Accounting

contents


preface

accounting's role in business

part one

tbe basic structure of accounting 1

1 accounting and its environment 2

what is accounting? 4

users of accounting information: decision

makers 4

the development of accounting 6

ethical considerations in accounting and

business 7

types of business organizations 7

accounting concepts and principles 8

the accounting equation 11

accounting for business transactions 12

evaluating business transactions 17

summary of business activities 18

financial statemenn 18

.relationships among the financial statements 19

summary problem for your review 21

summary 22

questions/exercises/problems 25

extending your knowledge 35

appendix： tbe accounting profession: career

opportunities 38

the work of accountants 38

specialized accounting services 39

accounting organizations and designations 40

2 recording business transactions 42

the account 44

double-entry accounting 47

the t-account 47

increases and decreases in the accounts 47

recording transactions in journals 50

transferring information (posting) from the

journal to the ledger 51

flow of accounting data 51

mid-cbapter summary problem for your review 55

details of journals and ledgers 56

posting 58

four-column account format 58

chart of accounts 59

normal balance of an account 60

additional owner's equity accounts:

revenues and expenses 61

expanded problem including revenues and

expenses 61

use of accounting information for quick

decision making 65

summary problem your review 66

summary 69

questions/exercises/problems 70

extending your knowledge 83

appendix: typical cbarts of accounts for different

typees of businesses 85

3 measuring business income:

the adjusting process 88

accrual-basis accounting versus cash-basis

accounting 90

the accounting period 92

revenue principle 92

matching principle 93

time-period concept 94

adjustments to the accounts 95

prepaids (deferrals) and accruals 96

overview of the adjusting entries 104

adiusted trial balance 106

preparing the financial statements from the

adiusted trial balance 107

relationships among the three financial

statements 108

summary problem for your review 109

summary 112

questions/exercies/problems 114

extending your knowledge 126

appendix: alternate treatment of accounting for

prepaid expenses and unearned revenues 129

prepaid expenses 129

prepaid expense recorded initially as

an expense 129

unearned (deferred) revenues 130

unearned (deferred) revenue recorded initially

as a revenue 130

appendix exercises /problem 131

4 completing the accounting

cycle 132

overview of the accounting cycle 134

accounting work sheet 134

mid-cbapter summary problem for your review 137

using the work sheet 138

comecting jonrnal entriea 144

classification of assets and liabilities 144

formats of balance sheets 147

use of accounting information in decision

making: accounting ratios 148

summary problem for ybur review 150

summary 153

questios/exercises/problems 154

extending your knowledge 168

appendix: reversing entries:

