483
The uses of budgets 435 Problems with PP 484
Non-financial measures in budgeting 436 Net present value (NPV) 485
The extent to which budgets are prepared 436 Interest lost 486
Preparing the cash budget 438 Inflation 486
Preparing other budgets 441 Risk 486
Using budgets for control 444 Actions of a logical investor 487
Comparing the actual performance Using discount (present value) tables 489
with the budget 444 The discount rate and the cost of capital 490
Flexing the budget 445 Why NPV is superior to ARR and PP 491
Variance analysis—more detail 447 Discounted payback 491
Standard quantities and costs 450 Internal rate of return (IRR) 492
Reasons for adverse variances 450 Problems with IRR 496
Investigating variances 450 Some practical points 498
Necessary conditions for effective The basis of the cash flow calculations 498
budgetary control 452 More practical points 499
x ACCOUNTING FOR NON-SPECIALISTS
Investment appraisal in practice 501 Cash transmission 543
Methods used 501 Bank overdrafts 543
Investment appraisal and planning The management of accounts payable (creditors) 544
systems 502 Taking advantage of cash discounts 545
Summary 504 Controlling accounts payable 545
References 505 Summary 548
Discussion questions 505 Discussion questions 548
Application exercises 507 Application exercises 550
Case study 514 Case study 556
Concept check answers 516 Concept check answers 556
Solutions to activities 516 Solutions to activities 556
Appendix 12.1 520
CHAPTER 14
CHAPTER 13
Financing the business 559
The management of working capital 522
Sources of finance 560
The nature and purpose of working capital 523 Internal sources of finance 560
The management of inventories 525 External sources of finance 563
Budgets of future demand 526 External sources of long-term finance 563
Financial ratios 526 External sources of short-term finance 569
Recording and reordering systems 526 Long-term vs short-term borrowing 570
Levels of control 527 Gearing and the long-term financing decision 572
Stock/inventory management models 528 Raising long-term equity finance 576
The management of accounts receivable (debtors) 532 The role of the Australian Securities Exchange 576
Which customers should receive credit, and how much Share issues 577
should they be offered? 532
Private placing 580
Length of credit period 533
Venture capital and long-term financing 582
An alternative approach to evaluating the credit decision 535
Cash discounts (early settlement) 535 Summary 587
Collection policies 536 Discussion questions 587
The management of cash 539 Application exercises 589
Case study 597
Why hold cash? 539
How much cash should be held? 539 Solutions to activities 599
Statements of cash flows and the management of cash 540
Glossary 601
Operating cash cycle (OCC) 540
Index 608
CONTENTS xi
ABOUT THE AUSTRALIAN AUTHOR
Emeritus Professor David Harvey
After qualifying as an accountant in the United Kingdom, David began lecturing in
1971 at Portsmouth Polytechnic (now Portsmouth University) with a subsequent move
to Plymouth Polytechnic (now the University of Plymouth) in 1977. During his time
in the United Kingdom he developed a keen interest in curriculum development and
teaching methods and was involved with the writing of several books with an open
learning style, many of these in collaboration with Peter Atrill and Eddie McLaney.
During this time he also completed a Masters degree in Managerial Financial Controls
and a PhD in the areas of investment and financing decisions. This research work
covered both traditional investment appraisal and corporate strategy.
In 1991 he moved to Australia to take up the position of Professor of Accounting
and Head of the Centre for Accounting and Finance at the University of New England
(Northern Rivers), which subsequently became Southern Cross University. In 1992
he became the Dean of the Faculty of Business and Computing, a position he held
until 1996, before reverting to his Professorship. In 2000 he took up the position of
the Dean of the Faculty of Commerce at the University of Southern Queensland. In
2001 the Faculty of Commerce was merged with the Faculty of Business and David
became Dean of the enlarged Faculty of Business. David has had extensive experience
in developing and teaching programs internationally. His most recent position was as
Pro Vice-Chancellor (International Quality), a position he held from 2004 until his
retirement in 2005.
xii ACCOUNTING FOR NON-SPECIALISTS
PREFACE
The Why? provide a link between theory and current practice.
These have been updated to reflect what has occurred
This text is the seventh Australian edition of a UK book.
since the last edition of the book.
It provides a broad-based, non-specialist introduction
to accounting and finance for those who wish, or need, ▶ End-of-chapter Case Study: Some of these are simply
to acquire an understanding of the main concepts and more complicated problems, but in the main they are
their practical application in decision-making, but who questions based on contemporary news media articles.
do not require in-depth theoretical or technical detail. It Their aim is to encourage students to think in a broader
is aimed primarily at students who are studying a single manner than usual, and to develop a wider approach to
unit in accounting and finance as part of a university dealing with issues that are real and current.
undergraduate or MBA course, including courses in
business studies, economics, engineering and a range of To further develop understanding, the following
other non-specialist accounting courses. Given the content features apply the concepts through a number of practice
and style of the text it is suitable for students studying at activities:
a distance, and for those who are studying independently, ▶ In-chapter Activities: Interspersed throughout
perhaps with no formal qualification in mind. each chapter are numerous activities, with one for
In writing the text we have been particularly mindful every learning objective. These are relatively short
that most of its readers will not have studied accounting ‘quick fire’ questions of a type a lecturer might pose
and finance before. We have, therefore, tried to write in to students during a lecture or tutorial, and are
an accessible style, avoiding technical jargon. Throughout, intended to serve two purposes: to give readers the
we have endeavoured to ensure that basic concepts are opportunity to check that they have understood the
thoroughly explained. Underpinning the text’s coverage preceding section; and to encourage them to think
is an ‘open learning’ approach—that is to say, it involves beyond the immediate topic and make linkages to
the reader in a way that is not traditionally found in topics either previously covered or covered in the
textbooks, delivering topics much as a good lecturer would next section. An answer to each activity is provided
do and encouraging readers to interact with the text. This at the end of the chapter, to which readers should
approach distinguishes itself through a variety of integrated refer only after they have attempted the activity.
and end-of-chapter assessment material, which has been
largely updated for this edition and is outlined below. ▶ Self-Assessment Questions: Towards the end of
the chapters, but also at an appropriate point in
some chapters, there is a self-assessment question
Hallmark features or questions. These are much more demanding and
The following features focus on developing an under comprehensive than the activities, in terms both of
standing of key accounting principles through the use of the breadth and depth of the material they cover.
relevant and engaging examples. As with the activities, it is important to make a
▶ Accounting and You: These important and unique thorough attempt at each question before referring
sections relate the content of the chapter to the to the solution.
individual student reader. All too often students
▶ Application Exercises: These are also positioned at
feel that the content is big business oriented and
has nothing really to do with them. This section the end of most chapters, and 40% of these exercises
illustrates that what they are learning has real have been updated from the last edition. They are
relevance to their everyday lives. categorised as easy, intermediate or challenging.
Typically, they are of a numerical type, and are
▶ Real World Examples: Each chapter typically designed to enable readers to further apply and
includes three or four examples, which aim to consolidate their understanding of topics.
PREFACE xiii
▶ Discussion Questions: Featured at the end of each between finance theory and corporate strategy. All have
chapter, these are relatively short, typically require a experience of curriculum development ranging from
descriptive or analytical answer, and are intended to thorough to comprehensive. One has extensive experience
enable readers to assess their recollection and critical internationally. The net result is a writing team of
evaluation of the main principles in each chapter. They considerable diversity of experience which is aware of the
might be used as the basis for tutorial discussion. need to try to balance the accounting skills requirement
with the need to develop more broadly based skills.
Throughout the text we have been conscious of
the need to develop generic skills where possible, as
well as the more traditional accounting skills. Generic New to this edition
skills targeted include communication, teamwork,
The seventh edition introduces a number of new or
critical thinking, problem-based learning, ethics, self-
extended features that support student-centred active
management, planning and organisation. It is impossible
learning, as outlined below.
to do this extensively in a single book, but we believe that
this book should facilitate a curriculum-wide approach to
development of these kinds of skills. Concepts in Action
Specific areas to note include the following: ▶ At the end of each learning objective section we
▶ The content provides an opportunity to use the include two or three concept check questions. These
discussion questions and cases to develop oral and are short questions which aim to provide the student
presentational skills and to develop teamwork. with a means of ensuring that they have a sound
understanding of the basic concepts introduced in the
▶ The whole book is problem-based, so problem- section. They are generally in the form of multiple-
solving skills should be enhanced. choice questions.
▶ Self-management and organisation skills development ▶ The number of Real World examples has been
should be facilitated by the open learning approach increased, and in many cases content has been
and use of activities. expanded so as to provide a clearer linkage between
what is taught and what actually happens in practice.
▶ Reference to ethics and governance, particularly in These examples provide considerable material for
Chapters 1, 5 and 7, provide a focus for ethics and classroom discussion. Many illustrate clearly how
‘green’ issues. the theory is applied in practice. Others aim to
▶ Critical thinking is encouraged by the use of provide some illustration of the need to integrate
appropriate cases and questions, together with current the various topics taught. Still others aim to open
Real World examples and the Accounting and You up the complexity of business decision-making by
feature. By way of illustration, Chapters 5 and 7, in illustrating linkages (and breakdowns) between
particular, raise major issues relating to governance and business, social and environmental considerations.
sustainability that need to be approached critically. Ultimately, the aim of the Real World examples is to
make the subject of accounting altogether more alive
It is perhaps worth noting that all three authors are and relevant to the student.
qualified accountants. However, their career paths and
interests are rather different. The main areas of interest ▶ The Accounting and You sections have been updated
include financial accounting, management accounting, and aim to reinforce the relevance of the study of
finance and corporate strategy. Specific areas of expertise accounting, by bringing the subject back to issues that
include behavioural aspects of accounting, and the links may affect the student in his or her everyday life.
xiv ACCOUNTING FOR NON-SPECIALISTS
Active Learning Facilitation Guide rather more challenging exercises than those in the sixth
The Active Learning Facilitation Guide supports learning edition, in line with comments made by reviewers.
within an active workshop session, commonly associated We have ordered the chapters and their component
with the flipped classroom format. The Active Learning topics to reflect what we consider to be a logical sequence.
Facilitation Guide offers teachers a resource that contains For this reason, we advise readers to work through the
suggested activities which encourage critical thinking and text in the order presented, particularly since we have
decision making, and also active collaboration and team been careful to ensure that earlier chapters do not refer to
work among students. This will help teachers to assist their concepts or terms that are not covered until a later chapter.
students in developing softer skills that are often overlooked Chapters 1–8 can be said to be broadly financial
but are increasingly important to graduate employers. accounting oriented, Chapters 9–11 focus on what are
clearly management accounting areas, and Chapters 12–14
focus on what is generally regarded as financial manage
Coverage and structure ment. Having said this, much of the first eight chapters
Although the topics included are, to some extent, relatively underpin the later chapters and students should not get too
conventional, the coverage and treatment of material is hung up on which area is which.
designed to meet the needs of non-specialists; therefore, Chapter 1 provides a general introduction to the scope,
the emphasis is on the application and interpretation of purpose and interrelationships of the text’s core coverage—
information for decision-making, and the underlying financial accounting, management accounting and
concepts, rather than on the collection of data and the financial management—together with a brief overview of
preparation of statements and reports. the main financial statements. It also examines user groups
When we examined the order and level of content and their needs, introduces the main types of business
for the sixth edition, we realised that, as business and organisation, together with the way in which a business
accounting were becoming more complicated, so it was is typically organised and managed, and identifies ways in
also becoming more difficult to cover these issues in a which business and accounting have been changing over
reasonably straightforward way, using the structure of time. This chapter includes more on ethics and ethical
earlier editions. So, in the sixth edition we introduced (in behaviour in business than the sixth edition.
Chapters 2 and 3) two of the major accounting statements Chapter 2 explains the nature and purpose of the
in the context of relatively simple business organisations, statement of financial position. This is done in the
mainly sole proprietorships and partnerships, or very simple context of relatively simple organisations, so as not to
companies. This enabled us to cover the basic accounting unnecessarily complicate things. The method in which
statements without adding the complications of a complex the statement is built up, and its typical format, are both
corporate regulatory framework. Once the underlying covered, followed by the main factors that influence the
principles and nature of the statement of financial content and values in the statement. Finally, the main
position (the balance sheet) and the statement of financial uses and limitations of the statement are examined.
performance (the income statement) were understood, we Chapter 3 explains the nature and purpose of a statement
could then complicate it by adding (Chapters 4 and 5) on of financial performance, usually referred to as an income
companies and their regulatory framework. The seventh statement. The way in which the statement is built up,
edition continues with the approach developed in the sixth and the way in which it is typically presented, are covered
edition, reflecting a clear focus on the non-specialist market. comprehensively, for relatively simple organisations.
The main differences are to be found in an expansion of Chapter 4 introduces limited companies in some detail,
the number of Real World examples, the introduction of including the main financial statements. Chapter 5 explains
concept checks, and an increase in the number of end- the importance of company law, accounting standards,
of-chapter application exercises. These exercises include the stock exchange and the importance of good corporate
PREFACE xv
governance. Corporate governance remains an ongoing Our formal coverage of management accounting begins
issue for many businesses. The chapter then identifies in Chapter 9 with a discussion of the interrelationships
the main requirements relating to the published annual between costs, volume and profit in decision-making.
report and explains the concept of a group of companies Chapter 10 covers full costing and activity-based costing.
and the need for a set of consolidated accounts. Chapter 11 focuses on short-term planning and control
Chapter 6 focuses on the statement of cash flows and and deals with various aspects of budgeting. The chapter
the importance of cash to any business. It also introduces also now includes a section on Beyond Budgeting.
the idea of using the financial statements framework for Chapter 12 is the first chapter that relates to what
planning and budgeting purposes. is generally termed financial management. It deals with
Chapter 7 introduces the areas of corporate social capital budgeting and the decision to invest in medium and
responsibility together with social and environmental long-term assets, and considers how businesses appraise
accounting, and also explains the current state of such projects. Chapter 13 deals with the management
development of sustainability reporting and integrated of short-term assets and liabilities. Chapter 14 covers
reporting. Further work on these areas is likely to be the main sources of finance available to a business when
needed over the foreseeable future as the world faces making an investment.
continuing issues including climate change, a range of other
environmental issues, peak oil, world poverty, child labour
abuse, and human rights and responsibilities generally. Peter Atrill
Chapter 8 deals with the analysis and interpretation Eddie McLaney
of the main financial statements. David Harvey
xvi ACCOUNTING FOR NON-SPECIALISTS
ACKNOWLEDGEMENTS
The dedicated contributions of many individuals helped make this book a reality
and contributed to refinements and improvements in this and previous editions. An
impressive cast of reviewers provided in-depth chapter feedback as well as many
helpful suggestions, constructive criticisms and enthusiasm for the organisation and
content of the text. Both the author and publisher are grateful to each of them. They
include:
SEVENTH EDITION REVIEWERS

