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 FINANCIAL
9 TH
EDITION
HOGGET T | MEDLIN | EDWARDS | CHALMERS
HELLMANN | BEAT TIE | MA XFIELD
 approach to provide theoretical, methodological and empirical evidence on ways of enhancing the
comparability and quality of accounting information for decision-making purposes. His scholarly
work is widely published in journals, edited collections and research monographs.

Claire Beattie
Claire Beattie, BCom (1st Class Honours), PhD, is a lecturer in the School of Commerce at the
University of Southern Queensland. Before becoming an accounting academic, Claire worked in
New Zealand as a management accountant in the manufacturing sector. Claire has taught both
financial and management accounting courses at universities in Australia and New Zealand,
including the University of Melbourne, University of Canterbury and Massey University. Over
the past eight years, Claire has coordinated the undergraduate and postgraduate management
accounting courses at the University of Southern Queensland. Claire’s research interests include
the practice of performance measurement, the role and impact of management accounting in non-
traditional environments and accounting education.

Jodie Maxfield
Jodie Maxfield, BBus (Monash), Grad Dip Tax (UCQ), MEc (UNE), is an accounting lecturer
at James Cook University (JCU). She has taught across all year levels of the undergraduate
accounting major and is currently coordinating first year accounting at JCU. Jodie’s research inter-
ests are in accounting education and financial accounting.

vi About the authors

 Brief contents

Preface xiv
Acknowledgements xvi
Part 1 Accounting for decision making 1
1 Decision making and the role of accounting 2
2 Financial statements for decision making 32

Part 2 Accounting systems and processes 71

3 Recording transactions 72
4 Adjusting the accounts and preparing financial statements 128
5 Completing the accounting cycle — closing and reversing entries 182
6 Accounting for retailing 234
7 Accounting systems 280
Part 3 Equity in business 341
8 Partnerships: formation, operation and reporting 342
9 Companies: formation and operations 376

Part 4 Accounting regulation of assets and liabilities 427

10 Regulation and the Conceptual Framework 428
11 Cash management and control 476
12 Receivables 520
13 Inventories 556
14 Non-current assets: acquisition and depreciation 600
15 Non-current assets: revaluation, disposal and other aspects 636
16 Liabilities 676

Part 5 External reporting and performance evaluation 715

17 Presentation of financial statements 716
18 Statement of cash flows 750
19 Analysis and interpretation of financial statements 828
Appendix Time value of money 872

Glossary 881
Index 892
Contents
Preface xiv
Acknowledgements xvi
Part 1
Accounting for decision making 1
1 Decision making and the role of accounting
1.1 The dynamic environment of accounting 4
1.2 Decisions in everyday life 5
Steps in decision making 5
1.3 Economic decisions 6
1.4 The nature of accounting 8
Accounting defined 8
1.5 Users of accounting information 10
1.6 Using information in economic decisions 11
1.7 Accounting information and decisions 13
1.8 Management and financial accounting 14
What is management accounting? 14
What is financial accounting? 14
Management accounting versus financial
accounting 14
Accounting as a profession — Australian
1.9 
perspective 15
1.10 Public accounting versus commercial accounting
Public accounting 16
Accountants in commerce and industry 18
Not-for-profit accounting 19
1.11 Ethics and accounting 20
Ethics in business 21
Ethics and professional accounting bodies 21
Ethics in practice 21
2 Financial statements for decision making
2.1 Types of business entities 34
2.2 Management functions 35
Role of managers 35
2.3 Basic financial statements 37
The balance sheet 38
The income statement 40
The statement of changes in equity 41
The statement of cash flows 42
Assumptions made and characteristics of
2.4 
information 44
The accounting entity assumption 44
The accrual basis assumption 45
The going concern assumption 45
The period assumption 45
Fundamental qualitative characteristics 45
Enhancing qualitative characteristics 46
The concept of materiality 47
Benefits and costs 47
The effects of transactions on the accounting
2.5 
equation and financial statements 48
Part 2
2
Accounting systems and processes 71
3 Recording transactions 72
Transactions 74
3.1
Types of transactions 74
Transactions of a business entity 74
Source documents 75
3.2 The accounting cycle 76
The ledger account 77
Account formats 78
Accounts commonly used 79
Accounts: balance sheet 80
Accounts: income statement 81
General ledger 82
Chart of accounts 82
3.3 Double-entry accounting 85
16 Debit and credit rules 85
Normal account balances 86
Expanded accounting cycle 87
3.4 General journal 88
Recording transactions in a journal 88
Posting from journal to ledger 89
Illustrative example of journal and ledger 91
3.5 Trial balance 105
Limitations of the trial balance 106
Correcting errors 107
32 Use of dollar signs and decimal points 107
Appendix: Introduction to the goods and services tax
  in Australia 108
The GST in practice 108
Accounting for the GST 110
Accounts for recording GST 110
4 Adjusting the accounts and preparing financial
statements 128
4.1 Measurement of profit 130
Cash basis 130
Accrual basis 130
The accounting cycle — expansion to include
4.2 
adjusting entries 132
The need for adjusting entries 132
 4.3 Classification of adjusting entries 133 Periodic inventory system 250
Adjusting entries for deferrals 135 Perpetual and periodic inventory systems
Adjusting entries for accruals 141 contrasted 252
4.4 Adjusted trial balance 146 6.5 End of period processes 256
Preparation of financial statements 148 Illustration of worksheets in retail
Distinguishing current and non-current
4.5  businesses 256
assets and liabilities 151 Perpetual inventory system 257
Current assets 151 Periodic inventory system 258
4.6 Preparing financial statements from a worksheet 154 6.6 Detailed income statement for a retailer 260
Preparation of the worksheet 154 Net price method and settlement
6.7 
Preparation of financial statements 159 discounts 261
4.7 Financial statements and decision making 160 6.8 Profitability analysis for decision making 262
Gross profit ratio 262
Profit margin 262
5 Completing the accounting cycle — closing and Expenses to sales ratio 263
reversing entries 182 Inventory turnover 263
5.1 The complete accounting cycle 184 Ratios illustrated 263
5.2 Closing temporary accounts 185
5.3 Using the worksheet to record adjusting entries 186
Recording adjusting entries 187 7 Accounting systems 280
5.4 The closing process 189 Operation and development of an accounting
7.1 
Closing the income (including revenue) accounts 191 system 282
Closing the expense accounts 192 Operation of an accounting system 282
Closing the Profit or Loss Summary account 193 Development of an accounting system 283
Closing the Drawings account 194 Important considerations in developing
Account balances after the closing process 195 an accounting system 284
The post-closing trial balance 204 7.2 Internal control systems 285
5.5 Accrual entries in subsequent periods 205 Internal control systems defined 285
Reversing entries 206 Principles of internal control systems 286
Reversal of deferral entries 208 Limitations of internal control systems 288
Accounting procedures applicable to a partnership
5.6  Manual accounting systems — subsidiary
7.3 
or a company 210 ledgers 288
Accounting for a partnership 211 Control accounts and subsidiary
Accounting for a company 211 ledgers 289
Manual accounting systems — special
7.4 
journals 290
6 Accounting for retailing 234 Sales journal 291
6.1 Inventory 236 Purchases journal 293
Retail business operations 236 Cash receipts journal 295
6.2 Condensed income statement for a retailer 237 Cash payments journal 299
6.3 Accounting for sales transactions, including GST 238 Use of the general journal 302
Retailing and the goods and services tax 238 7.5 Abnormal balances in subsidiary ledgers 304
Tax invoices 238 Account set-offs 304
Adjustment notes 239 Demonstration problem 306
Accounting for sales transactions 240 7.6 Accounting software 312
Sales returns and allowances 241 An introduction to MYOB 314
Cash (settlement) discounts 241 Recording transactions in MYOB 315
Trade discounts 243 Computerised accounting — advantages
Freight outwards 244 and disadvantages 316
6.4 Accounting for purchases and cost of sales 244 Accounting cycle — manual and
7.7 
Perpetual inventory system 244 computerised 317

