Accounting

Cover......Page 1
Accounting, 23rd ed......Page 4
ISBN-13: 9780324662962  ISBN-10: 0324662963......Page 5
Brief Contents......Page 27
Contents......Page 28
CHAPTER 1 Introduction to Accounting and Business......Page 36
Types of Businesses......Page 37
The Role of Accounting in Business......Page 38
Role of Ethics in Accounting and Business......Page 39
Opportunities for Accountants......Page 41
Generally Accepted Accounting Principles......Page 42
The Cost Concept......Page 43
The Accounting Equation......Page 44
Business Connection: The Accounting Equation......Page 45
Financial Statements......Page 50
Income Statement......Page 51
Balance Sheet......Page 52
Statement of Cash Flows......Page 54
Financial Analysis and Interpretation......Page 56
CHAPTER 2 Analyzing Transactions......Page 84
Using Accounts to Record Transactions......Page 85
Business Connection: The Hijacking Receivable......Page 87
Balance Sheet Accounts......Page 88
Normal Balances......Page 89
Journalizing......Page 90
Posting Journal Entries to Accounts......Page 94
Errors Affecting the Trial Balance......Page 103
Errors Not Affecting the Trial Balance......Page 105
Financial Analysis and Interpretation......Page 106
CHAPTER 3 The Adjusting Process......Page 134
Nature of the Adjusting Process......Page 135
The Adjusting Process......Page 136
Types of Accounts Requiring Adjustment......Page 137
Recording Adjusting Entries......Page 139
Prepaid Expenses......Page 140
Unearned Revenues......Page 142
Accrued Revenues......Page 143
Accrued Expenses......Page 144
Depreciation Expense......Page 146
Summary of Adjustment Proces......Page 148
Business Connection: Microsoft Corporation......Page 151
Adjusted Trial Balance......Page 153
Financial Analysis and Interpretation......Page 155
CHAPTER 4 Completing the Accounting Cycle......Page 178
Flow of Accounting Information......Page 179
Income Statement......Page 181
Statement of Owner\'s Equity......Page 183
Balance Sheet......Page 184
Closing Entries......Page 185
Journalizing and Posting Closing Entries......Page 187
Post-Closing Trial Balance......Page 190
Accounting Cycle......Page 191
Illustration of the Accounting Cycle......Page 192
Step 1. Analyzing and Recording Transactions in the Journal......Page 193
Step 2. Posting Transactions to the Ledger......Page 194
Step 4. Assembling and Analyzing Adjustment Data......Page 195
Step 6. Journalizing and Posting Adjusting Entries......Page 196
Step 8. Preparing the Financial Statements......Page 198
Step 10. Preparing a Post-Closing Trial Balance......Page 200
Fiscal Year......Page 203
Appendix: End-of-Period Spreadsheet (Work Sheet)......Page 204
Step 3. Enter the Adjustments......Page 210
Step 6. Total the Income Statement and Balance Sheet Columns, Compute the Net Income or Net Loss, and Complete the Spreadsheet......Page 211
Preparing the Financial Statements from the Spreadsheet......Page 212
Comprehensive Problem 1......Page 239
CHAPTER 5 Accounting Systems......Page 244
Basic Accounting Systems......Page 245
Subsidiary Ledgers......Page 246
Special Journals......Page 247
Revenue Journal......Page 248
Cash Receipts Journal......Page 251
Accounts Receivable Control Account and Subsidiary Ledger......Page 253
Purchases Journal......Page 254
Cash Payments Journal......Page 257
Accounts Payable Control Account and Subsidiary Ledger......Page 259
Modified Special Journals......Page 260
Computerized Accounting Systems......Page 261
Business Connection: Accounting Systems and Profit Measurement......Page 262
E-Commerce......Page 265
Financial Analysis and Interpretation......Page 266
CHAPTER 6 Accounting for Merchandising Businesses......Page 294
Nature of Merchandising Businesses......Page 295
Financial Statements for a Merchandising Business......Page 296
Multiple-Step Income Statement......Page 297
Balance Sheet......Page 301
Sales Transactions......Page 303
Purchase Transactions......Page 309
Freight, Sales Taxes, and Trade Discounts......Page 312
Dual Nature of Merchandise Transactions......Page 315
Adjusting Entry for Inventory Shrinkage......Page 316
Closing Entries......Page 317
Financial Analysis and Interpretation......Page 318
Manual Accounting System......Page 319
Computerized Accounting Systems......Page 321
Cost of Merchandise Sold Using the Periodic Inventory System......Page 322
Chart of Accounts Under the Periodic Inventory System......Page 323