Dr Paul J Blayney, University of Sydney
Dr Peta Stevenson-Clarke, RMIT
Dr Angela Tan-Kantor, Swinburne University of Technology, Melbourne
Ms Dianne English, Griffith University
Maria Tyler, CQUniversity
Mr Chris Williams, RMIT
Amitav Saha, University of Notre Dame Australia
Dr Terri Trireksani, Murdoch University
Special thanks from the author and publisher to Paul Blayney of the University of
Sydney who contributed towards writing some of the questions within the text and to
Angela Tan-Kantor for carrying out the technical editing for this edition.
COPYRIGHT ACKNOWLEDGEMENT
ASX material reproduced in this book is © ASX Corporate Governance Council
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Council of Superannuation Investors, Australian Financial Markets Association
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197, Australian Institute of Superannuation Trustees ACN 123 284 275, Australasian
Investor Relations Association Limited ACN 095 554 153, Australian Shareholders’
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The Institute of Actuaries of Australia ACN 000 423 656, ABN 50 084 642 571,The
Institute of Internal Auditors – Australia ACN 001 797 557, Financial Services Council
ACN 080 744 163, Governance Institute of Australia Ltd ACN 008 615 950, Law
Council of Australia Limited ACN 005 260 622, National Institute of Accountants ACN
004 130 643, Property Council of Australia Limited ACN 008 474 422, Stockbrokers
Association of Australia ACN 089 767 706. All rights reserved 2015.
ACKNOWLEDGEMENTS xvii
FOR STUDENTS: HOW DO I USE THIS BOOK?
◀ Learning objectives CHAPTER 7 CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY ACCOUNTING 261
CHAPTER 2 Being socially responsible involves setting policies and practices that will ensure that an entity
These are listed at the beginning of each (business or other organisation) acts as a good citizen, and that each particular entity must consider
the social costs and benefits that result from its actions.
MEASURING AND REPORTING This view is not, however, shared by all. The objective of shareholder wealth enhancement can
be interpreted in a way that totally ignores any social costs that do not directly affect business
FINANCIAL POSITION chapter and explain the key concepts that returns—‘it’s okay as long as you can get away with it’. How does a business justify, in financial
terms, to its shareholders the choice of a more expensive production process that will yield lower
pollution levels but also lower profits? If a competitor goes down the lower-cost, higher-pollution
route, it will probably be able to sell at a lower price and threaten that competitor’s position. There
LEARNING OBJECTIVES you should understand after studying the are clearly some inherent conflicts in this area.
ACTIVITY 7.1
When you have completed your study of this chapter, you should be able to:
chapter. They are restated in the chapter, so

(a) Can you think of a town, city or region where prosperity and/or employment is, or has been,
L01 Explain the nature and purpose of the statement of financial position (balance dependent on one employer?
sheet) and its component parts (b) Can you think of businesses that seem to have behaved in a way that you do not regard as
L02 Explain the accounting equation, and use it to build up a statement of financial socially responsible? What are the reasons for your belief?
you know where these objectives are covered.

position at the end of a period (c) Can you think of reasons why a business might still pursue activities that are less profitable
but socially beneficial?
L03 Classify assets and claims
L04 Apply the different possible formats for the statement of financial position
So how might business as a whole be encouraged to engage in more socially responsible behaviour?
End-of-chapter questions are also keyed to the

L05 Identify the main factors that influence the content and values in a statement of There are several possibilities:
financial position
L06 Explain the main ways in which the statement of financial position can be useful for • Make shirking of responsibilities more costly, by regulation and law and public awareness.
users of accounting information • Market the good citizen concept (e.g. the growth of ‘green’ consumerism), where consumers’
objectives.
decisions are strongly influenced by the nature of the business, product or production method.
L07 Identify the main deficiencies or limitations in the statement of financial position.
• Combine businesses into groups to develop ways of dealing with aspects of their business in a
socially responsible way.
The next five chapters essentially deal with the area known as financial accounting. In this chapter we • Promote government action, which might include legislation, penalties for non-compliance, or
examine the first of the major financial reports—that which is concerned with establishing financial subsidies.
position. The statement of financial position, traditionally labelled the ‘balance sheet’, represents the
assets of an entity and the claims against those assets, at a given point in time. The interests in, or claims Concept check 1
against, the assets are divided into external (liability) and internal (owners’) interests. We will see how
the statement is made up and how the report is prepared. We will also consider the basis on which Which of the following statements is false?
accounts are included, measured and reported. Finally, its usefulness in decision-making will be
considered and possible deficiencies highlighted. A Business today cannot solely focus on wealth maximisation.
B Social and environmental issues should be given serious consideration by
In order to enable us to focus primarily on the nature of the accounting process in this chapter and today’s businesses.
Chapter 3, we will concentrate on relatively simple business structures, mainly sole proprietorships and C Today’s business managers must consider a much broader range of issues than in the past.
partnerships, although the same principles apply to limited companies. However, given the size,
D Businesses today unanimously accept sustainability as their primary goal.
Concept check questions ▶

complexity and range of regulatory issues that confront larger companies, we have deliberately left
detailed company accounting to Chapters 4 and 5. E All of the above are true.
Concept check 2
These are short multiple-choice questions which Which of the following statements is true?
B
Some stakeholders have legitimate interests in all parts of a business.
Some stakeholders have legitimate interests in only a certain part of a business.
aim to provide you with a quick check of your C
E
Environmentalists are seen as a relatively new stakeholder in business.
Potential customers should be considered as stakeholders.
All of the above.
understanding of each learning objective.

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178 ACCOUNTING FOR NON-SPECIALISTS ◀ Key term definitions 2 ACCOUNTING FOR NON-SPECIALISTS
THE DIRECTORS’ DUTY TO ACCOUNT—THE ROLE OF COMPANY

LO1 LAW (CORPORATIONS ACT)
As we have already seen, it is not usually possible for all of the shareholders to be involved in the
To help you understand key accounting ACCOUNTING AND YOU
terminology and concepts, definitions are
Explain the general management of the company, nor do most of them wish to be involved, so they elect
importance of directors to act on their behalf. It is both logical and required by company law that directors are
company law in accountable for their actions as stewards of the company’s assets. The directors must therefore
MAKING DECISIONS
relation to the prepare (or have prepared on their behalf) financial statements that provide a fair representation of So how do you make decisions?
directors’ duty to
presented in the margin. All of these terms are

account, and the financial position and performance of the business. This requires that they select appropriate
accounting policies, make reasonable accounting estimates, and adhere to all relevant accounting
• What kind of decisions do you need to make?
discuss the role of
the auditor in this rules when preparing the statements. The directors are also expected to maintain appropriate • How important is economic information in your decision-making?
process internal control systems. • How do you deal with numbers and quantitative information?
also in the glossary at the end of the book for

In this context, directors of all reporting entities and disclosing entities, all public • Are you comfortable with these areas, or are there areas with which you are uncomfortable?
companies and all large proprietary companies are required to prepare true and fair financial
reporting entity statements. (Disclosing entities include companies listed on the stock exchange and companies Let us consider the kind of decisions that are commonly made at some stage of our lives.
An entity with users who raising funds through a prospectus—i.e. public issue.) Small proprietary companies are not
rely on general-purpose • Keeping expenditure in line with income—something just about every student will wrestle with.
easy reference.
financial statements for their required to prepare formal financial statements or to have them audited, unless directed to by at
least 5% of their shareholders or by the Australian Securities and Investments Commission
• Buying new things—these might include buying simple things like a new mobile phone, or a new
information relating to that vehicle, whether an old banger or a new BMW, or a really major decision, such as buying a home.
entity. (ASIC). They must, however, maintain sufficient accounting records to allow annual accounts to
be prepared and audited. The financial statements are to include the statement of financial • Starting a new business venture, either on your own or in collaboration with others.
disclosing entity
position, the statement of financial performance (in the case of companies, this is a statement of • Investing for the future in shares or government bonds.
An entity that issues
securities that are quoted on
comprehensive income), the statement of changes in equity, the statement of cash flows and
related notes. All of these decisions will require you to collect information, much of which can be classified as
a stock exchange or made
‘True and fair’ has not been specifically defined, nor tested in court. However, it is normally economic. Economic information is largely quantitative. The typical economic decision involves
available to the public via a
prospectus. interpreted as requiring the provision of all necessary financial information of a material nature choosing the best outcome for you, given that your resources are scarce.
related to both the directors’ stewardship role and financial information (decision-making) role. None of what has been said to date should imply that decisions are made solely on economic lines.
Information is material if its omission, misstatement or non-disclosure has the potential, individually Many decisions are based on things such as personal preference, family considerations, a sense of duty
or collectively, to: or aesthetics, with a few people even using the stars to assist! However, many decisions have a clear
economic orientation, and accounting can help with these decisions.
• influence the economic decisions of the users taken on the basis of the financial report, or So what information do you need to keep your expenditure in line with income? You will probably
• affect the discharge of accountability by the management or governing body of the entity. need a clear understanding of your income, its amount and nature. You will also need to have a clear
understanding of your spending patterns, and you will almost certainly need to differentiate between
The Corporations Act also requires directors of disclosing entities to accompany the financial
ongoing regular expenditure and one-off expenditure.
statements with a ‘directors’ declaration’ and a ‘directors’ report’. In the directors’ declaration,
Decisions to buy new things may be relatively easy, such as buying a new phone, which may well be
the directors must state whether, in their opinion, the financial statements comply with the
bought out of normal spending. Decisions about major assets, such as the purchase of a home, will
applicable accounting standards and represent a ‘true and fair’ view of both the financial
require much more careful information gathering and analysis. This analysis will probably include
performance and the financial position of the company. They must also state whether, in their
ideas around how the asset will be funded.
opinion, at the date of the declaration, there are reasonable grounds to believe that the company
accounting standards Decisions regarding potential business ventures also require substantial data collection and
can meet its debts as and when they fall due.
Rules established by the analysis. Your future lifestyle is likely to be substantially influenced by the success or failure of a
The directors’ report is generally much longer, and contains certain required information
professional or statutory venture of this type. The analysis will need to contain information about markets and competition, as
together with an increasing level of voluntary disclosures. Such disclosures include the names of
Accounting and You boxes ▶

accounting bodies, which well as specifics regarding the particular business.
should be followed by directors, the emoluments of directors, the principal activities of the company, a review of the
Decisions regarding the possible purchase of new shares or bonds will require the collection of
preparers of the annual operations for the year, details of significant changes in the state of affairs of the company, the
accounts of companies. relevant data. In the case of shares, this will probably mean detailed information about the past
financial significance of probable future events, details of significant events that have occurred after
performance of the company and estimates of its future prospects.
the balance date that may affect the company, and details of compliance with environmental
auditors Clearly, any decision that has an economic element will require substantial economic information.
regulations. Obviously, the voluntary disclosures extend beyond the required disclosures, and may
Professionals whose main
This feature appears in each chapter to help