Contents ix
 Part 3 9.5 Dividends 395
Cash dividends 397
Equity in business 341 Preference dividends 397
Share dividends 398
8 Partnerships: formation, operation and Share splits 400
reporting 342 Comparison of share dividends and share splits 400
8.1 Partnership defined 344 9.6 Reserves 400
8.2 Advantages and characteristics of a partnership 344 Creation of reserves 401
Characteristics of a partnership 345 Disposal of reserves 401
8.3 Partnership agreement 346 9.7 Income tax 402
8.4 Accounting for a partnership 347 9.8 Preparing the financial statements 402
Method 1: Capital accounts that include profits Illustrative example: Preparation of financial
and losses 347 statements 403
Method 2: Fixed capital accounts 348
8.5 Accounting for the formation of a partnership 348 Part 4
8.6 Allocation of partnership profits and losses 350
Fixed ratio 351 Accounting regulation of assets
Ratio based on capital balances 351 and liabilities 427
Fixed ratio after allowing for interest and salaries 352
8.7 Drawings and loans made by partners 355 10 Regulation and the Conceptual Framework 428
Drawings 355
Regulation and development of accounting
10.1 
Loans or advances by partners 357
standards 430
8.8 Financial statements for a partnership 357
Brief history of regulation 430
Financial Reporting Council 432
9 Companies: formation and operations 376 Australian Accounting Standards Board 432
9.1 Types of companies 378 Australian Securities and Investments Commission 434
Limited companies 378 Australian Securities Exchange 434
Unlimited companies 380 International Accounting Standards Board (IASB) 434
No-liability companies 380 The IFRS Interpretations Committee 435
Special companies 380 Financial Accounting Standards Board (FASB) 436
Advantages and disadvantages of the corporate The Asian-Oceanian Standard-Setters
entity 380 Group (AOSSG) 436
9.2 Forming a company 382 10.2 The Conceptual Framework 438
Replaceable rules and constitution 383 Background to development of the
The certificate of registration 383 Conceptual Framework 438
The prospectus 383 10.3 The reporting entity 439
Administering a company 384 10.4 Objectives of general purpose financial reporting 442
9.3 Categories of equity in a company 385 10.5 Qualitative characteristics of financial information 444
Share capital 385 Fundamental characteristics 444
Retained earnings 385 Enhancing qualitative characteristics 446
Other reserves 387 The cost constraint on relevant, faithfully
9.4 Accounting for share issues 387 representative information 448
Private share placements 387 10.6 Definitions of elements in financial statements 449
Public share issue, payable in full on application 387 Assets in the current Conceptual Framework 449
Public share issue, payable by instalments 388 Assets in the proposed framework 449
Undersubscription and oversubscription 391 Liabilities in the current Conceptual Framework 450
Rights issue of shares 393 Liabilities in the proposed framework 450
Bonus share issues 393 Equity in the current Conceptual Framework 451
Formation costs and share issue costs 394 Income in the current Conceptual Framework 451
Preference shares 394 Expenses in the current Conceptual Framework 452

x Contents
 10.7 Recognition of the elements 452 Writing off bad debts 528
Asset recognition in the current Recovery of an account written off 530
Conceptual Framework 453 Direct write-off method 530
Liability recognition in the current Demonstration problem 531
Conceptual Framework 453 12.4 Management and control of accounts receivable 533
Asset and liability recognition in the Credit policies 533
proposed framework 453
Monitoring credit policies 534
Income recognition in the current Conceptual
Framework and standards 453 Internal control of accounts receivable 536
Expense recognition in the current Disposal of accounts receivable 536
Conceptual Framework 457 12.5 Bills receivable 538
Income and expense recognition in the Trade bills 538
proposed framework 457 Promissory notes 539
10.8 Measurement 458 Determining due date 540
Measurement in the proposed framework 459 Calculating interest on bills and notes 540
Concepts of capital 459 Accounting for receipt and collection
of bills receivable 541
11 Cash management and control 476 Discounting bills receivable 542
11.1 Cash defined 478 End-of-period adjustments for interest revenue 543
11.2 Control of cash 478
Control of cash receipts 479
13 Inventories 556
Control of cash payments 481 13.1 Determining the cost of inventory on hand 558
11.3 Bank accounts and reconciliation 482 Performing a stocktake 558
Cheque accounts 482 Transfer of ownership 559
Use of electronic funds transfer 483 Goods on consignment 559
The bank statement 483 The cost of inventory 560
Bank reconciliation 484 Assignment of cost to ending inventory and cost of
13.2 
11.4 The petty cash fund 490 sales — periodic system 560
Establishing the fund 490 Specific identification method — periodic 562
Making payments from the fund 491 First-in, first-out (FIFO) method — periodic 562
Reimbursing the fund 491 Last-in, first-out (LIFO) method — periodic 563
11.5 Cash budgeting 493 Weighted average method — periodic 564
Need for cash budgeting 493 Comparison of costing methods 564
Preparation of a cash budget 494 Consistency in using a costing method 566
11.6 Cash management 496 Costing methods in the perpetual inventory
13.3 
Principles of cash management 496 system 567
11.7 Analysing adequacy of cash flows 497 First-in, first-out method 569
Last-in, first-out method 569
12 Receivables 520 Moving average method 569
13.4 Comparison of inventory systems 570
12.1 Types of receivables 522
13.5 The lower of cost and net realisable value rule 572
Accounts receivable 522
Bills receivable 522 13.6 Sales returns and purchases returns 574
Other receivables 523 Returns using the first-in, first-out method 575
12.2 Accounts receivable (trade debtors) 523 Returns using the moving average method 575
Recognition of accounts receivable 523 13.7 Inventory errors 576
Valuation of accounts receivable 524 13.8 Estimating inventories 578
12.3 Bad and doubtful debts 524 Retail inventory method 578
Allowance method of accounting for bad Gross profit method 580
debts 525 13.9 Presentation in financial statements 582
Estimating doubtful debts 526 13.10 Effect of costing methods on decision making 582

Contents xi
14 Non-current assets: acquisition and Internally generated intangibles 654
depreciation 600 Intangibles subsequent to initial recognition 654
Amortisation 655
14.1 The nature of property, plant and equipment 602
Patents and research and development costs 655
Determining the cost of property, plant
14.2 
Copyrights 656
and equipment 602
Trademarks and brand names 656
14.3 Apportioning the cost of a lump-sum acquisition 604
Franchises 657
14.4 Assets acquired under a lease agreement 605
15.8 Goodwill in a business combination 657
14.5 Depreciation 606
The nature of depreciation 606
16 Liabilities 676
Determining the amount of depreciation 607
16.1 Liabilities defined 678
Depreciation methods 608
16.2 Recognition of liabilities 679
Straight-line method 608
Comparison of depreciation methods 612 Why recognition is important 679
Revision of depreciation rates and methods 613 Criteria for recognition 680
16.3 Provisions and contingent liabilities 680
Accumulated depreciation does not represent cash 613
Nature of provisions 680
14.6 Subsequent costs 614
Items excluded from provisions — future costs 681
Day-to-day repairs and maintenance 615
Contingent liabilities 681
Overhauls and replacement of major parts 615
16.4 Classification of liabilities 683
Leasehold improvements 616
Need for classification 683
Spare parts and service equipment 616
Basis of classification 683
14.7 Property and plant records 618
Categories 683
14.8 Disclosure of property, plant and equipment 619
16.5 Current liabilities 683
14.9 Analysis, interpretation and management decisions 620
Accounts payable (trade creditors) 684
Analysis and interpretation 620
Bills payable 684
Management decisions 621
Employee benefits 686
Warranties 690
15 Non-current assets: revaluation, disposal Onerous contracts 690
and other aspects 636 GST payable 691
15.1 The revaluation model 638 16.6 Non-current liabilities 692
Initial revaluation increases 639 The types of non-current liabilities 692
Initial revaluation decreases 641 Debentures 693
Reversals of increases and decreases 641 Other non-current liabilities 696
15.2 The impairment test 643 Why finance through long-term debt? 698
15.3 Derecognition of non-current assets 644 16.7 Analysing liabilities for decision making 699
Scrapping non-current assets 644 Liquidity ratios 700
Sale of non-current assets 645 Financial stability ratios 701
Derecognition of revalued assets 647 Illustration of ratios 701
Exchanging non-current assets 647
Exchanging dissimilar assets 648 Part 5
15.4 Composite-rate depreciation 648
15.5 Mineral resources 650
External reporting and performance
Exploration and evaluation costs 650 evaluation 715
Development costs, construction
costs and inventories 650 17 Presentation of financial statements 716
Amortisation 651 17.1 External reporting requirements 718
Depreciation of related construction assets 651 Annual financial report 718
15.6 Biological assets and agricultural produce 652 Concise report 720
15.7 Intangible assets 653 Interim financial report 721
Separately acquired intangibles 654 General requirements for the annual report 721