an optional step 171

appendix problem 173

5 merchandising and

the accounnting cycle

merchandising opentions 176

the operating cycle of a merchandising

business 177

inventory systems 177

purchase of merchandise inventory in the

perpetual system 178

sale of inventory and cost of goods sold 183

cost of goods sold and gross margin 186

mid-cbapter summary problem for your review 187

the adjusting and closing process for a

merchandising business 188

financial statements of a merckandising

business 191

income statement format 193

use of accounting information in decision

making 195

sunmmary problem for your review 197

summary 201

questions/exercises/problems 202

extending your knowledge 213

supplement accounting for mercbandise

inventory in a periodic system 217

purchase of mercbandise inventory in the

periodic system 217

sale of inventory 218

the adjusting and closing process for a

merchandising business 220

financial statements of a merchandising

business 222

summary problem for yaur review 226

supplement problems 230

6 accounting infonnation

systems 232

featores of an effective accounting

information system 234

the three stages of data processing: a

comparison of computerized and manual

accounting systems 236

overview of an accounting information

system 242

summary problem for your review 2s3

summary 256

questions/exercises/problems 257

extending your knowledge 268

camprebensive problems for part one 271

video case: lawless container

corporation-business analysis 277

part two

accounting for assets and liabilities 279

7 internal control , cash

transactions

and ethical issues 280

internal control 282

effective systems of internal control 283

limiations of internal control 288

the bank account as a control device 288

mid-cbapter summary problem for your review 295

reporting of cash 297

internal control over cash receipts 297

internal control over cash disbursements

(payments) 299

ethics and internal controls 302

corporate and professional codes of ethics 303

ethical issues in accounting 303

ethics and external controls 304

summary problem for you review 305

summary 306

questions/exercises/problems 308

extending your knowledge 318

appendix: tbe voucber system 321

appendix problems 325

8 accounts and notes reeeivable 326

different types of receivables 328

the credit department 328

uncolleaible accounts (bad debts) 329

direct write-off method 335

credit balances in accounts receivable 336

credit-card sales 337

internal control over collections of accounts

receivable 337

mid-cbapter summary problem for your review 338

notes receivable 339

reporting receivables and allowances: actual

reports 345

use of accounting information in decision

making 346

computers and accounts receivable 348

summary problem for your review 348

summary 350

questions/exercises/problems 351

extending your knowledge 362

9 merchandise inventory 364

the basic concept of inventory accounting 366

perpetual and periodic inventory systems 366

computing the cost of inventory 370

inventory costing methods 370

the income tax advantage of lifo 373

analysis of financial statements

converting a lifo company's income

to the fifo basis 374

generally accepted accounting principles and

practical collsiderations: a comparison of

inventory methods 375

mid-cbapter summary problem for your review 377

perpetual inventory records under fifo, lifo,

and weighted-average costing 379

consistency principte 380

disclosare principle 380

materiality concept 381

accounting conservatism 381

effects of inventory errors 383

estimating inventory 385

internal control over inveptory 386

summary problems for your review 387

summary 388

questions/exercises/problems 390

extending your knowledgt 401

10 plant assets, intangible assets,

and related expenses 404

the cost of a plant asset 406

depreciation of plant assets 408

determining the useful life of a plant asset 409

measuring depreciation 409

depreciation methods 410

mid-cbapter summary problem for your review 415

depreciation and income taxes 416

depreciation for partial years 418

change in the useful life of a depreciable

asset 419

using fully depreciated assets 420

disposal of plant assets 420

accounting for natural resources and

depletion 424

accounting for intangible assets and

amortization 425

capital expenditures versus revenue

expenditures 428

summary problems your review 429

semmary 430

questions/exercises/problems 432

extending your knowledge 444

11 current liabilities and

payroll accounting 446

cnrrenc liabilities of known amount 448

corrent liabilities that must be estimated 453

contingent liabilities 456

mid-cbapter summary problem for your review 457

accounting for payroll 459

gross pay and net pay 459

payroll entries 462

the payroll! system 463

recording cash disbursements for payroll 466

internal control over payrolls 469

reporting payroll expense and liabilities 470

summary problem for your review 471

summary 472

questions/exercises/problems 474

evtending your knowledge 485

12 the foundation for generally

accepted accounting principles 488

acconnting standards in the united states 490

the conceptual framework 490

objective of financial reporting 491

underlying concepts 492

acconnting principles 494

constraints on accounting 502

summary problem for your review 505

summary 505