Basically, the role of the accounting system is to provide much of that information. The system cannot
duty is to make a report as include financial forecasts, details of human resource management strategies, significant
and does not attempt to cover all economic input, but essentially focuses on the collection, recording
to whether, in their opinion, contributions to community life, and additional environmental initiatives. When one company
and reporting of key economic data as they relate to a particular individual or entity. Just what
the accounting statements owns a controlling interest in another so that management of the controlled company is effectively
of a company do what they information is covered is the subject of this book.
carried out by the controlling company, ‘consolidated accounts’ (‘group accounts’) must be
you see the relevance of accounting concepts to

are supposed to do; namely, You may not be comfortable with numbers and quantified information. However, it is difficult for
prepared in addition to the individual company accounts.
to show a true and fair view, an entity to be successful without having someone who does understand and can communicate such
and comply with statutory The financial reports must comply with accounting standards. Companies’ financial reports
information. So good luck with your studies.
and accounting standard should be checked by an auditor and reported on (unless the company is a small proprietary
your everyday life.

requirements. company—and even then shareholders or ASIC may require an audit).
220 ACCOUNTING FOR NON-SPECIALISTS ◀ In-chapter activities CHAPTER 11 BUDGETING 437
These are designed to test your comprehension

ACTIVITY 6.2
(a) Assume that last year’s statement of cash flows for Angus Ltd showed a ‘negative’ cash flow from
operating activities. What could be the reason for this? Should the company’s management be
REAL WORLD 11.1
alarmed by it?
Budgeting in practice
of the material you have just read, as well as
(b) At the end of its reporting period, Zeneb Ltd’s statement of financial position included the
following items: A South Australian study on the future of management The CIMA (2009) study found that zero-based budgeting
i. a bank deposit account where one month’s notice of withdrawal is required accounting found that 90% of the respondents used an was used typically by about 40% of companies. This, of course,
ii. ordinary shares in Jones Ltd (a stock exchange listed business) operating budget, and 86% a cash budget (Forsaith et al., does not mean that it is used for all budgets, rather for
to make links to topics already covered or still

iii. a high-interest bank deposit account that requires six months’ notice of withdrawal 2003). The survey population consisted of members of CPA selected ones. Abdel-Kader et al. (2006) found that zero-based
iv. an overdra� on the business’s bank account. Australia who were working in, or had a professional interest budgeting was most appropriate with ‘spending’ budgets,
in, management accounting. such as training, advertising and so on, which probably
Which, if any, of these four items would be included in the figure for cash and cash equivalents?
UK surveys reinforced the extensive use and importance represented a minority for the types of business in this
to be covered. Answers to the activities are

of budgeting (Dugdale et al., 2005; Abdel-Kader et al., 2006). survey.
A survey of the opinions of senior finance staff of 340 The surveys mentioned above tended to cover larger
businesses of various sizes and operating in a wide range of businesses. A further study sponsored by CIMA in 2013
industries in North America revealed that 97% of those focused on management accounting practices in UK small
businesses had a formal budgeting process (BPM Forum, and medium-sized enterprises (SMEs). Formal budgeting
LO3
PREPARATION OF THE STATEMENT OF CASH FLOWS
A SIMPLE EXAMPLE
provided at the end of each chapter. 2008).
The Chartered Institute of Management Accountants
(CIMA) survey, Management Accounting Tools for Today and
systems were found in all of the medium-sized enterprises,
but only in some of the small ones. Most of the benefits of
budgeting (coordination, control, motivation, communication,
Tomorrow (2009), an international survey covering a range of etc.) are not applicable to many small firms where decision-
The statement of cash flows is based on an analysis and classification of cash receipts and cash different industries, found that three budgeting tools were in making is centralised—oen all decisions are made by the
Prepare a simple payments for the period into three activity sets (operating, investing, financing) and several the top 10 most used management accounting tools. Financial same person. Nevertheless, budgeting still has a role in
statement of cash categories within each activity (see Figure 6.2 and Table 6.2 on page 217). year forecasting was used by approximately 85% of resource planning and forecasting, and in conditions of
flows Given that the emphasis of this book is on the user rather than the preparer, a section on respondents, cash forecasting by between 75% and 80%, and financial constraints.
preparing a statement of cash flows might seem redundant. However, a broad understanding of the rolling forecasts by around 65%. Strategic planning was used
approach needed to prepare such a statement will give you a better understanding of the statement by just over 70% of respondents.
itself. Also, when the statement is turned around and used in a forward-looking or forecast mode,
it can become an extremely powerful aid in strategic planning. With this in mind, we shall use
Real World examples ▶

Example 6.1 to illustrate the preparation of a statement of cash flows.
ACTIVITY 11.2
Integrated throughout the text, these

(a) Why do you think that most businesses prepare detailed budgets for the forthcoming year?
Given below is a statement of comprehensive income and a statement of financial position for a (b) Why is it crucial for those responsible for the budget-setting process to have real authority
company. This will form the basis from which we shall prepare a statement of cash flows. in the organisation?
(c) Can you think of any problems with zero-based budgeting?
illustrative examples highlight the practical

(d) Do you think that requiring managers to work towards predetermined targets might stifle
6.1
Statement of comprehensive income for the year ended 31 December 2017
their skill, flair or enthusiasm? Explain.
$m
Sales 100
application of accounting concepts and

Cost of sales (60)
Gross profit 40
Depreciation (5)
Other expenses (17)
Operating profit 18 Concept check 3
Interest expense
Profit before tax
Tax
Profit after taxation
(3)
15
(5)
10
techniques by real businesses, including extracts Which of the following is a not a component of the master budget?
A Income statement
from published financial reports, articles from

Retained profit brought forward from last year 30 B Balance sheet
40
Proposed dividend on ordinary shares 20 C Cash flow statement
Retained profit carried forward 20 D Sales budget
the media, survey data and other interesting

E All of the above are components of the master budget.
M06_ATRI2589_07_SE_C06.indd 220 28/06/17 10:08 AM

insights from business. M11_ATRI2589_07_SE_C11.indd 437 28/06/17 10:04 AM
xviii ACCOUNTING FOR NON-SPECIALISTS
CHAPTER 9 COST–VOLUME–PROFIT ANALYSIS AND RELEVANT COSTING 361 ◀ In-chapter self-assessment questions CHAPTER 3 MEASURING AND REPORTING FINANCIAL PERFORMANCE 127
chart. Also, the input variables can be changed so as to enable the impact of a range of different
assumptions to be clearly identified. In the kind of analysis used in Activity 9.3, for example, it may
be useful to consider building a spreadsheet model into which price rises can be put, so that results
can be ascertained under a variety of different assumptions about cost/revenue behaviour (sensitivity
More demanding and comprehensive than SUMMARY
In this chapter we have achieved the following objectives in the way shown.
analysis). As already noted, regression is easily done using a spreadsheet.
SELF-ASSESSMENT QUESTION 9.1

the activities, these challenge you to put OBJECTIVE
Explain the nature and purpose of the
METHOD ACHIEVED
• Identified the purpose as being the measurement of the increment in wealth
statement of financial performance, and its during the period
The following information concerns a business for the past three months
Assets $
into practice your understanding of key relationship with the statement of financial
position
• Explained the nature of the income statement
• Explained the profit and loss equation
• Illustrated use of the stock approach to calculate profit
• Illustrated the link between the income statement and the statement of
Sales 15,000 units @ $20 300,000
concepts. The self-assessment question

Variable costs 15,000 units @ $12 180,000 financial position
Contribution 120,000 Understand the layout of a typical statement • Illustrated the typical format for an income statement
Fixed costs 150,000 of financial performance, and describe its • Explained the main components of the typical income statement
Loss 30,000 component parts • Illustrated that the income statement is for a specified period
The managers of the business are now considering what to do about this loss. They hope to make a profit of $30,000
in the next three months, and the following proposals have been made:
1 launch an advertising campaign costing $50,000
solutions are to be found online, available on Demonstrate an understanding of income and
expenses in relation to definition, recognition,
classification and measurement
Defined and explained ‘income’:
• inflows of future economic benefits in the form of asset increases, or liability
reductions that result in an increase in owners’ equity of a non-contribution nature
• recognition:
MyLab Accounting and www.pearson.com.

2 reduce selling price to $19 • probable that the inflow has occurred
• the inflow can be reliably measured
3 reduce variable costs by $1.50 per unit by installing more efficient equipment which will increase fixed costs by Defined and explained ‘expenses’:
$40,000. • outflows of future economic benefits in the form of decreases in assets or
increases in liabilities that result in a decrease in owners’ equity of a non-
au/9781488612589
You have been asked to advise on:
distribution nature
(a) the level of sales needed to make a profit of $30,000 assuming that none of the three proposals is • recognition:
• probable that the outflow has occurred
adopted
• the outflow can be reliably measured
(b) the break-even point under this assumption Distinguished between cash and accrual-based accounting
(c) the level of sales needed, for each of these proposals, to generate the required profit, and
Explain the concept of depreciation and its Explained depreciation as the allocation of the cost or fair value of a tangible as-
(d) the impact each proposal will have on the break-even point. impact on the financial statements set to reflect the consumption of that asset’s economic benefits during the period
(physical deterioration, technical obsolescence, commercial obsolescence)
Assume that revenues and costs will remain the same in the next three months, other than those for the three proposals.
The most common allocation methods were identified as:
• straight-line
• reducing-balance (accelerated)
We noted in the previous section that cost behaviour is not always linear. The implication of this is
Summary ▶
Identify the main issues relating to inventory • Identified the key issues relating to inventory
that break-even charts and the analysis of relationships between costs, volume and profits, of the in the context of the income statement and • Defined ‘inventory’
type discussed so far in the chapter become far more complex. An example of a break-even chart the statement of financial position • Illustrated what is covered in cost of inventory
modified to include some of the above cost behaviour patterns is shown in Figure 9.9. Profit profiles • Illustrated how to arrive at cost of sales
using spreadsheets probably represent a more effective way of dealing with these patterns, although • first in, first out
the spreadsheets are inevitably more complex than would be the case for the examples used to date. • last in, first out
• weighted average cost
Concept check 7 At the end of every chapter, the summary • Illustrated how, in order to conform with the matching and prudence
assumptions, inventory is valued on the basis of the lower of cost and net
realisable value
• Explained inventory recording methods:
correlates learning objectives with the method

Which of the following statements about contribution or contribution
• perpetual (continuous)
margin is false? • periodic (physical stock count)
A Contribution per unit, divided into the fixed costs, gives the break-even point. Identify the main issues regarding receivables Explained the problems associated with accounts receivable and bad debts, and
used to achieve them. Use this as a great

B For volumes below the break-even level contribution represents what’s left in terms of revenue and expense recognition, examined alternative recognition methods:
over from each sale to help pay for fixed costs. and explain their impact on the income state- • bad debts are realised in the sense that both the accounts receivable and the
ment and the statement of financial position amount can be established
C For volumes above the break-even point contribution contributes to profit. • doubtful debts relate to amounts that are not expected to be collected in
revision tool.
D No false statements. All are true. accounts receivable but are not currently uncollectable
Illustrated alternative doubtful debt calculation methods:
• applying a given percentage to sales
• analysing the balances in accounts receivable
CHAPTER 8 ANALYSIS AND INTERPRETATION OF FINANCIAL STATEMENTS 333 ◀ End-of-chapter questions and problems CHAPTER 6 MEASURING AND REPORTING CASH FLOWS 251
DISCUSSION QUESTIONS These help reinforce your understanding of CHAPTER 6 CASE STUDY
The management of Enviro Ltd is planning a fairly significant expansion policy for the forthcoming year
chapter content. All questions are keyed to their

EASY (2018). You have been asked to look at the financial implications of its plans. You have asked for a clear
identification of the underlying assumptions and estimates, and these are given below.
8.1 LO1 Provide an example of a commonly used ratio. (Hint: Think of driving a car.) What makes a ratio?
What makes a ratio useful? Market position
corresponding learning objectives so you can pick

8.2 LO1 Briefly describe each of the main categories of financial ratios. Which category of ratios is the most The total estimated market for 2017 is $600 million.
important in your opinion? Why? Sales during 2017 are expected to be around $30 million. However, the business is looking to achieve an
improved market share (currently 5%) in 2018 due to more aggressive marketing. A 25% increase in sales
8.3 LO2 Complete the following sentence: ‘The gross profit margin percentage represents the proportion of ...’ volume is expected. Given product price elasticity, prices will need to be maintained at the 2017 levels in
8.4 LO3 What do efficiency measures indicate about a business? Describe the calculation of an efficiency order to achieve the planned volumes.
8.5 LO4
measure for learning accounting.
The current and quick (acid test) ratios are both measures of what? Which of the two ratios is a
stricter test, and how does it accomplish this?
and choose the areas you want to work on. The Economic environment
The current rate of inflation is 4% and this rate is likely to continue through 2018. The business thinks that
this reflects a reasonably close estimate of its specific cost inflation and is happy to proceed on this assumption.
Tax is expected to be charged at 30%.
questions are divided into level of difficulty – easy,