xii Contents
 Statement of profit or loss and other comprehensive
17.2 
income 723
Disclosure of income and expenses 724
17.3 Statement of financial position 725
17.4 Statement of changes in equity 727
17.5 Demonstration problem 729
18 Statement of cash flows 750
18.1 Purpose of the statement of cash flows 753
General format of the statement of cash
18.2 
flows 753
18.3 Concept of cash 755
18.4 Classification of cash flow activities 756
Cash flows from operating activities 756
Cash flows from investing activities 757
Cash flows from financing activities 757
Summary of classification 757
Preparing the statement of cash
18.5 
flows — direct method 758
Analysis of cash and other records 759
Analysis of financial statements 760
18.6 Notes to the statement 770
Items included in cash and cash equivalents 770
Reconciliation note of profit and cash flows from
operating activities (indirect method) 770
Other notes 773
18.7 Advanced issues 774
Impact of the GST 774
Trade accounts receivable 776
Trade accounts payable and discount
received 778
Non-trade receivables and payables 778
Bills receivable and bills payable 778
Short-term investments 779
Dividends 780
Income tax 780
18.8 Comprehensive example 784
Step 1: Cash from operating activities
— direct method 786
Step 2: Cash from investing activities 788
Step 3: Cash from financing activities 789
Step 4: Net cash increase/decrease 790
Step 5: Cash and cash equivalents at
beginning and end 790
Notes to the statement 790
The indirect method of determining net
cash from operating activities 790
Analysing the statement of cash flows 792
Limitations of the statement of cash
18.9 
flows 793
19 Analysis and interpretation of financial
statements 828
19.1 Sources of financial information 830
19.2 The need for analytical techniques 831
19.3 Percentage analysis 834
Horizontal analysis 834
Trend analysis 834
Vertical analysis 835
19.4 Ratio analysis 835
Profitability ratios 836
Liquidity ratios 840
Financial stability ratios 843
19.5 Some important relationships 845
19.6 Analysis using cash flows 846
Cash sufficiency ratios 847
Repayment of long-term borrowings ratio 848
Cash flow efficiency ratios 849
19.7 Limitations of financial analysis 851
The impact of capital markets research on the
19.8 
role of financial statement analysis 852
Appendix
Time value of money 872
Glossary 881
Index 892
Contents xiii
 Preface

Our main purpose in writing this book is to provide an introductory but comprehensive description
of the purpose, practice and process of contemporary international financial accounting in an Aus-
tralian context. With the increased emphasis on the globalisation of business, the material is ideal
for the study of introductory accounting in a broad international context.
The book is designed for tertiary students interested in an accounting career and for those
wanting a general understanding of the production and use of accounting information in the busi-
ness sector. This ninth edition considers more fully the need for accounting knowledge by students
undertaking business studies in areas other than accounting. The book is suited to a two-semester
course at both the undergraduate level and the postgraduate level as it provides a general under-
standing of the role of financial accounting information systems in any business sector.
The ninth edition builds on the strengths of previous editions with a strong focus on the
decision-making role of accounting as well as on a student’s acquisition of generic skills such
as communication, analysis and problem solving, critical thinking, judgement, and an appreci-
ation of ethical issues. The opportunity to develop these generic skills is provided by the range of
end-of-chapter activities. The authors, however, believe that competency in the technical skills of
accounting should remain as the core objective, and the book therefore continues to provide appro-
priate discussion of key technical issues. It is our belief that a person equipped with knowledge
of technical material in accounting possesses a powerful tool for making economic decisions and
for analysing and solving business problems. These technical skills are used in the book to pro-
vide clear and detailed explanations of the accounting concepts that form the basis of the practice
of accounting. The use of the technical skills of accounting in teaching concepts gives students a
practical foundation from which to build their understanding.
The book is organised in six parts as follows, with emphasis on decision making in a business
enterprise before consideration of external reporting issues.
Part 1: Accounting for decision making (chapters 1–2)
Part 2: Accounting systems and processes (chapters 3–7)
Part 3: Equity in business (chapters 8–9)
Part 4: Accounting regulation of assets and liabilities (chapters 10–16)
Part 5: External reporting and performance evaluation (chapters 17–19).
Based on feedback from users of the previous editions of this book, there remains in the
ninth edition a strong focus on:
1. service organisations operating in the business and not-for-profit sectors
2. the use of accounting information by non-accountants, both in text examples and in end-of-
chapter activities
3. the impact of the goods and services tax (GST) on business records in a number of exercises
and problems
4. the effect of accounting information on decisions made in business (segments in each chapter
provide links to business activities, and each chapter contains a scene setter)
5. the effect on accounting systems of improvements in information technology
6. the impact of developments in the regulation of accounting standards at national and inter-
national levels.
We have continued to improve the readability of the book without compromising the integrity
of its theoretical and practical content, and have continued the policy of including detailed learning
objectives.
Many chapters provide a discussion of the impact of the GST on business, especially on small
business. However, instructors can ignore the effects of the GST if they wish to pay attention to
the other accounting issues in each chapter. An introductory coverage of the GST is provided as
an appendix to chapter 3. Many exercises and problems permit lecturers to select where GST is
included and where it is excluded.

xiv Preface
Changes from the previous edition
The major features of this ninth edition include the following.
● Material has been extensively rewritten in relation to the new regulatory arrangements for the

development of accounting standards globally and in the Australian context.

● ‘Scene setters’ at the beginning of each chapter have been updated to help students understand

the relevance of the accounting material in that chapter to the issues faced by accountants in
practice.
● Additional and new ‘business knowledge’ vignettes in each chapter show the relevance of

accounting to the practical world of business.

● Learning checks have been added to summarise the key points from the preceding section.

● Approximately half of the discussion questions, exercises and problems in many chapters are new.

● In the end-of-chapter case material, several decision analysis cases, critical thinking cases,

communication and leadership activities and ethics and governance issues are either new
or updated. Web-based activities are included in several chapters. In addition, the financial
analysis is based on the latest JB Hi-Fi Limited annual report, which is available on its website,
www.jbhifi.com.au.
● All the exercises and problems are now tagged by learning objective.

Supplementary materials
Financial Accounting 9th edition is supported with an extensive teaching and learning resources
supplementary package.
● WileyPLUS is a research-based online environment for effective teaching and learning. With

WileyPLUS, lecturers can prepare, assign and grade accounting activities simply and in a time
efficient manner. WileyPLUS increases student confidence through an innovative design that
allows greater engagement, which leads to improved learning outcomes. For more information,
contact your John Wiley & Sons sales consultant or visit www.wileyplus.com.
● A solutions manual containing worked solutions to all end-of-chapter discussion questions,

exercises, problems, case studies and activities is available for lecturers who prescribe this text.
The solution manual has been thoroughly checked for accuracy and correctness.
● PowerPoint Presentation contains over 1000 slides with summaries of key concepts and pro-

cesses presented in the chapter as well as key diagrams and worked examples from the text.