questions/exercies/problems 5o7

extending ybur knowledge 515

comprebensive rroblems for part two 516

vdieo case: turbulent times for the

airline industry 518

part three

accounting for partnersbips and

corporate transactions 519

13 accounting for partnerships 520

characteristics of a partnership 522

initial investments by partners 524

sharing partnership profits and losses 525

partner orawings 529

admission of a partner 530

withdrawal of a partnet 533

death of a partner 535

liquidation of a partnership 536

partnership financial statements 538

summary problem for your review 539

summary 541

questions/exercies/problems 542

extending your knowledge 549

14 corporate organization, paid-in

capital, and the balance sheet 552

characteristics of a corporation 554

organization of a corporation 556

capital stock 557

stockholden' equity 557

stockholders' rights 559

classes of stock 559

rssuing stock 561

review of accounting for stock 565

mid-cbepter summary problems for your review 566

donations received by a corporation 567

incorporation of a going business 568

organization cost 568

dividend dates 569

dividends on preferred and common stock 569

convertible preferred stock 571

evaluating operations: rate of return on total

assets and rate of return on common

stockholders' equity 572

different values of stock 573

accounting for income taxes by

corporations 576

summary problems for your review 578

summary 580

questions/exercises/problems 582

extending your knowledge 592

15 retained earnings, dividends,

treasury stock, and

the income satement 594

retained earnings and dividends 596

stock dividends 597

stock splin 600

treasury stock 602

mid-cbapter summary problem for your revicew 605

retirement of stock 606

restrictions on retained earnings 606

variations in reporting stockholders' equity 607

corporation income statement 608

statement of retained earning 614

statement of stockholders' equity 616

summary problem for your review 616

sumwary 618

ouestions/exercires/problems 619

extending your knowledge 633

16 long-term liabilities 636

the nature of bonds 638

bond prices 639

issuing bonds payable 642

adjusting entries for interest expense 647

mid-cbapter summary problem for your review 648

effective-interest method of amortization 649

retirement of bonds payable 653

convertible bonds and notes 654

current portion of long-term debt 654

mortgage notes payable 655

advantage of financing opeations with bonds

versus stoek 655

lease liabilties 656

off-balance-sheet financing 659

pension and postretirement benefits liabilities 659

summary problem for your review 660

summary 662

questions/exercises/problems 664

appendix: time value of money: future vslue

and present value 674

future value 674

present value 678

capital leases 682

appendix problems 682

17 investments and accounting

for international operations 684

accounting for investments 686

stock prices 686

investments in stock 687

classifying stock investments 687

trading investments---the market value

method 688

investments in bonds and notes 698

mid-cbapter summary problem for your review 701

accounting for international operations 703

economic structures and their impact on

internatiortal accounting 703

accounting for international transactions 705

hedging-a strategy to avoid foreign-currency

transaction losses 707

consolidation of foreign subsidiaries 707

international accounting sandards 709

summary problems for your review 709

summary 711

questions/exercises/problems 713

comprebensive problems for part tbree 725

video case, wal-mart stores, inc. 7z6

part four

analysis of accounting information 727

18 satement of cash flows 728

basic concept of the satement of cask

flows 730

overview of the statement of cash flows 731

operating, investing, and financing activities 731

format of the statement of cash flows 734

preparing the satement of cask flows: the

direct method 735

mid-cbepter summary problem for your review 738

computing individual amounts for the satement

of cash flows 740

noncash investing and financing aetivities 746

reconciliation of net income to net cash flow

from operating activities 746

preparing the satement of cash flows: the

indirect method 747

summary problem for your review 752

summary 753

questions/exercises/problems 755

extending your knowledge 773

appendix: tbe work sbeet approacb to preparing

tbe statement of casb flows 776

preparing the work sheet-direct method for

operating activities 777

preparing tbe work sheet-indirea method for

operating activities 779

appendix problems 781

19 financial statement analysis

for decision

financial statement analysis 786

horizontal analysis 788

vertical analysis 791

common-size satements 793

industry comparisons 794

the statement of cash flows in decision

making 795

mid-cbapter summary problem for your review 797

using ratios to make business decisions 798

measuring dte ability to pay current

liabilitie 801

measuring the abiliqr to sell inventory and

collect receivables 804

measuring the ability to pay long-term

debt 807

measuring profitability 808

analyzing stock as an investment 811

limitations of finarlcial analysis: the complexity

of business decisions 813

efficient marken, management action, and

investor decisions 813

semmary problem for your review 814

summary 815