8.6 LO5 Describe two financial gearing ratios. What aspect of a business are they attempting to portray?
8.7 LO6 Provide a brief explanation along with an advantage and a disadvantage for each of the four main Dividend policy
ratios used to evaluate investment performance. The dividends to be recommended for 2017 total $1 million. The business would like to increase this to
8.8 LO7 List and briefly describe other methods that can be used for financial statement analysis. $1.25 million, to cover inflation and to share in the hoped-for increase in profitability.
INTERMEDIATE
8.9 LO2 Does the ROSF ratio provide a better measure of performance than the ‘bottom line’ profit value?
intermediate and challenging. They include: Financial structure of the company
Share capital amounts to $10 million at the end of 2017, with reserves amounting to $2.5 million.
Care has been taken with regard to working capital management, and the business plans to maintain its
working capital in the following proportions both through 2017 and 2018:
• discussion questions to help you assess your recall

Compare this with someone telling you that they ran five kilometres before coming to class today.
Inventory 10% of sales for the year
8.10 LO2 Would you expect the operating profit margin to be higher or lower than the gross profit margin?
Accounts receivable One-sixth of sales for the year (i.e. a two-month credit period)
What is a good operating profit margin?
Cash 3% of sales for the year
8.11 LO3 Your company’s inventory turnover has increased from 25.5 days to 28.6 days when you compare Accounts payable One-twelh of sales for the year (i.e. a one-month credit period)
of the main principles covered in each chapter

last year’s results to the current year. Is this good? Discuss.
Other current liabilities at the end of 2017 are estimated to be dividends and tax of $900,000.
8.12 LO5 You are contemplating an expansion of your self-funded business with a $300,000 fixed-interest rate
Variable costs in 2017 are expected to be 60% of sales.
bank loan. Is this a good idea?
Fixed costs for 2017 are expected to be $9 million, including $1 million for depreciation.
• application exercises to help you apply and

8.13 LO6 Why does the dividend yield formula divide the dividends amount by (1–t) where t is the corporate An extra amount of approximately $1 million will be spent on advertising in 2018 in order to capture the
tax rate? increased market share.
Capital expenditure/non-current assets

CHALLENGING
The company currently has non-current assets which had cost $12 million, with an associated aggregate
consolidate your understanding of accounting in

8.14 LO1 A classification of ratios that you may encounter is ‘solvency’. Where would solvency ratios fit in with depreciation which is expected to amount to $4 million at the end of 2017. Depreciation is 10% straight line.
the classification system used in this textbook? Which term would be preferred by companies with In order to support the expansion, new equipment will need to be purchased at a cost of $4 million. This is
substantial borrowings, and why? planned to occur at the start of 2018. Depreciation on this will also be at 10% straight line. Some existing assets
will be sold for $60,000. These had originally cost $400,000 and had been depreciated to date by $300,000.
8.15 LO2 Ratios that use values from both the income statement and the balance sheet require the calculation
practice.
of average amounts for the balance sheet amounts. Why is this done, and when will the usual QUESTIONS
method of calculating this average be inappropriate?
1 Explain why preparation of a set of projected 5 State what advantages there might be in using
8.16 LO3 An alternative efficiency measure for collection of credit sales is accounts receivable turnover, financial statements might be useful. spreadsheets to prepare statements of this
Case studies ▶
calculated as credit sales revenue divided by average accounts receivable. This calculation seems to be 2 Make the necessary computations to reflect type.
the reverse of the average settlement period calculation. Are they measuring the same thing? Explain. the plans outlined above, clearly stating any 6 Sensitivity analysis is an analysis in which
8.17 LO7 A criticism of ratio analysis is that it provides only part of the financial picture being reviewed. What assumptions. variables in a decision are changed one at
part of the picture is missing? 3 Comment on the feasibility of the plans, a time, with the view to identifying which
and suggest any courses of action that variables are most important to the success
8.18 LO6 You are keen to use your financial analysis skills in your new job. You want to use the price/earnings of the decision, plan or project. In what
management might take.
These give you real-world examples of accounting

ratio as an indicator of the market’s confidence in the future prospects of a particular company. Your ways might an analysis of this type improve
boss has confused you by asking you to use an earnings yield formula. You can see that he’s got 4 Evaluate the use of the projected financial
your decision-making ability? What kind of
things backwards—upside down actually. What’s going on? statements in terms of efficiency of planning
variables might you examine critically?
and decision-making in the context of this
8.19 LO7 Describe some limitations of the analysis of financial statements. Provide suggested remedies for particular business.
in practice and encourage you to think critically

each of the limitations cited.
M08_ATRI2589_07_SE_C08.indd 333 28/06/17 10:06 AM about accounting issues and controversies. M06_ATRI2589_07_SE_C06.indd 251 28/06/17 10:08 AM
516 ACCOUNTING FOR NON-SPECIALISTS
decisions requires both the science of technical

analysis and the art of managing the behavioural
monopolise management’s mindset, the behavioural
threats will continue to cause more failed
◀ Solutions to activities and concept checks
GLOSSARY
threats but while the technical analysis continues to investments than they should.
Source: Adapted from David Emsley, ‘Evaluating investment decisions’, Australian CPA, October 2002. Reprinted by kind permission
of F. Emsley. These allow you to check your answers to the
QUESTIONS
in-chapter activities.
1 In screening investment proposals, what kind of things might prevent an investment being seriously
A investor company control, but does give it the opportunity to exert
considerable influence. Typically, the ownership is between 20%
considered? ABC system of inventories control A method of applying
and 50%.
different levels of inventories control, based on the value of each
2 Do you consider that strategic decisions can be made by using DCFs? What role do you think DCF category of inventories. audit A process in which a range of activities are checked to
plays in strategic decision-making? ensure that the activities have been completed in accordance with
absorption costing A method of costing in which a ‘fair share’
3 What kind of risks might lead to an investment being rejected even though it has showed a positive a set of rules or guidelines.
of manufacturing/service provision overhead is included when
present value? calculating the cost of a particular product or service. auditors Professionals whose main duty is to make a report as to
accelerated depreciation An approach to the calculation of whether, in their opinion, the accounting statements of a company
4 How might bias or manipulation by sponsoring managers be prevented?
depreciation expense which results in depreciation expenses being do what they are supposed to do; namely, to show a true and
5 It can be argued that decisions are made on strategic lines, with a present value calculation being fair view, and comply with statutory and accounting standard
higher in the early years of an asset’s life than in later years.
used only to confirm the decision. Do you agree? Why/why not? requirements.
accelerated rights issue Rights issues of this type are structured
6 The generation of good ideas, rather than the generation of figures, is the most important part of in two phases, with an initial (accelerated) issue to institutional australian accounting standards board (AASB) Australian body
investment decision-making. Discuss. investors (who will pay quickly), followed by a (non-accelerated) responsible for developing accounting standards for application to
Glossary ▶
issue to the retail (non-institutional) component of the shareholders. Australian entities.
accounting The process of identifying, measuring and australian securities and investments commission (ASIC) The
communicating information to permit informed judgements and government body responsible for regulating companies, company
borrowings, and investment advisers and dealers.
Concept check answers decisions by users of the information.
average inventories turnover period ratio An efficiency ratio
accounting rate of return (ARR) The average accounting profit
CC1 C CC5 E CC9 C CC13 B from an investment, expressed as a percentage of the average that measures the average period for which inventories are held by
This quick reference guide at the end of the

investment made. a business.
CC2 D CC6 D CC10 A CC14 A
accounting standards Rules established by the professional average settlement period for accounts payable ratio An
CC3 E CC7 E CC11 A CC15 E
or statutory accounting bodies, which should be followed by efficiency ratio that measures the average time taken for a business
CC4 A CC8 D CC12 C preparers of the annual accounts of companies. to pay its trade payables.
book helps jog your memory of all those

accruals convention A convention which asserts that profit is the average settlement period for accounts receivable ratio An
excess of revenue over expenses for a period, not the excess of efficiency ratio that measures the average time taken for trade
cash received over cash paid. receivables to pay the amounts owing.
SOLUTIONS TO ACTIVITIES accruals accounting The system of accounting that adheres to

B
important accounting terms and concepts.

the accruals convention. This system is followed in preparing the
statement of financial position and the income statement. bad debts Amounts owed to the business that are considered to
accrued expenses Expenses which are outstanding at the end of be irrecoverable.
ACTIVITY 12.1 the accounting period. balance sheet A statement that shows the assets of a business
acid test ratio A liquidity ratio that relates the liquid assets and the claims on the business. Assets must always equal claims.
(a) The answer is that any decision must be made in the context of the objectives of the business concerned. For a (usually defined as current assets less inventories and prepayments) Claims will relate to external liabilities and owner’s claims (known
private-sector business, this is likely to include increasing the wealth of the owners/shareholders of the business to the current liabilities. as equity).
through long-term profitability. activity-based costing (ABC) A technique for more accurately balanced scorecard Both a management system and a system
(b) Investments such as the Wheatstone project are enormous, and risk may well need to be shared among major relating overheads to specific production or provision of a service. for measuring and reporting performance, which includes
investors. The amounts invested are huge and are often associated with debt financing. This adds another It is based on acceptance of the fact that overheads do not just information relating to financial aspects of the business, business
dimension to the risks involved. occur: they are caused by activities, such as holding products in processes, customers, and learning and growth, thus giving a more
stores, which ‘drive’ the costs. comprehensive (and strategic) view of the business.
When this project was planned, the expected returns would have had a high probability of achievement. However, in bank overdraft A flexible form of borrowing that allows an
adverse variance A difference between planned and actual
the environment of 2016 and 2017, with commodity prices being hammered, cash flows were much lower than individual or business to have a negative current account balance.
performance, where the difference will cause the actual profit to
would ever have been envisaged. Once committed to a project of this size, any ability to bail out, or to scale back, is
be lower than the budgeted one. batch costing A technique for identifying full cost, where the
limited, and probably confined to cost reductions in areas such as staffing and slowing down some of the investment.
ageing schedule of accounts receivable A report dividing production of many types of goods and services, particularly
This project illustrates how very easy it is to invest in optimistic times, and then find that, within a few years, optimism goods, involves producing a batch of identical or nearly identical
accounts receivable into categories, depending on the length of
has changed to pessimism. units of output, but where each batch is distinctly different from
time outstanding.
The Impact Investment Group’s acquisition of the Gold Coast Surgical Hospital raises a number of interesting other batches.
Amortisation The writing-down of an asset—usually an intangible
questions. The first is: is this in the nature of a diversification, or is it consistent with existing businesses under the
asset—as its benefit is used up; the equivalent of depreciation for a board of directors The team of people chosen by the
group’s control? In fact, this investment is in line with Impact’s focus on the acquisition of high-quality properties, non-current asset. shareholders to manage a company on their behalf.
which are then leased to tenants with a socially beneficial bent. This focus on the social and environmental impact of
asset A resource held by a business which has certain characteristics. bonds See loan notes.
each investment is increasingly part of the total investment appraisal process.
The Ryman Healthcare investment is also consistent with this company’s core business. It is the third such associate company A company which is partly owned by bonus shares Reserves which are converted into shares and given
another company, such that the ownership does not give the ‘free’ to shareholders.
development in Melbourne. The question as to long-term yield is also central to the investment decision, plus the
potential for growth. This investment is forecast to provide co-investors with exposure to a growth sector while delivering
a reliable income stream. They are forecast to receive a quarterly tax-effective income distribution of 9.5% per annum.
Z01_ATRI2589_07_SE_GLOS.indd 601 6/21/17 10:39 AM
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FOR STUDENTS xix
RESOURCES FOR STUDENTS AND EDUCATORS
MyLab Accounting for Atrill/McLaney/Harvey
Accounting for Non-Specialists, 7th edition
A guided tour for students and educators
Auto-generated tests
and assignments
Each MyLab™ comes with
pre-loaded assignments, all
of which are automatically
graded and include selected
end-of-chapter questions
and problems from the
textbook.
Unlimited practice
Many Study Plan and
Instructor-assigned
exercises contain algorithms
to ensure students get as
much practice as they need.
As students work through
Study Plan or Homework
exercises, instant feedback
and tutorial resources
guide them towards
understanding.
xx ACCOUNTING FOR NON-SPECIALISTS
MyLab Accounting www.pearsonmylabandmastering.com
Learning resources
To further reinforce
understanding, Study Plan
and Homework problems
link to additional learning
resources.
▶ Step-by-step guided
solutions
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▶ eText linked to sections
for all Study Plan
questions.
Study plan
A Study Plan is generated
from each student’s
results on quizzes and
tests. Students can clearly
see which topics they
have mastered and, more
importantly, which they
need to work on.
RESOURCES xxi
Students
These additional resources are available on MyLab Accounting:
▶ Workbook: Use this as an excellent revision and study tool designed to match
the structure and content of the textbook. This workbook gives you a wide
variety of questions (e.g. multiple choice, true/false, matching, fill in the blanks,
classification and practical questions), as well as a list of the textbook’s chapter
objectives and a chapter overview. Solutions to all the question material are
provided at the end of each chapter.
▶ Solutions to the self-assessment questions (also available on www.pearson.com.