Acknowledgements
We wish to express our appreciation of the following people and organisations who have contrib-
uted in some way to the development of the ninth edition of this book and to the refinement of our
ideas. Particular appreciation is again extended to our very patient partners and to our families for
their continued understanding, assistance with finding material for cases, business knowledge and
profiles, and with proofreading, and for their tolerance of partners and parents who are buried in
their studies for long hours at evenings and weekends.
Special appreciation is also extended to those who have contributed to the text as indepen-
dent reviewers and preparers of the extensive teaching and learning resources associated with the
textbook. We appreciate the contributions of Andrew Reynolds (Curtin University), Nila Latimer,
Philip Johnson (University of South Australia), Peter Hall (University of South Australia) and
Penny Janson (University of Western Sydney), who worked on various elements of the teaching
and WileyPLUS resources.
John Hoggett, Lew Edwards, John Medlin, Keryn Chalmers,
Andreas Hellmann, Claire Beattie and Jodie Maxfield
August 2014

Preface xv
 Acknowledgements

The authors and publisher would like to thank the following copyright holders, organisations and
individuals for their permission to reproduce copyright material in this book.
Images:
• Shutterstock.com: 3 Stokkete; 33 donskarpo; 129 max blain; 183 Mathias Rosenthal; 235
Pressmaster; 281 Bacho; 477 jarvis gray; 429 Refat; 521 Lightspring; 557 rzstudio; 801 Ideas_
supermarket; 637 bloomua; 677 mast3r; 717 Sreenivasulu Vallepu; 751 Gordon Bell; 829 Andrey_
Popov. • Corbis Australia: 73 Corbis/ The Art Archive/ Alfredo Dagli Orti. • MYOB Australia:
314, 315 Screen captures from MYOB reproduced with permission. Copyright © 2013 MYOB
Technology Pty Ltd. • iStockphoto: 343 © iStockphoto.com/Will Selarep. • Harvard Bus. School
Publishing: 377 Michael Potter. • AASB: 433 © Commonwealth of Australia 2014. All legislation
herein is reproduced by permission but does not purport to be the official or authorised version.
It is subject to Commonwealth of Australia copyright. The Copyright Act 1968 permits certain
reproduction and publication of Commonwealth legislation. In particular, s. 182A of the Act
enables a complete copy to be made by or on behalf of a particular person. For reproduction
or publication beyond that permitted by the Act, permission should be sought in writing from
the Commonwealth available from the Australian Accounting Standards Board. Requests in the
first instance should be addressed to the Administration Director, Australian Accounting Standards
Board, PO Box 204, Collins Street West, Melbourne, Victoria, 8007.
Text:
• The Institute of Chartered Accountants in Australia (ICAA): 3, 19, 470 © Charter; 7 Adapted
from ‘Job demand high in Asia’ by Michael Page International, 22 December 2011; 677 ‘The busi-
ness of going broke’ by Eddie Senatore SBR Insolvency + Reconstruction, 20 May 2013. Repro-
duced with permission from the ICAA. • © CCH Australia: 20 www.cch.com.au. • Richard Petty:
25–6 ‘New Pathways to Business Success’ by Professor Richard Petty, InTheBlack, August 2009,
p. 7; 386 ‘The sustainable accountant’ by Professor Richard Petty, InTheBlack, February 2010.
Reproduced with permission from Professor Richard Petty, former Chairman and President of CPA
Australia. • Copyright Agency Limited: © Fairfax Media 27 ‘Innovation and trust’ by Anthony Bell,
BRW, 1 February 2012; 28 ‘Good marketing in bad times’ by Simon Lloyd, BRW, 6 April 2001;
43 ‘Profit is the bottom line’ by Hezi Leibovich, BRW, 21 March 2013; 47–8 ‘Asia must step into
standards gap: David Tweedie’ by Agnes King, BRW, 12 September 2012; 68–9 ‘Cambodian PM
linked to talks’ by Richard Baker and Nick McKenzie, The Age, 26 March 2013; 129 ‘Twenty
years on, the benefits are clear’ by Stephen Bartos, The Sydney Morning Herald, 6 June 2012; 161
from ‘I Did It My Way’ by Kath Walters, BRW, November 12–18 2009, p. 18; 210 ‘Accountants —
More than bean counters’, Illawarra Mercury, 16 January 2013; 235 ‘Target’s troubles lead to pain
for all’ by Elizabeth Knight, The Sydney Morning Herald, 21 May 2013; 277 ‘Fresh approach to
curb shoplifting’ by Michael Baker, The Sydney Morning Herald, 9 March 2013; 477
‘Billabong adrift without chief executive’ by Eli Greenblat, The Sydney Morning Herald,
28 August 2013; 355 ‘Two-plane flyover marks Qantas partnership’ by Matt O’Sullivan, The
Sydney Morning Herald, 31 March 2013; 570 ‘Fresh approach to curb shoplifting’ by Michael
Baker, The Sydney Morning Herald, 9 March 2013; 601 ‘New toll road to fame and fortune?’ by
Adele Ferguson, The Sydney Morning Herald, 12 November 2013; 637–8 ‘Despite the theory,
determining the real value of a company is no easy task’ by Nathan Bell, The Age, 18 September
2013; 693 ‘Stricter rules for care bonds’ by Bina Brown, Australian Financial Review,
24 November 2012; 703 ‘Shares plunge as takeover talks aborted’ by Glenda Kwek, The Sydney
Morning Herald, 5 June 2013; 751–2 ‘Lack of appetite for credit’ by Mark Abernethy, Australian
Financial Review, 14 August 2013; 781 ‘PayPal unveils ‘do nothing’ payment’ by Sue Mitchell,
Australian Financial Review, 11 September 2013; 829–30 ‘Insight comes from 30 minutes