questions/exercires/problems 817

extending your knowledge 832

comprebensive problems for part four 835

video case: beyond the macy's

bankruptcy 837

part five

manaement accounting and

product costing 839

20 introduction to management

accounting: manufacturing

accounting and job order

costing 840

the functions of management 842

management accounting and financial

accounting 843

management's use of accounting

information 843

merchandising versus manufacturing 844

manufacturing and the value chain 844

manufacnlring costs 846

inventoriable costs and period costs 849

perpealal and periodic inventory systems 850

mid-cbapter summary problems for your

review 851

job order costing 851

summary problem for your review 863

summary 864

questions/exerrises/problems 866

extending your knowledge 876

21 process costing 878

process costing: an overview 880

recording cosn 882

tracking the flow of costs 884

equivalent units of production 884

steps in process cost accounting 885

mid-cbapter sammary problem for your revicew 888

process costing for a second department——fifo

method 890

production cost repon 894

process costing for a second department——

weighted-average method 895

summary problem for your review 899

summary 901

questions/exercises/problems 903

extending your knowledge 911

comprebensive problems for part five 913

video case: lawless container

corporation-management

accounting 914

part six

internal decision making,

plannings and control 915

22 cost-volume-profit analysis and

the contribution margin approach

to decision making 916

types of costs 918

relevant range 920

two approaches to computing profit 921

contribution margin approach to decision

making 922

mid-cbapter summary problem for your review 923

cost-volume-profit (cvp) analysis 924

margin of safety 929

assumptions underlying cvp analysis 930

sales mix 930

income effects of alternative approaches to

product costing 932

summary problem for your revicm 934

summary 936

questions/exercises/problems 937

extending your knowledge 944

23 cost behavior analysis 946

fixed costs 948

variable costs 951

using cost behavior analysis to budget and

control operating expenses 952

trade-offs between.fixed and variable costs 955

mid-cbapter summary problem for your

review 956

determining how costs behave 958

estimating mixed-cost functions 960

evaluating cost functions 966

summary problem for your review 967

summary 969

quettions/exercilces/problems 971

extending your knowledge 978

24 the master budget and

responsibiliry accounting 980

the budget unit 982

benefits of budgeting 983

the performance report 984

components of the master budget 985

preparing the master budget 986

budgeting and sensitivity analysis 992

mid-chapter summary proble for your

rcview 993 responsibility accounting 996

management by exception 999

not a question of blame 999

departmental accounting 1000

allocation of service department costs 1000

summary problems for your review 1003

summary 1004

questions/exercises/problems 1006

extending your knowledge 1015

appendix: tbe casb budget 1017

25 flexible budgets and

standarfl costs 1018

cost behavior parerns 1020

static versus flexible budgets 1020

graphing the flexible budget formula 1022

the flexible budget and variance allalysis 1023

mid-cbapter summary problem for your

review 1025

standard costing 1026

setting standards 1026

benefits of standard costs 1027

example of standard costing 1028

management's use of variance information 1031

manufacturing overhead variances 1032

standard costs in the accounts 1037

standard cost income statement for

management 1039

summary problem for your review 1039

summary 1042

questions/exercises/problems 1044

extending your knowledge 1051

comprebensive problems for part six 1053

video case: the chaaging movie

industry 1054

part seven

strategy and long-term

decision making 1055

26 strategy, cost management, and

continuous improvement 1056

activity-based costing 1058

activity-based costing and management

decisions 1062

traditional versus just-in-time production

systems 1062

mid-cbapter summary problems for your

rcview 1067

continuous improvement and prodact life-cycle

costs 1069

continuous improvement and the management of

qualitr 1072

summary problem for your review 1075

summary 1076

questions/exerciles/problems 1077

extendivg your knowledge 1086

27 special business decisions and

capial budgeting 1088

relevant information for decision making 1090

special sales order 1091

deletion of products, departments, territories-

fixed costs unchanged 1094

deletion of products, departments, territories-

fixed costs changed 1095

which product to emphasize 1095

make or buy 1096

best use of facilities 1097

replacemenc of equipment 1098

joint products 1099

opportunity cost 1101

mid-cbapter summary problems for your

reviem 1102

capital budgeting 1103

discounted cash-flow models 1106

comparison ofdle capial-budgeting models 1111

lease or buy 1112

summary problem for your review 1112

summary 1113

questions/exercises/problems 1115

extending your knowledge 1123

camprebensive problems for part seven 1125

video case：reinventing chrysler 1126

appendixes

a published financial statements a-1

b ptesent-valne table and

future-value tables b-1

c personal income tax c-1

glossary g-1

indexes

company i-1

subjeet i-3