au/9781488612589).
Educator
A suite of resources is provided to assist with delivery of the content, as well as to
support teaching and learning.
Solutions Manual
The Solutions Manual provides educators with detailed, accuracy-verified solutions to
in-chapter and end-of-chapter problems in the book.
Test Bank
The Test Bank provides a wealth of accuracy-verified testing material. Updated for
the new edition, each chapter offers a wide variety of question types, arranged by
learning objective and tagged by AACSB standards. Questions can be integrated into
Blackboard or Moodle Learning Management Systems.
Lecture Slides
A comprehensive set of PowerPoint slides can be used by educators for class
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All the diagrams and tables from the course content are available for lecturer use.
xxii ACCOUNTING FOR NON-SPECIALISTS
CHAPTER 1
INTRODUCTION TO ACCOUNTING
LEARNING OBJECTIVES
When you have completed your study of this chapter you should be able to:
LO1 Explain the nature and role of accounting

LO2 List the main groups that use the accounting reports of a business entity, and
summarise the different uses that can be made of accounting information
LO3 Compare and contrast financial and management accounting
LO4 Identify the main purpose of a business (while recognising a range of other
influences), and explain the traditional risk–return relationship
LO5 Provide an overview of the main financial reports prepared by a business
LO6 Outline the main types of business ownership, describe the way in which a business
is typically organised and managed, and explain the importance of accounting in
a business context
LO7 Identify ways in which business and accounting have been changing, together
with some current issues confronting businesses and their associated reporting,
including current thinking on ethics in business
LO8 Explain why accounting information is generally considered to be useful, and why
you need to know the basics of accounting.
People need economic information to help them make decisions and judgements about businesses. Whether
we are talking about a business manager making decisions about the most appropriate level of production, a
bank manager responding to a request from the business for a bank loan, or trade unionists deciding how
much pay increase to seek for their members, accounting information should help them with their decision.
In this opening chapter we begin by considering the roles of accounting. As we shall see, accounting can be
a valuable tool in the decision-making, planning and control process. We shall identify those people who are
the main users of accounting and financial information, and discuss the ways in which this information can
improve the quality of decisions that they make. In subsequent chapters, we develop this decision-making
theme by considering in some detail the kinds of financial reports and methods used to aid decision-making.
Since this book is mainly concerned with accounting and financial decision-making for private-sector
businesses, we shall devote some time to examining the business environment. We shall, therefore,
consider the key financial purpose of a private-sector business, the main forms of business enterprise
and the ways in which a business may be structured, organised and managed. These are all important
as they help to shape the kind of accounting and financial information that is produced.
Finally, we shall consider how business is changing and identify key issues regarding stakeholder interests,
ethics and sustainability. These issues have considerable implications for the public perception of business,
for businesses themselves, and for accountants and their measurement and reporting systems. Some of
these issues are difficult and not easily resolved, but they are issues that you need to be aware of.
2 ACCOUNTING FOR NON-SPECIALISTS
ACCOUNTING AND YOU

MAKING DECISIONS
So how do you make decisions?
• What kind of decisions do you need to make?