xvi Acknowledgements
clocking value via a study of company reports’ by Nathan Bell, The Age, 14 August 2013; 837–8
‘Roundout That Bottom Line’ by Catherine Fox, Australian Financial Review, 11 May 2012; 868
‘Sky-High Shares’ by Matthew Smith, BRW, 14 March 2013; 870 ‘Freelancer.com to test the
waters for digital outsourcing’ by Max Mason, The Sydney Morning Herald, 19 October 2013; 870
‘Invest with conscience’ by Penny Pryor, The Age, 23 October 2013. © News Limited 76 ‘Red
flags to crime’ by Russell Emmerson, Herald Sun, 26 November 2012; 141 ‘Accounting for the
GST’, Weekly Times, 24 May 2000; 255–6 ‘Despite fall, Noni B good’ by AAP, The Australian,
14 February 2013; 281 ‘Red flags to crime’ by Russell Emmerson, Herald Sun, 26 November
2012; 287 ‘Business fraud is no cheap trick’ by Russell Emmerson, Courier Mail, 24 February
2013; 517 ‘Managing the cash squeeze’ by Susan Heron, Herald Sun, 14 December 2006, p. 90;
395 ‘Fickle nickel takes its toll on market darling Mirabela’ by Sarah-Jane Tasker, The Australian,
5 October 2013; 521 ‘Australian executive exposes China agribusiness scam’ by Rowan Callick,
The Australian, 6 November 2013; 528 ‘Tardy payers costly — Businesses face long wait for cash’
by Claire Heaney, Herald Sun, 23 May 2013; 535–6 ‘Resolve your beef over cash flow’ by Nhada
Larkin, Daily Telegraph, 17 November 2013; 557 ‘Target on mission to move a mountain’ by Blair
Speedy, The Australian, 30 October 2013; 578 ‘Research shows Sunday foot traffic grows as time-
poor families abandon traditional Saturday shop’ by Anthony Gough, Courier Mail, 24 August
2013; 617 ‘Miners take risk reporting true costs’ by Paul Garvey, The Australian, 11 December
2012; 652 ‘State’s great strength is in its diversity’ by Frank Gelber, The Australian, 31 October
2013; 767 ‘Lease of your worries’ by Claire Heaney, Herald Sun, 30 September 2013; 851 ‘Nine
“nearly broke covenants”’ by Nick Tabakoff, The Australian, 15 December 2012. • Private Media:
28 ‘Explore Engage’ by Oliver Millman, 23 March 2012. This article originally appeared on
StartupSmart.com.au. Reproduced with permission from Private Media. • Tiina-Liisa Sexton: 29
‘Auditing Hidden Agendas’ by Tiina-Liisa Sexton, InTheBlack, March 2009, p. 63. Reproduced
with permission from the author. • Rosalind Whiting: 67–8 ‘Sporting glory – the great intangible’
by Rosalind Whiting & Kyla Chapman, Australian CPA, February 2003, pp. 24–7. • Flyn Flesher:
73 ‘Luca Pacioli: The Father of Accounting’ by Flyn Flesher, see http://members.tripod.com/
~FlynF/pacioli.htm. • John Curtin Prime Ministerial: 183 John Curtin Prime Ministerial
Library. Understanding society through its records: Records at work. http://john.curtin.edu.au/
society/index.html. • Jacqueline Blondell: 188 ‘Blue Sky Man’ by Jackie Blondell, InTheBlack,
April 2010. Reproduced with permission from the author. • The YGS Group: 717–8 ‘Brave New
World’, published in Accountancy Futures, August 2013, pp. 20–1; 722 ‘Information overload?’,
published in Accountancy Futures, August 2013, p. 10. Reproduced with permission. • Bauer
Media Group: 826 ‘Why don’t corporations behave ethically?’ by Cameron Cooper, InTheBlack,
3 October 2013. • Australian Stock Report: 343 © 2014 EYGM Limited. All rights reserved.
Reproduced by permission of EY. • John Purcell: 429–30 ‘Perfect storm: The unstable uncertain
state of non-financial reporting’ by John Purcell, InTheBlack, 11 October 2013. Reproduced with
permission from the author. • FASB: 437 ‘International Convergence of Accounting Standards —
Overview’ © Financial Accounting Standards Board. Reproduced with permission. • AASB: 441
© Commonwealth of Australia 2011. All legislation herein is reproduced by permission but does
not purport to be the official or authorised version. It is subject to Commonwealth of Australia
copyright. The Copyright Act 1968 permits certain reproduction and publication of Common-
wealth legislation. In particular, s.182A of the Act enables a complete copy to be made by or on
behalf of a particular person. For reproduction or publication beyond that permitted by the Act,
permission should be sought in writing from the Commonwealth available from the Australian
Accounting Standards Board. Requests in the first instance should be addressed to the Adminis-
tration Director, Australian Accounting Standards Board, PO Box 204, Collins Street West,
Melbourne, Victoria, 8007. • IFRS Foundation: 451, 457–8 Copyright © IFRS Foundation. All

Acknowledgements xvii
 rights reserved. Reproduced by John Wiley & Son’s Limited with the permission of the IFRS
Foundation ®. No permission granted to third parties to reproduce or distribute. The IASB, the
IFRS Foundation, the authors and the publishers do not accept responsibility for any loss caused
by acting or refraining from acting in reliance on the material in this publication, whether such
loss is caused by negligence or otherwise. • Anthony Black: 471 from ‘Still on track’, June 2010;
637 from ‘Wheeling and Dealing’, November 2009. Originally published in InTheBlack magazine.
These articles were written by the financial journalist Anthony Black who has extensive experi-
ence writing on corporate and financial matters. For enquiries on past articles refer to ‘anthony-
black3@bigpond.com’. • KPMG Australia: 691 © 2011 KPMG, an Australian partnership and a
member firm of the KPMG network of independent member firms affiliated with KPMG Inter-
national Cooperative (‘KPMG International’), a Swiss entity. All rights reserved. • CPA Australia:
724, 726, 728 © 2013 Reproduced with the permission of CPA Australia Ltd. • Bina Brown: 733
‘Australia’s water accounting system singled out’ by Bina Brown, InTheBlack, 12 September
2013. Reproduced with permission from Bina Brown — Finance Writer. • carsales.com Ltd: 807
Reproduced with permission from carsales.com Ltd.

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xviii Acknowledgements
Part 1
Accounting for
decision making
1 Decision making and the role of accounting 2
2 Financial statements for decision making 32
 Chapter

1 Decision making and

the role of accounting
The dynamic environment of accounting 4 Key terms 22
Decisions in everyday life 5 Discussion questions 22
Economic decisions 6 Exercises 23
The nature of accounting 8 Decision analysis 27
Users of accounting information 10 Critical thinking 28
Using information in economic decisions 11 Communication and leadership 29
Accounting information and decisions 13 Ethics and governance 30
Management and financial accounting 14 Financial analysis 30
Accounting as a profession —
Australian perspective 15
Public accounting versus commercial
accounting 16
Ethics and accounting 20

Learning objectives
After studying this chapter, you should be able to:

1 outline the dynamic environment in which accountants work (pp. 4–5)

2 discuss the nature of decisions and the decision-making process (pp. 5–6)

3 outline the range of economic decisions made in the marketplace (pp. 6–7)

4 explain the nature of accounting and its main functions (pp. 8–10)

5 identify the potential users of accounting information (pp. 10–11)

6 apply information to make basic economic decisions (pp. 11–13)

7 describe the role of accounting information in the decision-making process (pp. 13–14)

8 compare accounting information for management and external users (pp. 14–15)

9 summarise how the accounting profession is organised in Australia (pp. 15–16)

10 identify the different areas of the economy in which accountants work (pp. 16–20)

11 identify the importance of ethics in business and accounting and how to recognise and handle
ethical dilemmas as part of the decision-making process (pp. 20–2).

2 Part 1 Accounting for decision making

A natural fit
Simone Taylor is the financial controller for OrotonGroup.
Never previously having considered a career as an accountant,
her interest in the profession was sparked during a discussion
with a careers advisor during secondary school.
Sold on the idea that the accounting profession would bring
diversity of work opportunities, Taylor commenced as a cadet
with KPMG’s cadetship program after graduating from high
school in 1998, working full time in the audit consumer and
retail group for two years.
Taylor then worked as an internal auditor at confectionary
giant Nestlé’s head office in Switzerland, where she audited
the organisation’s factories and supply chain globally. After
three years, a financial controller’s role with British fashion
powerhouse Burberry beckoned in London, before a stint
in forensic accounting with the United Kingdom’s Serious
Fraud Office.
In 2009, Taylor accepted a position at OrotonGroup. The
company has approximately 85 stores throughout Australia
and Asia. Her role is to assist steering the finance function.
The role is diverse, from an early morning sales meeting to
product reports and cash flow, as well as rolling out a new Asia
strategy, which includes setting up new structures from payroll
through to audit . . . The role also involves implementing finance
support services for strategic decisions, such as online shopping,
acquisitions and partnerships, to adapt to the business and
economic environment to the brand’s advantage.
Beyond OrotonGroup, Taylor foresees an eventual move
into a chief financial officer role that represents the right mix
of company culture and product mix. As with OrotonGroup,
she sees any future role as adding to the business. ‘I can’t be
at a company where it’s just presenting a report at the end of
the month — it has to be a business partner role.’
Source: Excerpts from Tydd, J 2012, ‘A natural fit’, Charter, November,
pp. 66–7.
Decision making and the role of accounting Chapter 1 3

LO 1 Outline the dynamic
environment in which
accountants work.
4 Part 1 Accounting for decision making
Chapter preview
Welcome to your journey into the field of accounting. If your initial reaction to accounting is
‘boring!’, then think again. Accounting, at times, can be full of politics and intrigue, and the
financial figures it produces are useful to informing many business decisions. The figures also may
be the result of unethical behaviour whereby people have ‘cooked the books’. So let’s begin.
Whether you are studying this subject with a view to following a career in retail, as has Simone
Taylor in our scene setter, sports management, financial planning, or simply to gain a basic under-
standing of the field as it relates to other areas of business, we hope that you find your study of
the subject enjoyable, challenging and useful. Inevitably, a study of accounting requires a basic
understanding of record keeping, but accounting is far more than that. Accounting plays a vital
role in the decision-making processes of every organisation, whether it is a for-profit organ-
isation (e.g. Commonwealth Bank), not-for-profit organisation (e.g. a charity such as Oxfam) or a
government organisation (e.g. a local council).
1.1 The dynamic environment of accounting
Accountants traditionally have been viewed as the ‘bean counters’ or ‘number-crunchers’ of an
organisation, but this is no longer their major task. Computerised accounting systems can now do
much of the work. Even small businesses have access to computerised accounting systems such as
Mind Your Own Business (MYOB), so the role of accountants has changed radically. Accountants
working in organisations have become important members of the management team, as organ-
isations have to contend with social changes caused by several factors:
● the dramatic development of information and communications technology including electronic
banking, the Internet and e-commerce
● the increasing demand by society for information of a non-financial nature, such as information
about an entity’s attention to occupational health and safety issues, social and equity diversity
issues such as the employment of people with disabilities and indigenous people, and environ­
mental considerations such as water usage, the organisation’s carbon footprint and other
sustainability practices
● the globalisation of business. Instead of merely being involved in a particular local community,
many organisations are seeing the world as their marketplace and as their source of labour and
knowledge. This has placed increasing demands on organisations to be accountable for their
corporate behaviour in foreign countries, including abiding by their rules and regulations, and
their impact on the society and environment of those countries. Questions being asked include:
How well does an organisation treat and pay its employees in developing countries? Is business
conducted by way of political payments (bribes) to influential officials in those countries? What
corporate governance practices apply in those countries?
● the globalisation of regulations affecting business organisations, such as the development and
adoption of international financial reporting standards.
One thing is certain: change will continue. In order to cope, accountants of the future need to have
not only record-keeping knowledge but also analytical and communication skills and business strategy
and planning know-how. They need the ability to think clearly and critically in order to solve problems,
a familiarity with information systems and technology, strong interpersonal communication skills with
clients and business associates, and sound ethical behaviour in different cultural environments.
This book is designed for all students studying accounting for the first time at a university
level, both those majoring in accounting and those seeking a basic understanding of accounting
but studying in other fields, such as marketing, management, economics, information technology,
law, engineering, the arts and sciences. Accounting is usually a core unit in business degrees as it
is the ‘language of business’.
Many students in non-accounting majors can benefit greatly from reading this book. Engineers
are often involved in designing products to reduce costs and meet target prices, so much of their
work is driven by accounting measures. Marketers often strive to maximise sales, so a knowledge
of costs, pricing and accounting methods is helpful for success. Human resources managers are
responsible for one of the major costs in an organisation, so they need to choose a mix of staff to
provide a quality service while keeping control of salary and wages costs. Indeed, many pro-
fessional groups outside of accounting find that having a good grasp of accounting concepts is an
advantage and enhances the opportunities for success in their chosen careers.
We begin the book by considering decision making in everyday life, and the role of accounting
in providing information for the decision-making process. Also in this chapter, we acquaint you
with the types of activities that are carried out by a professional accountant working in business.

■■ Accountants are not purely record keepers but are part of the management team in an organisation.
■■ Accountants need to have not only record-keeping knowledge but also analytical skills and business
strategy and planning knowhow.
■■ Accountants need the ability to think clearly and critically in order to solve problems, a familiarity with
information systems and technology, strong interpersonal communication skills with clients and business
associates, and sound ethical behaviour in different cultural environments.

1.2 Decisions in everyday life LO 2 Discuss the nature

We make many decisions every day. For example, we decide when to get out of bed each morning of decisions and the
decision-making process.
(sometimes prompted by our parents!); we decide the appropriate clothes to wear for the coming
day’s activities (influenced by our peers); we decide what to eat for breakfast, unless we are in too
much of a hurry, in which case we make another decision to go without breakfast.
Decisions involve choices because it is not possible to do everything we might like to do, as
time and resources are always limited. Some decisions can be made in no time at all with little
thought, such as putting on a coat if the weather is cold, but others may require much thinking,
planning and information gathering, such as choosing a career, buying a house or a car, moving
from one city to another, going on an overseas trip, choosing which subjects to study at university,
and deciding when to retire from active employment.
Sometimes, decisions made in haste can affect us adversely for the rest of our lives. Each
decision we make has outcomes which then affect decisions to be made at a later time. Ultimately,
the decisions we make, or the decisions made by others which affect us, determine our destiny in
life. Decisions affect our appearance, our economic wellbeing, even our emotional and spiritual
wellbeing, so it is important that we make decisions after careful consideration of all information
available at the time.

Steps in decision making

In simple terms, a decision is the making of a choice between two or more alternatives. Every time
a problem arises and we need to make a decision, we consciously or unconsciously follow four
main steps, which can be framed as questions.
1. What are we trying to achieve? We must identify each situation in which a decision is needed
and determine the goals we wish to achieve. The decision we make will be influenced by our
values, motives and desires.
2. What information do we need? Information can help change our attitudes, beliefs or expec-
tations. Information relevant to each decision helps us determine the alternatives available from
which to choose given the time, resources and degree of effort that we are prepared to commit
to making a choice.
3. What are the consequences of different alternatives? Having obtained information to help
us determine the alternatives available, we then need to assess the consequences or outcomes
of these alternatives. Since the outcomes of each alternative lie in the future, every decision we
make involves a degree of uncertainty, which means that there is an element of risk in achieving a
desired outcome. For example, even a decision to take out car insurance involves a degree of risk
as we balance the likelihood of causing a car accident with the cost of the insurance premium.
4. Which course of action will we choose? Finally, after consideration of the alternatives available
and the consequences of those alternatives, we must choose a course of action which we hope
will achieve the goals that we established in the first place.

Decision making and the role of accounting Chapter 1 5

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Title: The Cornhill Magazine (vol. XLII, no. 251 new series, May
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Author: Various

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 BRING UP THE GUNS.
by boyd cable.
When Jack Duncan and Hugh Morrison suddenly had it brought
home to them that they ought to join the New Armies, they lost little
time in doing so. Since they were chums of long standing in a City
office, it went without saying that they decided to join and ‘go through
it’ together, but it was much more open to argument what branch of
the Service or regiment they should join.
They discussed the question in all its bearings, but being as
ignorant of the Army and its ways as the average young Englishman
was in the early days of the war, they had little evidence except
varied and contradictory hearsay to act upon. Both being about
twenty-five they were old enough and business-like enough to
consider the matter in a business-like way, and yet both were young
enough to be influenced by the flavour of romance they found in a
picture they came across at the time. It was entitled ‘Bring up the
Guns,’ and it showed a horsed battery in the wild whirl of advancing
into action, the horses straining and stretching in front of the
bounding guns, the drivers crouched forward or sitting up plying whip
and spur, the officers galloping and waving the men on, dust swirling
from leaping hoofs and wheels, whip-thongs streaming, heads
tossing, reins flying loose, altogether a blood-stirring picture of
energy and action, speed and power.
‘I’ve always had a notion,’ said Duncan reflectively, ‘that I’d like to
have a good whack at riding. One doesn’t get much chance of it in
city life, and this looks like a good chance.’
‘And I’ve heard it said,’ agreed Morrison, ‘that a fellow with any
education stands about the best chance in artillery work. We’d might
as well plump for something where we can use the bit of brains
we’ve got.’
 ‘That applies to the Engineers too, doesn’t it?’ said Duncan. ‘And
the pottering about we did for a time with electricity might help there.’
‘Um-m,’ Morrison agreed doubtfully, still with an appreciative eye
on the picture of the flying guns. ‘Rather slow work though—digging
and telegraph and pontoon and that sort of thing.’
‘Right-oh,’ said Duncan with sudden decision. ‘Let’s try for the
Artillery.’
‘Yes. We’ll call that settled,’ said Morrison; and both stood a few
minutes looking with a new interest at the picture, already with a
dawning sense that they ‘belonged,’ that these gallant gunners and
leaping teams were ‘Ours,’ looking forward with a little quickening of
the pulse to the day when they, too, would go whirling into action in
like desperate and heart-stirring fashion.
‘Come on,’ said Morrison. ‘Let’s get it over. To the recruiting-office
—quick march.’
And so came two more gunners into the Royal Regiment.