• How important is economic information in your decision-making?
• How do you deal with numbers and quantitative information?
• Are you comfortable with these areas, or are there areas with which you are uncomfortable?
Let us consider the kind of decisions that are commonly made at some stage of our lives.
• Keeping expenditure in line with income—something just about every student will wrestle with.
• Buying new things—these might include buying simple things like a new mobile phone, or a new
vehicle, whether an old banger or a new BMW, or a really major decision, such as buying a home.
• Starting a new business venture, either on your own or in collaboration with others.
• Investing for the future in shares or government bonds.
All of these decisions will require you to collect information, much of which can be classified as
economic. Economic information is largely quantitative. The typical economic decision involves
choosing the best outcome for you, given that your resources are scarce.
None of what has been said to date should imply that decisions are made solely on economic lines.
Many decisions are based on things such as personal preference, family considerations, a sense of duty
or aesthetics, with a few people even using the stars to assist! However, many decisions have a clear
economic orientation, and accounting can help with these decisions.
So what information do you need to keep your expenditure in line with income? You will probably
need a clear understanding of your income, its amount and nature. You will also need to have a clear
understanding of your spending patterns, and you will almost certainly need to differentiate between
ongoing regular expenditure and one-off expenditure.
Decisions to buy new things may be relatively easy, such as buying a new phone, which may well be
bought out of normal spending. Decisions about major assets, such as the purchase of a home, will
require much more careful information gathering and analysis. This analysis will probably include
ideas around how the asset will be funded.
Decisions regarding potential business ventures also require substantial data collection and
analysis. Your future lifestyle is likely to be substantially influenced by the success or failure of a
venture of this type. The analysis will need to contain information about markets and competition, as
well as specifics regarding the particular business.
Decisions regarding the possible purchase of new shares or bonds will require the collection of
relevant data. In the case of shares, this will probably mean detailed information about the past
performance of the company and estimates of its future prospects.
Clearly, any decision that has an economic element will require substantial economic information.
Basically, the role of the accounting system is to provide much of that information. The system cannot
and does not attempt to cover all economic input, but essentially focuses on the collection, recording
and reporting of key economic data as they relate to a particular individual or entity. Just what
information is covered is the subject of this book.
You may not be comfortable with numbers and quantified information. However, it is difficult for
an entity to be successful without having someone who does understand and can communicate such
information. So good luck with your studies.
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other, and would very naturally be spoken of as near neighbors. The most weighty
argument, however, rests on a passage in Mark vi. 45, where it is said that Jesus
constrained his disciples to “get into a vessel, to go before him to the other side unto
Bethsaida,” after the five thousand had been fed. Now the parallel passage in John vi. 17,
says that they, following this direction, “went over the sea towards Capernaum,” and that
when they reached the shore, “they came into the land of Gennesaret,” both which are
understood to be on the western side. But on the other hand, we are distinctly told, by Luke,
(ix. 10,) that the five thousand were fed in “a desert place, belonging to (or near) the city
which is called Bethsaida.” On connecting these two passages, therefore, (in John and
Mark,) according to the common version, the disciples sailed from Bethsaida on one side, to
Bethsaida on the other, a construction which has been actually adopted by those who
maintain the existence of two cities of the same name on different sides of the lake. But
what common reader is willing to believe, that in this passage Luke refers to a place totally
different from the one meant in all other passages where the name occurs, and more
particularly in the very next chapter, (x. 13,) where he speaks of the Bethsaida which had
been frequented before by Jesus, without a word of explanation to show that it was a
different place? But in the expression, “to go before him to the other side, to Bethsaida,” the
word “to” may be shown, by a reference to the Greek, to convey an erroneous idea of the
situation of the places. The preposition προς, (pros,) may have, not merely the sense of to,
with the idea of motion towards a place, but in some passages even of Mark’s gospel, may
be most justly translated “near,” or “before,” (as in ii. 2, “not even about” or “before” the
door, and in xi. 4, “tied by” or before “the door.”) This is the meaning which seems to be
justified by the collocation here, and the meaning in which I am happy to find myself
supported by the acute and accurate Wahl, in his Clavis Novi Testamenti under προς, which
he translates in this passage by the Latin juxta, prope ad; and the German bey, that is, “by,”
“near to,” a meaning supported by the passage in Herodotus, to which he refers, as well as
by those from Mark himself, which are given above, from Schleusner’s references under
this word, (definition 7.) Scott, in order to reconcile the difficulties which he saw in the
common version, has, in his marginal references, suggested the meaning of “over against,”
a rendering, which undoubtedly expresses correctly the relations of objects in this place,
and one, perhaps, not wholly inconsistent with Schleusner’s 7th definition, which is in Latin
ante, or “before;” since what was before Bethsaida, as one looked from that place across
the river, was certainly opposite to that city. I had thought of this meaning as a desirable one
in this passage, but had rejected it, before I saw it in Scott, for the reason, that I could not
find this exact meaning in any lexicon, nor was there any other passage in Greek, in which
this could be distinctly recognized as the proper one. The propriety of the term, however, is
also noticed, in the note on this passage in the great French Bible, with commentaries,
harmonies, &c. (Sainte Bible en Latin et Francois avec des notes, &c. Vol. xiv. p. 263, note,)
where it is expressed by “l’autre cote du lac, vis-a-vis Bethsaide: c. a. d. sur le bord
occidental opposé a la ville Bethsaide que etait sur le bord oriental,” a meaning undoubtedly
geographically correct, but not grammatically exact, and I therefore prefer to take “near,” as
the sense which both reconciles the geographical difficulties, and accords with the
established principles of lexicography.
After all, the sense “to” is not needed in this passage, to direct the action of the verb of
motion (προαγειν, proagein, “go before,”) to its proper object, since that is previously done by
the former preposition and substantive, εις το περαν, (eis to peran.) That is, when we read
“Jesus constrained his disciples to go before him,” and the question arises in regard to the
object towards which the action is directed, “Whither did he constrain them to go before
him?” the answer is in the words immediately succeeding, εις το περαν, “to the other side,”
and in these words the action is complete; but the mere general direction, “to the other
side,” was too vague of itself, and required some limitation to avoid error; for the place to
which they commonly directed their course westward, over the lake, was Capernaum, the
home of Jesus, and thither they might on this occasion be naturally expected to go, as we
should have concluded they did, if nothing farther was said; therefore, to fix the point of their
destination, we are told, in answer to the query, “To what part of the western shore were
they directed to go?” “To that part which was near or opposite to Bethsaida.” The objection
which may arise, that a place on the western side could not be very near to Bethsaida on
the east, is answered by the fact that this city was separated from the western shore, not by
the whole breadth of the lake, but simply by the little stream of Jordan, here not more than
twenty yards wide, so that a place on the opposite side might still be very near the city. And
this is what shows the topographical justness of the term, “over against,” given by Scott,
and the French commentator, since a place not directly across or opposite, but down the
western shore, in a south-westerly direction, as Capernaum was, would not be very near
Bethsaida, nor much less than five miles off. Thus is shown a beautiful mutual illustration of
the literal and the liberal translations of the word.
Macknight ably answers another argument, which has been offered to defend the
location of Bethsaida on the western shore, founded on John vi. 23. “There came other
boats from Tiberias, nigh unto the place where they did eat bread,” as if Tiberias had been
near the desert of Bethsaida, and consequently near Bethsaida itself. “But,” as Macknight
remarks, “the original, rightly pointed, imports only, that boats from Tiberias came into some
creek or bay, nigh unto the place where they did eat bread.” Besides, it should be
remembered that the object of those who came in the boats, was to find Jesus, whom they
expected to find “nigh the place where they ate bread,” as the context shows; so that these
words refer to their destination, and not to the place from which they came. Tiberias was
down the lake, at the south-western corner of it, and I know of no geographer who has put
Bethsaida more than half way down, even on the western shore. The difference, therefore,
between the distance to Bethsaida on the west and to Bethsaida on the east, could not be
at most above a mile or two, a matter not to be appreciated in a voyage of sixteen miles,
from Tiberias, which cannot be said to be near Bethsaida, in any position of the latter that
has ever been thought of. This objection, of course, is not offered at all, by those who
suppose two Bethsaidas mentioned in the gospels, and grant that the passage in Luke ix.
10, refers to the eastern one, where they suppose the place of eating bread to have been;
but others, who have imagined only one Bethsaida, and that on the western side, have
proposed this argument; and to such the reply is directed.
For all these reasons, topographical, historical and grammatical, the conclusion of the
whole matter is――that there was but one Bethsaida, the same place being meant by that
name in all passages in the gospels and in Josephus――that this place stood within the
verge of Lower Gaulanitis, on the bank of the Jordan, just where it passes into the
lake――that it was in the dominions of Philip the tetrarch, at the time when it is mentioned
in the gospels, and afterwards was included in the kingdom of Agrippa――that its original
Hebrew name, (from ‫ בית‬beth, “house,” and ‫צדה‬, tsedah, “hunting, or fishing,” “a house of
fishing,” no doubt so called from the common pursuit of its inhabitants,) was changed by
Philip into Julias, by which name it was known to Greeks and Romans.
By this view, we avoid the undesirable notion, that there are two totally different places
mentioned in two succeeding chapters of the same gospel, without a word of explanation to
inform us of the difference, as is usual in cases of local synonyms in the New Testament;
and that Josephus describes a place of this name, without the slightest hint of the
remarkable fact, that there was another place of the same name, not half a mile off, directly
across the Jordan, in full view of it.
The discussion of the point has been necessarily protracted to a somewhat tedious
length; but if fewer words would have expressed the truth and the reasons for it, it should
have been briefer; and probably there is no reader who has endeavored to satisfy himself
on the position of Bethsaida, in his own biblical studies, that will not feel some gratitude for
what light this note may give, on a point where all common aids and authorities are in such
monstrous confusion.
For the various opinions and statements on this difficult point, see Schleusner’s,
Bretschneider’s and Wahl’s Lexicons, Lightfoot’s Chorographic century and decade,
Wetstein’s New Testament commentary on Matthew iv. 12, Kuinoel, Rosenmueller,
Fritzsche, Macknight, &c. On the passages where the name occurs, also the French
Commentary above quoted,――more especially in Vol. III. Remarques sur le carte
geographique section 7, p. 357. Paulus’s “commentar ueber das neue Testament,” 2d
edition, Vol. II. pp. 336‒342. Topographische Erlaeuterungen.
Lake Gennesaret.――This body of water, bearing in the gospels the various names of
“the sea of Tiberias,” and “the sea of Galilee,” as well as “the lake of Gennesaret,” is formed
like one or two other smaller ones north of it, by a widening of the Jordan, which flows in at
the northern end, and passing through the middle, goes out at the southern end. On the
western side, it was bounded by Galilee proper, and on the east was the lower division of
that portion of Iturea, which was called Gaulanitis by the Greeks and Romans, from the
ancient city of Golan, (Deuteronomy iv. 43; Joshua xx. 8, &c.) which stood within its limits.
Pliny (book I. chapter 15,) well describes the situation and character of the lake. “Where the
shape of the valley first allows it, the Jordan pours itself into a lake which is most commonly
called Genesara, sixteen (Roman) miles long, and six broad. It is surrounded by pleasant
towns; on the east, it has Julias (Bethsaida) and Hippus; on the south, Tarichea, by which
name some call the lake also; on the west, Tiberias with its warm springs.” Josephus also
gives a very clear and ample description. (Jewish War, book 3, chapter 9, section 7.) “Lake
Gennesar takes its name from the country adjoining it. It is forty furlongs (about five or six
miles) in width, and one hundred and forty (seventeen or eighteen miles) in length; yet the
water is sweet, and very desirable to drink; for it has its fountain clear from swampy
thickness, and is therefore quite pure, being bounded on all sides by a beach, and a sandy
shore. It is moreover of a pleasant temperature to drink, being warmer than that of a river or
a spring, on the one hand, but colder than that which stands always expanded over a lake.
In coldness, indeed, it is not inferior to snow, when it has been exposed to the air all night,
as is the custom with the people of that region. In it there are some kinds of fish, different
both in appearance and taste from those in other places. The Jordan cuts through the
middle of it.” He then gives a description of the course of the Jordan, ending with the remark
quoted in the former note, that it enters the lake at the city of Julias. He then describes, in
glowing terms, the richness and beauty of the country around, from which the lake takes its
name,――a description too long to be given here; but the studious reader may find it in
section eighth of the book and chapter above referred to. The Rabbinical writers too, often
refer to the pre-eminent beauty and fertility of this delightful region, as is shown in several
passages quoted by Lightfoot in his Centuria Chorographica, chapter 79. The derivation of
the name there given from the Rabbins, is ‫גני סרים‬, ginne sarim, “the gardens of the princes.”
Thence the name genne-sar. They say it was within the lands of the tribe of Naphtali; it must
therefore have been on the western side of the lake, which appears also from the fact that it
was near Tiberias, as we are told on the same authority. It is not mentioned in the Old
Testament under this name, but the Rabbins assure us that the place called Cinnereth, in
Joshua xx. 35; Chinneroth in xi. 2, is the same; and this lake is mentioned in xiii. 27, under
the name of “the sea of Chinnereth,”――“the sea of Chinneroth,” in xii. 3, &c.
The best description of the scenery, and present aspect of the lake, which I can find, is
the following from Conder’s Modern Traveler, Vol. 1. (Palestine) a work made up with great
care from the observations of a great number of intelligent travelers.
“The mountains on the east of Lake Tiberias, come close to its shore, and the country on
that side has not a very agreeable aspect; on the west, it has the plain of Tiberias, the high
ground of the plain of Hutin, or Hottein, the plain of Gennesaret, and the foot of those hills
by which you ascend to the high mountain of Saphet. To the north and south it has a plain
country, or valley. There is a current throughout the whole breadth of the lake, even to the
shore; and the passage of the Jordan through it, is discernible by the smoothness of the
surface in that part. Various travelers have given a very different account of its general
aspect. According to Captain Mangles, the land about it has no striking features, and the
scenery is altogether devoid of character. ‘It appeared,’ he says, ‘to particular disadvantage
to us, after those beautiful lakes we had seen in Switzerland; but it becomes a very
interesting object, when you consider the frequent allusions to it in the gospel narrative.’ Dr.
Clarke, on the contrary, speaks of the uncommon grandeur of this memorable scenery. ‘The
lake of Gennesaret,’ he says, ‘is surrounded by objects well calculated to highten the
solemn impression,’ made by such recollections, and ‘affords one of the most striking
prospects in the Holy Land. Speaking of it comparatively, it may be described as longer and
finer than any of our Cumberland and Westmoreland lakes, although perhaps inferior to
Loch Lomond. It does not possess the vastness of the Lake of Geneva, although it much
resembles it in certain points of view. In picturesque beauty, it comes nearest to the Lake of
Locarno, in Italy, although it is destitute of any thing similar to the islands by which that
majestic piece of water is adorned. It is inferior in magnitude, and in the hight of its
surrounding mountains, to the Lake Asphaltites.’ Mr. Buckingham may perhaps be
considered as having given the most accurate account, and one which reconciles, in some
degree, the different statements above cited, when, speaking of the lake as seen from Tel
Hoom, he says, ‘that its appearance is grand, but that the barren aspect of the mountains
on each side, and the total absence of wood, give a cast of dulness to the picture; this is
increased to melancholy, by the dead calm of its waters, and the silence which reigns
throughout its whole extent, where not a boat or vessel of any kind is to be found.’
“Among the pebbles on the shore, Dr. Clarke found pieces of a porous rock, resembling
toad-stone, its cavities filled with zeolite. Native gold is said to have been found here
formerly. ‘We noticed,’ he says, ‘an appearance of this kind; but, on account of its trivial
nature, neglected to pay proper attention to it. The water was as clear as the purest crystal;
sweet, cool, and most refreshing. Swimming to a considerable distance from the shore, we
found it so limpid that we could discern the bottom covered with shining pebbles. Among
these stones was a beautiful, but very diminutive, kind of shell; a nondescript species of
Buccinum, which we have called Buccinum Galilæum. We amused ourselves by diving for
specimens; and the very circumstance of discerning such small objects beneath the
surface, may prove the high transparency of the water.’ The situation of the lake, lying as it
were in a deep basin between the hills which enclose it on all sides, excepting only the
narrow entrance and outlets of the Jordan, at either end, protects its waters from long-
continued tempests. Its surface is in general as smooth as that of the Dead Sea; but the
same local features render it occasionally subject to whirlwinds, squalls, and sudden gusts
from the mountains, of short duration, especially when the strong current formed by the
Jordan, is opposed by a wind of this description, from the south-east; sweeping from the
mountains with the force of a hurricane, it may easily be conceived that a boisterous sea
must be instantly raised, which the small vessels of the country would be unable to resist. A
storm of this description is plainly denoted by the language of the evangelist, in recounting
one of our Lord’s miracles. ‘There came down a storm of wind on the lake, and they were
filled with water, and were in jeopardy.... Then he arose, and rebuked the wind and the
raging of the water; and they ceased, and there was a calm.’ (Luke viii. 23, 24.)”
The question of Peter’s being the oldest son of his father has
been already alluded to, and decided by the most ancient authority,
in favor of the opinion, that he was younger than Andrew. There
surely is nothing unparalleled or remarkable in the fact, that the
younger brother should so transcend the elder in ability and
eminence; since Scripture history furnishes us with similar instances
in Jacob, Judah and Joseph, Moses, David, and many others
throughout the history of the Jews, although that nation generally
regarded the rights of primogeniture with high reverence and
respect.
his introduction to jesus.
The earliest passage in the life of Peter, of which any record can
be found, is given in the first chapter of John’s Gospel. In this, it
appears that Peter and Andrew were at Bethabara, a place on the
eastern bank of the Jordan, more than twenty miles south of their
home at Bethsaida, and that they had probably left their business for
a time, and gone thither, for the sake of hearing and seeing John the
Baptist, who was then preaching at that place, and baptizing the
penitent in the Jordan. This great forerunner of the Messiah, had
already, by his strange habits of life, by his fiery eloquence, by his
violent and fearless zeal in denouncing the spirit of the times,
attracted the attention of the people, of all classes, in various and
distant parts of Palestine; and not merely of the vulgar and
unenlightened portion of society, who are so much more susceptible
to false impressions in such cases, but even of the well taught
followers of the two great learned sects of the Jewish faith, whose
members flocked to hear his bold and bitter condemnation of their
precepts and practices. So widely had his fame spread, and so
important were the results of his doctrine considered, that a
deputation of priests and Levites was sent to him, from Jerusalem,
(probably from the Sanhedrim, or grand civil and religious council,) to
inquire into his character and pretensions. No doubt a particular
interest was felt in this inquiry, from the fact that there was a general
expectation abroad at that time, that the long-desired restorer of
Israel was soon to appear; or, as expressed by Luke, there were
many “who waited for the consolation of Israel,” and “who in
Jerusalem looked for redemption.” Luke also expressly tells us, that
the expectations of the multitude were strongly excited, and that all
men mused in their hearts whether he were the Christ or not. In the
midst of this general notion, so flattering, and so tempting to an
ambitious man, John vindicates his honesty and sincerity, by
distinctly declaring to the multitude, as well as to the deputation, that
he was not the Christ, and claimed for himself only the comparatively
humble name and honors of the preparer of the way for the true king
of Israel. This distinct disavowal, accompanied by the solemn
declaration, that the true Messiah stood at that moment among
them, though unknown in his real character, must have aggravated
public curiosity to the highest pitch, and caused the people to await,
with the most intense anxiety, the nomination of this mysterious king,
which John was expected to make. Need we wonder, then, at the
alacrity and determination with which the two disciples of John, who
heard this announcement, followed the footsteps of Jesus, with the
object of finding the dwelling place of the Messiah, or at the deep
reverence with which they accosted him, giving him at once the
highest term of honor which a Jew could confer on the wise and
good,――“Rabbi,” or master? Nor is it surprising that Andrew, after
the first day’s conversation with Jesus, should instantly seek out his
beloved and zealous brother, and tell him the joyful and exciting
news, that they had found the Messiah. The mention of this fact was
enough for Simon, and he suffered himself to be brought at once to
Jesus. The salutation with which the Redeemer greeted the man
who was to be the leader of his consecrated host, was strikingly
prophetical and full of meaning. His first words were the annunciation
of his individual and family name, (no miracle, but an allusion to the
hidden meaning of his name,) and the application of a new one, by
which he was afterwards to be distinguished from the many who
bore his common name. All these names have a deeply curious and
interesting meaning. Translating them all from their original Aramaic
forms, the salutation will be, “Thou art a hearer, the son of divine
grace――thou shalt be called a rock.” The first of these names
(hearer) was a common title in use among the Jews, to distinguish
those who had just offered themselves to the learned, as desiring
wisdom in the law; and the second was applied to those who, having
past the first probationary stage of instruction, were ranked as the
approved and improving disciples of the law, under the hopeful title
of the “sons of divine grace.” The third, which became afterwards the
distinctive individual name of this apostle, was given, no doubt, in
reference to the peculiar excellences of his natural genius, which
seems to be thereby characterized as firm, unimpressible by
difficulty, and affording fit materials for the foundation of a mighty and
lasting superstructure.
The name Simon, ‫ שמונ‬was a common abridgment of Simeon, ‫ שמעונ‬which means a
hearer, and was a term applied technically as here mentioned. (For proofs and illustrations,
see Poole’s Synopsis and Lightfoot.) The technical meaning of the name Jonah, given in
the text, is that given by Grotius and Drusius, but Lightfoot rejects this interpretation,
because the name Jonah is not fairly derived from ‫( יוחנא‬which is the name corresponding to
John,) but is the same with that of the old prophet so named, and he is probably right in
therefore rejecting this whimsical etymology and definition.
With this important event of the introduction of Simon to Jesus,