When the long, the heart-breakingly long period of training and

waiting for their guns, and more training and slow collecting of their
horses, and more training was at last over, and the battery sailed for
France, Morrison and Duncan were both sergeants and ‘Numbers
One’ in charge of their respective guns; and before the battery had
been in France three months Morrison had been promoted to Battery
Sergeant-Major.
The battery went through the routine of trench warfare and dug its
guns into deep pits, and sent its horses miles away back, and sat in
the same position for months at a time, had slack spells and busy
spells, shelled and was shelled, and at last moved up to play its part
in The Push.
Of that part I don’t propose to tell more than the one incident—an
incident of machine-pattern sameness to the lot of many batteries.
The infantry had gone forward again and the ebb-tide of battle was
leaving the battery with many others almost beyond the water-mark
of effective range. Preparations were made for an advance. The
Battery Commander went forward and reconnoitred the new position
the battery was to move into, everything was packed up and made
ready, while the guns still continued to pump out long range fire. The
Battery Commander came in again and explained everything to his
officers and gave the necessary detailed orders to the Sergeant-
Major, and presently received orders of date and hour to move.
This was in the stages of The Push when rain was the most
prominent and uncomfortable feature of the weather. The guns were
in pits built over with strong walls and roofing of sand-bags and
beams which were weather-tight enough, but because the floors of
the pits were lower than the surface of the ground, it was only by a
constant struggle that the water was held back from draining in and
forming a miniature lake in each pit. Round and between the guns
was a mere churned-up sea of sticky mud. As soon as the new
battery position was selected a party went forward to it to dig and
prepare places for the guns. The Battery Commander went off to
select a suitable point for observation of his fire, and in the battery
the remaining gunners busied themselves in preparation for the
move. The digging party were away all the afternoon, all night, and
on through the next day. Their troubles and tribulations don’t come
into this story, but from all they had to say afterwards they were real
and plentiful enough.
Towards dusk a scribbled note came back from the Battery
Commander at the new position to the officer left in charge with the
guns, and the officer sent the orderly straight on down with it to the
Sergeant-Major with a message to send word back for the teams to
move up.
‘All ready here,’ said the Battery Commander’s note. ‘Bring up the
guns and firing battery waggons as soon as you can. I’ll meet you on
the way.’
The Sergeant-Major glanced through the note and shouted for the
Numbers One, the sergeants in charge of each gun. He had already
arranged with the officer exactly what was to be done when the order
came, and now he merely repeated his orders rapidly to the
sergeants and told them to ‘get on with it.’ When the Lieutenant
came along five minutes after, muffled to the ears in a wet
mackintosh, he found the gunners hard at work.
‘I started in to pull the sand-bags clear, sir,’ reported the Sergeant-
Major. ‘Right you are,’ said the Lieutenant. ‘Then you’d better put the
double detachments on to pull one gun out and then the other. We
must man-handle ’em back clear of the trench ready for the teams to
hook in when they come along.’
For the next hour every man, from the Lieutenant and Sergeant-
Major down, sweated and hauled and slid and floundered in slippery
mud and water, dragging gun after gun out of its pit and back a half
dozen yards clear. It was quite dark when they were ready, and the
teams splashed up and swung round their guns. A fairly heavy
bombardment was carrying steadily on along the line, the sky winked
and blinked and flamed in distant and near flashes of gun fire, and
the air trembled to the vibrating roar and sudden thunder-claps of
their discharge, the whine and moan and shriek of the flying shells.
No shells had fallen near the battery position for some little time, but,
unfortunately, just after the teams had arrived, a German battery
chose to put over a series of five-point-nines unpleasantly close. The
drivers sat, motionless blotches of shadow against the flickering sky,
while the gunners strained and heaved on wheels and drag-ropes to
bring the trails close enough to drop on the hooks. A shell dropped
with a crash about fifty yards short of the battery and the pieces flew
whining and whistling over the heads of the men and horses. Two
more swooped down out of the sky with a rising wail-rush-roar of
sound that appeared to be bringing the shells straight down on top of
the workers’ heads. Some ducked and crouched close to earth, and
both shells passed just over and fell in leaping gusts of flame and
ground-shaking crashes beyond the teams. Again the fragments
hissed and whistled past and lumps of earth and mud fell spattering
and splashing and thumping over men and guns and teams. A driver
yelped suddenly, the horses in another team snorted and plunged,
and then out of the thick darkness that seemed to shut down after
the searing light of the shell-burst flames came sounds of more
plunging hoofs, a driver’s voice cursing angrily, threshings and
splashings and stamping. ‘Horse down here ... bring a light ... whoa,
steady, boy ... where’s that light?’
Three minutes later: ‘Horse killed, driver wounded in the arm, sir,’
reported the Sergeant-Major. ‘Riding leader Number Two gun, and
centre driver of its waggon.’
‘Those spare horses near?’ said the Lieutenant quickly. ‘Right. Call
up a pair; put ’em in lead; put the odd driver waggon centre.’
Before the change was completed and the dead horse dragged
clear, the first gun was reported hooked on and ready to move, and
was given the order to ‘Walk march’ and pull out on the wrecked
remnant of a road that ran behind the position. Another group of five-
nines came over before the others were ready, and still the drivers
and teams waited motionless for the clash that told of the trail-eye
dropping on the hook.
‘Get to it, gunners,’ urged the Sergeant-Major, as he saw some of
the men instinctively stop and crouch to the yell of the approaching
shell. ‘Time we were out of this.’
‘Hear, bloomin’ hear,’ drawled one of the shadowy drivers. ‘An’ if
you wants to go to bed, Lanky’—to one of the crouching gunners
—‘just lemme get this gun away fust, an’ then you can curl up in that
blanky shell-’ole.’
There were no more casualties getting out, but one gun stuck in a
shell-hole and took the united efforts of the team and as many
gunners as could crowd on to the wheels and drag-ropes to get it
moving and out on to the road. Then slowly, one by one, with a
gunner walking and swinging a lighted lamp at the head of each
team, the guns moved off along the pitted road. It was no road really,
merely a wheel-rutted track that wound in and out the biggest shell-
holes. The smaller ones were ignored, simply because there were
too many of them to steer clear of, and into them the limber and gun
wheels dropped bumping, and were hauled out by sheer team and
man power. It took four solid hours to cover less than half a mile of
sodden, spongy, pulpy, wet ground, riddled with shell-holes,
swimming in greasy mud and water. The ground they covered was
peopled thick with all sorts of men who passed or crossed their way
singly, in little groups, in large parties—wounded, hobbling wearily or
being carried back, parties stumbling and fumbling a way up to some
vague point ahead with rations and ammunition on pack animals and
pack-men, the remnants of a battalion coming out crusted from head
to foot in slimy wet mud, bowed under the weight of their packs and
kits and arms; empty ammunition waggons and limbers lurching and
bumping back from the gun line, the horses staggering and slipping,
the drivers struggling to hold them on their feet, to guide the wheels
clear of the worst holes; a string of pack-mules filing past, their
drivers dismounted and leading, and men and mules ploughing
anything up to knee depth in the mud, flat pannier-pouches swinging
and jerking on the animals’ sides, the brass tops of the 18-pounder
shell-cases winking and gleaming faintly in the flickering lights of the
gun flashes. But of all these fellow wayfarers over the battlefield the
battery drivers and gunners were hardly conscious. Their whole
minds were so concentrated on the effort of holding and guiding and
urging on their horses round or over the obstacle of the moment, a
deeper and more sticky patch than usual, an extra large hole, a
shattered tree stump, a dead horse, the wreck of a broken-down
waggon, that they had no thought for anything outside these. The
gunners were constantly employed manning the wheels and heaving
on them with cracking muscles, hooking on drag-ropes to one gun
and dragging it clear of a hole, unhooking and going floundering
back to hook on to another and drag it in turn out of its difficulty.
The Battery Commander met them at a bad dip where the track
degenerated frankly into a mud bath—and how he found or kept the
track or ever discovered them in that aching wilderness is one of the
mysteries of war and the ways of Battery Commanders. It took
another two hours, two mud-soaked nightmare hours, to come
through that next hundred yards. It was not only that the mud was
deep and holding, but the slough was so soft at bottom that the
horses had no foothold, could get no grip to haul on, could little more
than drag their own weight through, much less pull the guns. The
teams were doubled, the double team taking one gun or waggon
through, and then going back for the other. The waggons were
emptied of their shell and filled again on the other side of the slough;
and this you will remember meant the gunners carrying the rounds
across a couple at a time, wading and floundering through mud over
their knee-boot tops, replacing the shells in the vehicle, and wading
back for another couple. In addition to this they had to haul guns and
waggons through practically speaking by man-power, because the
teams, almost exhausted by the work and with little more than
strength to get themselves through, gave bare assistance to the pull.
The wheels, axle deep in the soft mud, were hauled round spoke by
spoke, heaved and yo-hoed forward inches at a time.
When at last all were over, the teams had to be allowed a brief rest
—brief because the guns must be in position and under cover before
daylight came—and stood dejectedly with hanging ears, heaving
flanks, and trembling legs. The gunners dropped prone or squatted
almost at the point of exhaustion in the mud. But they struggled up,
and the teams strained forward into the breast collars again when
the word was given, and the weary procession trailed on at a jerky
snail’s pace once more.
As they at last approached the new position the gun flashes on the
horizon were turning from orange to primrose, and although there
was no visible lightening of the Eastern sky, the drivers were
sensible of a faintly recovering use of their eyes, could see the dim
shapes of the riders just ahead of them, the black shadows of the
holes, and the wet shine of the mud under their horses’ feet.
The hint of dawn set the guns on both sides to work with trebled
energy. The new position was one of many others so closely set that
the blazing flames from the gun muzzles seemed to run out to right
and left in a spouting wall of fire that leaped and vanished, leaped
and vanished without ceasing, while the loud ear-splitting claps from
the nearer guns merged and ran out to the flanks in a deep drum roll
of echoing thunder. The noise was so great and continuous that it
drowned even the roar of the German shells passing overhead, the
smash and crump of their fall and burst.
But the line of flashes sparkling up and down across the front
beyond the line of our own guns told a plain enough tale of the
German guns’ work. The Sergeant-Major, plodding along beside the
Battery Commander, grunted an exclamation.
‘Boche is getting busy,’ said the Battery Commander.
‘Putting a pretty solid barrage down, isn’t he, sir?’ said the
Sergeant-Major. ‘Can we get the teams through that?’
‘Not much hope,’ said the Battery Commander, ‘but, thank
Heaven, we don’t have to try, if he keeps barraging there. It is
beyond our position. There are the gun-pits just off to the left.’
But, although the barrage was out in front of the position, there
were a good many long-ranged shells coming beyond it to fall
spouting fire and smoke and earth-clods on and behind the line of
guns. The teams were flogged and lifted and spurred into a last
desperate effort, wrenched the guns forward the last hundred yards
and halted. Instantly they were unhooked, turned round, and started
stumbling wearily back towards the rear; the gunners, reinforced by
others scarcely less dead-beat than themselves by their night of
digging in heavy wet soil, seized the guns and waggons, flung their
last ounce of strength and energy into man-handling them up and
into the pits. Two unlucky shells at that moment added heavily to the
night’s casualty list, one falling beside the retiring teams and
knocking out half a dozen horses and two men, another dropping
within a score of yards of the gun-pits, killing three and wounding
four gunners. Later, at intervals, two more gunners were wounded by
flying splinters from chance shells that continued to drop near the
pits as the guns were laboriously dragged through the quagmire into
their positions. But none of the casualties, none of the falls and
screamings of the high-explosive shells, interrupted or delayed the
work, and without rest or pause the men struggled and toiled on until
the last gun was safely housed in its pit.
Then the battery cooks served out warm tea, and the men drank
greedily, and then, too worn out to be hungry or to eat the biscuit and
cheese ration issued, flung themselves down in the pits under and
round their guns and slept there in the trampled mud.
 The Sergeant-Major was the last to lie down. Only after everyone
else had ceased work, and he had visited each gun in turn and
satisfied himself that all was correct, and made his report to the
Battery Commander, did he seek his own rest. Then he crawled into
one of the pits, and before he slept had a few words with the
‘Number One’ there, his old friend Duncan. The Sergeant-Major,
feeling in his pockets for a match to light a cigarette, found the note
which the Battery Commander had sent back and which had been
passed on to him. He turned his torch light on it and read it through
to Duncan—‘Bring up the guns and firing battery waggons ...’ and
then chuckled a little. ‘Bring up the guns.... Remember that picture
we saw before we joined, Duncan! And we fancied then we’d be
bringing ’em up same fashion. And, good Lord, think of to-night.’
‘Yes,’ grunted Duncan, ‘sad slump from our anticipations. There
was some fun in that picture style of doing the job—some sort of
dash and honour and glory. No honour and glory about “Bring up the
guns” these days. Na poo to-night anyway.’
The Sergeant-Major, sleepily sucking his damp cigarette, wrapped
in his sopping British Warm, curling up in a corner on the wet cold
earth, utterly spent with the night’s work, cordially agreed.
Perhaps, and anyhow one hopes, some people will think they
were wrong.
 FRANCE AND BRITAIN: THEIR
COMMON MEMORIES.
‘France and England, whose very shores look pale
With envy of each other’s happiness.’