and the application of his new and characteristic name, the life of
Peter, as a follower of Christ, may be fairly said to have begun; and
from this arises a simple division of the subject, into the two great
natural portions of his life; first, in his state of pupilage and
instruction under the prayerful, personal care of his devoted Master,
during his earthly stay; and second, of his labors in the cause of his
murdered and risen Lord, as his preacher and successor. These two
portions of his life may be properly denominated his discipleship and
his apostleship; or perhaps still better, Peter the learner, and Peter
the teacher.
THE FORDS OF THE JORDAN.
I. PETER’S DISCIPLESHIP;
OR,
PETER THE LEARNER AND FOLLOWER.
After his first interview with Christ, Peter seems to have returned
to his usual business, toiling for his support, without any idea
whatever of the manner in which his destiny was connected with the
wonderful being to whom he had been thus introduced. We may
justly suppose, indeed, that being convinced by the testimony of
John, his first religious teacher and his baptizer, and by personal
conversation with Jesus, of his being the Messiah, that he afterwards
often came to him, (as his home was near the Savior’s,) and heard
him, and saw some of the miracles done by him. “We may take it for
granted,” as Lardner does, “that they were present at the miracle at
Cana of Galilee, it being expressly said that Jesus and his disciples
were invited to the marriage solemnity in that place, as described in
the second chapter of John’s gospel. It is also said in the same
chapter, ‘this beginning of miracles did Jesus in Cana of Galilee, and
manifested forth his glory; and his disciples believed on him;’ that is,
were confirmed in the persuasion that he was the Messiah.” And
among the disciples of Jesus, Simon and his brother were evidently
numbered, from the time when they received their first introduction to
him, and were admitted to the honors of an intimate acquaintance.
The formal manner in which Jesus saluted Simon, seems to imply
his adoption, or nomination at least, as a disciple, by referring to the
remarkable coincidence of meaning between his name and the
character of a hopeful learner in the school of divine knowledge. Still
the two brothers had plainly received no appointment which
produced any essential change in their general habits and plans of
life, for they still followed their previous calling, quietly and
unpretendingly, without seeming to suppose, that the new honors
attained by them had in any way exempted them from the necessity
of earning their daily bread by the sweat of their brow. To this they
devoted themselves, laboring along the same sea of Galilee, whose
waters and shores were the witnesses of so many remarkable
scenes of the life of Christ. Yet their business was not of such a
character as to prevent their enjoying occasional interviews with their
divine master, whose residence by the lake, and walks along its
shores, must have afforded frequent opportunities for cultivating or
renewing an acquaintance with those engaged on its waters. There
is nothing in the gospel story inconsistent with the belief, that Jesus
met his disciples, who were thus occupied, on more occasions than
one; and had it been the Bible plan to record all the most interesting
details of his earthly life, many instructive accounts might, no doubt,
have been given of the interviews enjoyed by him and his destined
messengers of grace to the world. But the multiplication of such
narratives, however interesting the idea of them may now seem,
would have added no essential doctrine to our knowledge, even if
they had been so multiplied as that, in the paradoxical language of
John, the whole world could not contain them; and the necessary
result of such an increased number of records, would have been a
diminished valuation of each. As it is, the scripture historical canon
secures our high regard and diligent attention, and its careful
examination, by the very circumstance of its brevity, and the wide
chasms of the narrative;――like the mysterious volumes of the
Cumaean Sybil, the value of the few is no less than that of the many,
the price of each increasing in proportion as the number of the whole
diminishes. Thus in regard to this interesting interval of Peter’s life,
we are left to the indulgence of reasonable conjecture, such as has
been here mentioned.
The next direct account given in the Bible, of any event

immediately concerning him, is found in all the first three gospels. It
is thought by some, that his father Jonah was now dead; for there is
no mention of him, as of Zebedee, when his two sons were called.
This however is only a mere conjecture, and has no more certainty
than that he had found it convenient to make his home elsewhere, or
was now so old as to be prevented from sharing in this laborious and
perilous occupation, or that he had always obtained his livelihood in
some other way; though the last supposition is much less accordant
with the well-known hereditary succession of trades, which was
sanctioned by almost universal custom throughout their nation.
However, it appears that if still alive, their connection with him was
not such as to hinder them a moment in renouncing at once all their
former engagements and responsibilities, at the summons of Christ.
Jesus was at this time residing at Capernaum, which is said by
Matthew to be by the sea-coast, better translated “shore of the lake;”
for it is not on the coast of the Mediterranean, as our modern use of
these terms would lead us to suppose, but on the shore of the small
inland lake Tiberias, or sea of Galilee, as it was called by the Jews,
who, with their limited notions of geography, did not draw the nice
distinctions between large and small bodies of water, which the more
extended knowledge of some other nations of antiquity taught them
to make. Capernaum was but a few miles from Bethsaida, on the
other side of the lake, and its nearness would often bring Jesus in
his walks, by the places where these fishermen were occupied, in
whichever of the two places they at that time resided. On one of
these walks he seems to have given the final summons, which called
the first four of the twelve from their humble labors to the high
commission of converting the world.
Capernaum.――Though no one has ever supposed that there were two places bearing
this name, yet about its locality, as about many other points of sacred topography, we find
that “doctors disagree,” though in this case without any good reason; for the scriptural
accounts, though so seldom minute on the situations of places, here give us all the
particulars of its position, as fully as is desirable or possible. Matthew, (iv. 13,) tells us, that
Capernaum was upon “the shore of the lake, on the boundaries of Zebulon and Naphtali.” A
reference to the history of the division of territory among these tribes, (Joshua xix.) shows
that their possessions did not reach the other side of the water, but were bounded on the
east by Jordan and the lake, as is fully represented in all the maps of Palestine. Thus, it is
made manifest, that Capernaum must have stood on the western shore of the lake, where
the lands of Zebulon and Naphtali bordered on each other. Though this boundary line
cannot be very accurately determined, we can still obtain such an approximation, as will
enable us to fix the position of Capernaum on the northern end of the western side of the
lake, where most of the maps agree in placing it; yet some have very strangely put it on the
eastern side. The maps in the French bible, before quoted, have set it down at the mouth of
the Jordan, in the exact place where Josephus has so particularly described Bethsaida as
placed. Lightfoot has placed it on the west, but near the southern end; and all the common
maps differ considerably as to its precise situation, of which indeed we can only give a
vague conjecture, except that it must have been near the northern end. Conder (Modern
Traveler, Palestine,) gives the following account of modern researches after its site, among
the ruins of various cities near the lake.
“With regard to Chorazin, Pococke says, that he could find nothing like the name, except
at a village called Gerasi, which is among the hills west of the village called Telhoue, in the
plain of Gennesaret. Dr. Richardson, in passing through this plain, inquired of the natives
whether they knew such a place as Capernaum? They immediately rejoined, ‘Cavernahum
wa Chorasi, they are quite near, but in ruins.’ This evidence sufficiently fixes the proximity of
Chorazin to Capernaum, in opposition to the opinion that it was on the east side of the lake;
and it is probable that the Gerasi of Pococke is the same place, the orthography only being
varied, as Dr. Richardson’s Chorasi.”
his call.
In giving the minute details, we find that Luke has varied widely
from Matthew and Mark, in many particulars. Taking the accounts
found in each gospel separately, we make out the following three
distinct stories.
1. Matthew, in his fourth chapter, says that Jesus, after leaving

Nazareth, came and dwelt at Capernaum, where he began the great
work for which he came into the world,――preaching repentance
and making known the near approach of the reign of heaven on
earth. In pursuance of this great object, it would seem that he went
forth from the city which he made his home, and walked by the sea
of Galilee, not for the sake of merely refreshing his body with the
fresh air of that broad water, when languid with the confinement and
closeness of the town, but with the higher object of forwarding his
vast enterprise. On this walk he saw two brothers, Simon and
Andrew, casting their net, or rather seine, into the sea; for they were
fishermen by trade, and not merely occupied in this as an occasional
employment, by way of diversion in the intervals of higher business.
Jesus directly addressed them in a tone of unqualified command,
“Follow me, and I will make you fishers of men.” And they, without
questioning his authority or his purpose, immediately left their
business at its most interesting and exciting part, (just at the drawing
of the net,) and followed him, as it here seems at once, through
Galilee, on his pilgrimage of mercy and love. Matthew gives no other
particulars whatever, connected with the call of these two brothers;
and had we been left to obtain the whole gospel-history from him
alone, we should have supposed that, before this, Peter had no
acquaintance, of a personal character at least, with Jesus; and that
the call was made merely in a private way, without the presence of
any other than ordinary accidental witnesses. From Matthew we hear
nothing further respecting Peter, until his name is mentioned in the
apostolic list, in the tenth chapter, except the mention in chapter
eighth, of the illness of his mother in-law at his house. But the other
gospel-writers give us many interesting and important particulars in
addition, which throw new light on the previous circumstances, the
manner and the consequences of the call.
2. Mark, in his first chapter, makes it appear as if, immediately

after the temptation of Christ, and before his entrance into
Capernaum, he met and summoned the two pairs of brothers, of
which call the immediate circumstances are given there, in words
which are a very literal transcript of those of Matthew, with hardly the
slightest addition. But the events which followed the summons are
given in such a manner, as to convey an impression quite different
from that made by Matthew’s brief and simple narrative. After the
call, they, both Jesus and his four disciples, entered into
Capernaum, of which place Mark has before made no mention; and
going at once into the synagogue, Jesus preached, and confirmed
the wonderful authority with which he spoke, before the face of the
people, by the striking cure of a demoniac. From the synagogue he
went to the house of Simon and Andrew, by which it appears that
they already resided in Capernaum. Here a new occasion was given
for the display of the power and benevolence of the Messiah, in the
case of Simon’s mother-in-law, who, laboring under an attack of
fever, was instantly entirely relieved, upon the word of Jesus. This
event is given by Matthew in a totally different connection. Very early
in the next morning, Jesus retired to a neighboring solitude, to enjoy
himself in meditation apart from the busy scenes of the sabbath, in
which the fame of his power had involved him the evening before. To
this place, Simon and those with him, no doubt his brother and the
sons of Zebedee merely, (already it would seem so well acquainted
with their great master as to know his haunts,) followed him, to make
known to him the earnest wish of the admiring people for his
presence among them. Jesus then went out with them through the
villages of Galilee, in the earnest performance of the work for which
he came. It is not till this place, in the story of the leper healed, that
the statements of Matthew and Mark again meet and coincide. Mark
evidently makes significant additions to the narrative, and gives us a
much more definite and decided notion of the situation and conduct
of those concerned in this interesting transaction.
3. Luke has given us a view of the circumstances, very different,

both in order and number, as well as character, from those of the
former writers. His account of the first call of the disciples, seems to
amount to this; giving the events in the order in which he places
them in his fourth and fifth chapters. The first mention which is here
made of Simon, is in the end of the fourth chapter, where his name is
barely mentioned in connection with the account of the cure of his
mother-in-law, which is brought in without any previous allusion to
any disciple, but is placed in other respects, in the same connection
as in Mark’s narrative. After a full account of this case, which is given
with the more minuteness, probably from the circumstance that this
writer was himself a physician, he goes on to relate the particulars of
Simon’s call, in the beginning of the fourth chapter, as if it was a
subsequent event. The general impression from the two preceding
narratives, would naturally be, that Jesus went out on his walk by the
shore of the lake, by himself, without any extraordinary attendance.
But it now appears, that as he stood on the shore, he was beset by
an eager multitude, begging to hear from him the word of God. On
this, casting his eyes about for some convenient place to address
them, he noticed two fishing vessels drawn up near him by the
shore, and the owners disembarked from them, engaged in washing
their nets. He then first spoke to Simon, after going on board of his
boat, to beg him to push off again a little from the land, and his
request being granted, he sat down, and from his seat in the boat,
taught the multitude gathered on the shore. After the conclusion of
his discourse, perhaps partly, or in some small measure, with the
design of properly impressing his hearers by a miracle, with the idea
of his authority to assume the high bearing which so characterized
his instructions, and which excited so much astonishment among
them, he urged Simon to push out still further into deep water, and to
open his nets for a draught. Simon, evidently already so favorably
impressed respecting his visitor, as to feel disposed to obey and
gratify him, did according to the request, remarking, however, that as
he had toiled all night without catching any thing, he opened his net
again only out of respect to his Divine Master, and not because, after
so many fruitless endeavors, so long continued, it was reasonable to
hope for the least success. Upon drawing in the net, it was found to
be filled with so vast a number of fishes, that having been used
before its previous rents had been entirely mended, it broke with the
unusual weight. They then made known the difficulty to their friends,
the sons of Zebedee, who were in the other boat, and were obliged
to share their burden between the two vessels, which were both so
overloaded with the fishes as to be in danger of sinking. At this
event, so unexpected and overwhelming, Simon was seized with
mingled admiration and awe; and reverently besought Jesus to
depart from a sinful man, so unworthy as he was to be a subject of
benevolent attention from one so mighty and good. As might be
expected, not only Peter, but also his companions,――the sons of
Zebedee,――were struck with a miracle so peculiarly impressive to
them, because it was an event connected with their daily business,
and yet utterly out of the common course of things. But Jesus
soothed their awe and terror into interest and attachment, by telling
Simon that henceforth he should find far nobler employment in taking
men.
4. John takes no notice whatever of this scene by the lake of

Galilee, but gives us, what is not found in the first three gospels, an
interesting account, already quoted, of the first introduction of Peter
to Christ, not choosing to incumber his pages with a new repetition
or variation of the story of his direct call.
The office of an apostolic historian becomes at once most arduous
and most important, and the usefulness of his labors is most fully
shown in such passages as this, where the task of weaving the
various threads and scraps of sacred history in one even and
uniform text, is one to which few readers, taking the parts detailed in
the ordinary way, are competent, and which requires for its
satisfactory achievement, more aids from the long accumulated
labors of the learned of past ages, than are within the reach of any
but a favored few. To pass back and forth from gospel to gospel, in
the search after order and consistency,――to bring the lights of other
history to clear up the obscurities, and show that which fills up the
deficiencies of the gospel story,――to add the helps of ancient and
modern travelers in tracing the topography of the Bible,――to find in
lexicons, commentaries, criticisms and interpretations, the true and
full force of every word of those passages in which an important fact
is expressed,――these are a few of the writer’s duties in giving to
common readers the results of the mental efforts of the theologians
of this and past ages, whose humble copyist and translator he is.
Often aiming, however, at an effort somewhat higher than that of
giving the opinions and thoughts of others, he offers his own account
and arrangement of the subject, in preference to those of the
learned, as being free from such considerations as are involved in
technicalities above the appreciation of ordinary readers, and as
standing in a connected narrative form, while the information on
these points, found in the works of eminent biblical scholars, is
mostly in detached fragments, which, however complete to the
student, require much explanation and illustration, to make them
useful or interesting to the majority of readers. Thus in this case,
having given the three different accounts above, he next proceeds to
arrange them into such a narrative as will be consistent with each,
and contain all the facts. In the discussion of particular points,
reference can be properly made to the authority of others, where
necessary to explain or support.
Taking up the apostolic history, then, where it is left by John, as

referred to above, and taking the facts from each gospel in what
seems to be its proper place and time; the three narratives are thus
combined into one whole, with the addition of such circumstances as
may be inferred by way of explanation, though not directly stated.
Leaving Nazareth, Jesus had come to Capernaum, at the

northwestern end of the lake, and there made his home. About this
time, perhaps on occasion of his marriage, Simon had left Bethsaida,
the city of his birth, and now dwelt in Capernaum, probably on
account of his wife being of that place, and he may have gone into
the possession of a house, inherited by his marriage, which
supposition would agree with the circumstance of the residence of
his wife’s mother in her married daughter’s family, which would not
be so easily explainable on the supposition that she had also sons to
inherit their father’s property, and furnish a home to their mother. It
has also been suggested, that he probably removed to Capernaum
after his introduction to Christ, in order to enjoy his instructions more
conveniently, being near him. This motive would no doubt have had
some weight. Here the two brothers dwelt together in one house,
which makes it almost certain that Andrew was unmarried, for the
peculiarity of eastern manners would hardly have permitted the
existence of two families, two husbands, two wives in the same
domestic circle. Making this place the center of their business, they
industriously devoted themselves to honest labor, extending their
fishing operations over the lake, on which they toiled night and day. It
seems that the house of Simon and Andrew was Jesus’s regular
place of abode while in Capernaum, of which supposition the
manifest proofs occur in the course of the narrative. Thus when
Jesus came out of the synagogue, he went to Simon’s
house,――remained there as at a home, during the day, and there
received the visits of the immense throng of people who brought
their sick friends to him; all which he would certainly have been
disposed to do at his proper residence, rather than where he was a
mere occasional ♦visitor. He is also elsewhere mentioned, as going
into Peter’s house in such a familiar and habitual kind of way, as to
make the inference very obvious, that it was his home. On these
terms of close domestic intimacy, did Jesus remain with these
favored disciples for more than a year, during which time he
continued to reside at Capernaum. He must have resided in some
other house, however, on his first arrival in Capernaum, because, in
the incident which is next given here, his conduct was evidently that
of a person much less intimately acquainted with Simon than a
fellow-lodger would be. The circumstances of the call evidently show,
that Peter, although acquainted with Christ previously, in the way
mentioned by John, had by no means become his intimate, daily
companion. We learn from Luke, that Jesus, walking forth from
Capernaum, along the lake, saw two boats standing by the lake, but
the fishers having gone out of them, were engaged in putting their
nets and other fishing tackle in order. As on his walk the populace
had thronged about him, from curiosity and interest, and were
annoying him with requests, he sought a partial refuge from their
friendly attacks, on board of Simon’s boat, which was at hand, and
begging him to push out a little from the land, he immediately made
the boat his pulpit, in preaching to the throng on shore, sitting down
and teaching the people out of the boat. When he had left off
speaking, he said to Simon, “Launch out into the deep, and let down
your nets for a draught.” And Simon answered, “Master, we have
toiled all night and caught nothing; nevertheless, at thy word I will let
down the net.” As soon as they did so, they took into the net a great
multitude of fishes, and the net broke. They then beckoned to their
partners, who were in the other vessel, that they should come and
help them. And they came and filled both vessels, so that they began
to sink. When Simon saw what was the result, he fell down at
Jesus’s knees, saying, “Depart from me; for I am a sinful man, O
Lord.” For both he, and they that were with him, Andrew, James and
John, were astonished at the draught of fishes they had taken. But
Jesus said to Simon, “Fear not; from henceforth thou shalt catch
men;” and then gave both to him and his brother a distinct call,
“Follow me――come after me, and I will make you fishers of men.”
And as soon as they had brought their ships to land, they forsook
their nets, ships and all, and followed him, not back into Capernaum,
but over all Galilee, while he preached to wondering thousands the
gospel of peace, and set forth to them his high claims to their
attention and obedience, by healing all the diseased which his great
fame induced them to bring in such multitudes. This was, after all,
the true object of his calling his disciples to follow him in that manner.
Can we suppose that he would come out of Capernaum, in the
morning, and finding there his acquaintances about their honest
business, would call on them, in that unaccountable manner, to
follow him back into their home, to which they would of course,
naturally enough, have gone of their own accord, without any divine
call, for a simple act of necessity? It was evidently with a view to
initiate them, at once, into the knowledge of the labors to which he
had called them, and to give them an insight into the nature of the
trials and difficulties which they must encounter in his service. In
short, it was to enter them on their apprenticeship to the mysteries of
their new and holy vocation. On this pilgrimage through Galilee,
then, he must have been accompanied by his four newly chosen
helpers, who thus were daily and hourly witnesses of his words and
actions, as recorded by all the first three evangelists. (Matthew
chapters iv.‒viii. Mark, chapters i.‒iii. &c. Luke, chapters v.‒vi.)
♦ “visiter” replaced with “visitor”
The accounts which Matthew and Mark give of this call, have seemed so strikingly
different from that of Luke, that Calmet, Thoynard, Macknight, Hug, Michaelis, Eichhorn,
Marsh, Paulus, (and perhaps some others,) have considered Luke’s story in v. 1‒11, as
referring to a totally distinct event. See Calmet’s, Thoynard’s, Macknight’s, Michaelis’s, and
Vater’s harmonies, in loc. Also Eichhorn’s introduction, 1. § 58, V. II.,――Marsh’s
dissertation on the origin of the three gospels, in table of coincident passages,――Paulus’s
“Commentar weber das Neue Testament.” 1 Theil xxiii. Abschnitt; compare xix.
Abschnitt,――Hug’s “Einleitung in das Neue Testament,” Vol. II. § 40. “Erste auswanderung,
Lucas, iii.,” compare Mark.
These great authorities would do much to support any arrangement of gospel events,
but the still larger number of equally high authorities on the other side, justifies my boldness
in attempting to find a harmony, where these great men could see none. Lightfoot, Le Clerc,
Arnauld, Newcome, with all his subsequent editors, and Thirlwall, in their harmonies, agree
in making all three evangelists refer to the same event. Grotius, Hammond, Wetstein, Scott,
Clarke, Kuinoel, and Rosenmueller, in their several commentaries in loco,――also
Stackhouse in his history of the Bible, and Horne in his introduction, with many others, all
take the view which I have presented in the text, and may be consulted by those who wish
for reasons at greater length than my limits will allow.
“Peter and Andrew dwell together in one house.”――This appears from Mark i. 29,
where it is said that, after the call of the brothers by Jesus, “they entered the house of
Simon and Andrew.”
“Sat down and taught the people out of the ship,” verse 3. This was a convenient
position, adopted by Jesus on another occasion also. Matthew xiii. 2. Mark iv. 1.
“Launch out.”――Luke v. 4. Επαναγαγε, (Epanagage,) the same word which occurs in

verse 3, there translated in the common English version, “thrust out.” It was, probably, a
regular nautical term for this backward movement, though in the classic Greek, Εξαναγειν,
(exanagein,) was the form always used to express this idea, insomuch that it seems to have
been the established technical term. Perhaps Luke may have intended this term originally,
which might have been corrupted by some early copyist into this word, which is in no other
place used with this meaning.――“Let down,” (Χαλασατε, khalasate, in the plural; the former
verb singular.) More literally, “loosen,” which is the primary signification of the verb, and
would be the proper one, since the operation of preparing the net to take the fish, consisted
in loosening the ropes and other tackle, which, of course, were drawn tight, when the net
was not in use, closing its mouth. “Master, we have toiled,” &c. verse 5. The word
Επιστατα, (Epistata,) here translated Master, is remarkable, as never occurring in the
Testament, except in this gospel. Grotius remarks, (in loc.) that doubtless Luke, (the most
finished and correct Greek scholar of all the sacred writers,) considered this term as a more
faithful translation of the Hebrew ‫רבי‬, (Rabbi,) than the common expressions of the other
evangelists, Κυριε, (Kurie, Lord,) and διδασκαλε, (didaskale, teacher.) It was a moderate,
though dignified title, between these two in its character, rather lower than “Lord,” and rather
higher than “Teacher.” It is used in the Alexandrian version, as the proper term for a
“steward,” a “military commander,” &c. (See Grotius theol. op. Vol. II. p. 372; or Poole’s
Synopsis on this passage.) “Toiled all night.” This was the best time for taking the fish, as is
well known to those who follow fishing for a living.
On this journey, they saw some of his most remarkable miracles,

such as the healing of the leper, the paralytic, the man with the
withered hand, and others of which the details are not given. It was
also during this time, that the sermon on the mount was delivered,
which was particularly addressed to his disciples, and was plainly
meant for their instruction, in the conduct proper in them as the
founders of the gospel faith. Besides passing through many cities on
the nearer side, he also crossed over the lake, and visited the rude
people of those wild districts. The journey was, therefore, a very long
one, and must have occupied several weeks. After he had
sufficiently acquainted them with the nature of the duties to which he
had consecrated them, and had abundantly impressed them with the
high powers which he possessed, and of which they were to be the
partakers, he came back to Capernaum, and there entered into the
house of Simon, which he seems henceforth to have made his home

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(Original PDF) Accounting for

Non-Specialists 7th Australian Edition

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Budgeting 428 CHAPTER 12

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SEVENTH EDITION REVIEWERS

chapter. They are restated in the chapter, so

you know where these objectives are covered.

End-of-chapter questions are also keyed to the

Concept check questions ▶

aim to provide you with a quick check of your C

understanding of each learning objective.

THE DIRECTORS’ DUTY TO ACCOUNT—THE ROLE OF COMPANY

presented in the margin. All of these terms are

also in the glossary at the end of the book for

Accounting and You boxes ▶

This feature appears in each chapter to help

you see the relevance of accounting concepts to

your everyday life.

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220 ACCOUNTING FOR NON-SPECIALISTS ◀ In-chapter activities CHAPTER 11 BUDGETING 437

These are designed to test your comprehension

to make links to topics already covered or still

to be covered. Answers to the activities are

Real World examples ▶

Integrated throughout the text, these

illustrative examples highlight the practical

application of accounting concepts and

from published financial reports, articles from

the media, survey data and other interesting

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xviii ACCOUNTING FOR NON-SPECIALISTS

SELF-ASSESSMENT QUESTION 9.1

concepts. The self-assessment question

MyLab Accounting and www.pearson.com.

correlates learning objectives with the method

used to achieve them. Use this as a great

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chapter content. All questions are keyed to their

corresponding learning objectives so you can pick

questions are divided into level of difficulty – easy,

• discussion questions to help you assess your recall

of the main principles covered in each chapter

• application exercises to help you apply and

Capital expenditure/non-current assets

consolidate your understanding of accounting in

These give you real-world examples of accounting

in practice and encourage you to think critically

516 ACCOUNTING FOR NON-SPECIALISTS

decisions requires both the science of technical

This quick reference guide at the end of the

book helps jog your memory of all those

SOLUTIONS TO ACTIVITIES accruals accounting The system of accounting that adheres to

important accounting terms and concepts.

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FOR STUDENTS xix

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▶ Solutions to the self-assessment questions (also available on www.pearson.com.