Shakespeare, Henry V., Act v. sc. ii.

‘Each the other’s mystery, terror, need and love.’

Rudyard Kipling.

Our common memories? Well, are they so many of this nature

which brings closer those who recollect them together? They are
indeed! Let this article be a friendly protest, a grounded protest
against the idea which is no doubt, still, the prevalent popular idea
on both sides of the Channel, I mean this one: ‘The Entente Cordiale
is something splendid, but when one comes to think about it, how
wonderful, how new!’ Yes, when we think about it superficially, how
wonderful, how new, but when we think somewhat more deeply and
with a little more knowledge of the past, how natural! Not a miracle:
the logical result, only too long deferred, of the long centuries of our
common history. It is not mere pastime to show it. How important on
the contrary, how practically important for the present and for the
future of our alliance, to make conscious again the old moral ties and
to reawaken the sleeping sense of historical fellowship!

II.
To make that fellowship apparent, at a glance, at least from certain
points of view, I have devised the appended diagram. There you see
represented, as it were, the streams of the history of our two nations
from their farthest origins down to our own times. Please note the
scale of centuries. See both streams rising about eight or six
centuries before Christ in the same mountain—if I may say so
figuratively—in the same mountain of the Celtic race. They spring, as
you see, from the same source, and, though geographically divided,
their waters remain a long time of the same colour—green in my
draught.

SYMBOLIC DRAUGHT ILLUSTRATING THE HISTORY OF FRANCO-BRITISH

RELATIONS.

We have, on that point of their origins, very interesting and very

numerous testimonies, chiefly in the contemporary Greek and
Roman writers. Very striking in particular was the fellowship of
ancient Britons and Gauls with regard to religion. If you open one—I
may say any one—of our French history text-books, you will see that
it begins exactly as one of yours, with the same story, and pictures,
of Druids, priests, teachers, and judges—some of them bards; the
same story of the solemn gathering of the mistletoe verdant in winter
on the bare branches of oaks, symbol of the cardinal creed of the
race: the immortality of the soul. Caesar, who had a Druid among his
best friends, observes that the young Gauls who wanted to go
deeper into the study of their religion generally used to go over to
Britain in order to graduate, if I may say so, in this mysterious and