Adjusting Process Under the Periodic Inventory System......Page 324
Closing Entries Under the Periodic Inventory System......Page 325
Comprehensive Problem 2......Page 349
CHAPTER 7 Inventories......Page 354
Safeguarding Inventory......Page 355
Inventory Cost Flow Assumptions......Page 356
First-In, First-Out Method......Page 359
Last-In, First-Out Method......Page 361
Computerized Perpetual Inventory Systems......Page 362
First-In, First-Out Method......Page 363
Last-In, First-Out Method......Page 364
Average Cost Method......Page 365
Comparing Inventory Costing Methods......Page 366
Reporting Merchandise Inventory in the Financial Statements......Page 367
Valuation at Lower of Cost or Market......Page 368
Merchandise Inventory on the Balance Sheet......Page 369
Effect of Inventory Errors on the Financial Statements......Page 370
Financial Analysis and Interpretation......Page 373
Retail Method of Inventory Costing......Page 374
Gross Profit Method of Inventory Costing......Page 375
CHAPTER 8 Sarbanes-Oxley, Internal Control, and Cash......Page 395
Sarbanes-Oxley Act of 2002......Page 396
Elements of Internal Control......Page 398
Control Environment......Page 399
Control Procedures......Page 400
Monitoring......Page 402
Cash Controls Over Receipts and Payments......Page 403
Control of Cash Receipts......Page 404
Control of Cash Payments......Page 406
Bank Statement......Page 407
Using the Bank Statement as a Control Over Cash......Page 409
Bank Reconciliation......Page 410
Special-Purpose Cash Funds......Page 414
Financial Statement Reporting of Cash......Page 415
Financial Analysis and Interpretation......Page 416
Business Connection: Microsoft Corporation......Page 417
CHAPTER 9 Receivables......Page 440
Notes Receivable......Page 441
Uncollectible Receivables......Page 442
Direct Write-Off Method for Uncollectible Accounts......Page 443
Allowance Method for Uncollectible Accounts......Page 444
Write-Offs to the Allowance Account......Page 445
Estimating Uncollectibles......Page 446
Comparing Direct Write-Off and Allowance Methods......Page 451
Characteristics of Notes Receivable......Page 453
Accounting for Notes Receivable......Page 454
Reporting Receivables on the Balance Sheet......Page 456
Financial Analysis and Interpretation......Page 457
Appendix: Discounting Notes Receivable......Page 458
CHAPTER 10 Fixed Assets and Intangible Assets......Page 483
Nature of Fixed Assets......Page 484
Classifying Costs......Page 485
The Cost of Fixed Assets......Page 486
Capital and Revenue Expenditures......Page 487
Leasing Fixed Assets......Page 488
Accounting for Depreciation......Page 489
Factors in Computing Depreciation Expense......Page 490
Straight-Line Method......Page 491
Units-of-Production Method......Page 492
Double-Declining-Balance Method......Page 493
Comparing Depreciation Methods......Page 494
Revising Depreciation Estimates......Page 495
Discarding Fixed Assets......Page 497
Selling Fixed Assets......Page 498
Natural Resources......Page 499
Patents......Page 500
Copyrights and Trademarks......Page 501
Goodwill......Page 502
Financial Reporting for Fixed Assets and Intangible Assets......Page 503
Business Connection: Hub-and-Spoke or Point-to-Point?......Page 504
Appendix: Sum-of-the-Years-Digits Depreciation......Page 505
Appendix: Exchanging Similar Fixed Assets......Page 506
Loss on Exchange......Page 507
CHAPTER 11 Current Liabilities and Payroll......Page 527
Accounts Payable......Page 528
Short-Term Notes Payable......Page 529
Deductions from Employee Earnings......Page 532
Liability for Employer\'s Payroll Taxes......Page 535
Accounting Systems for Payroll and Payroll Taxes......Page 536
Payroll Register......Page 537
Payroll Checks......Page 540
Payroll System Diagram......Page 541
Internal Controls for Payroll Systems......Page 542
Vacation Pay......Page 544
Pensions......Page 545
Postretirement Benefits Other than Pensions......Page 546
Probable and Estimable......Page 547
Remote......Page 548
Financial Analysis and Interpretation......Page 550
Comprehensive Problem 3......Page 569
CHAPTER 12 Accounting for Partnerships and Limited Liability Companies......Page 575
Proprietorships......Page 576
Partnerships......Page 577
Limited Liability Companies......Page 578
Forming and Dividing Income of a Partnership......Page 579
Forming a Partnership......Page 580
Dividing Income......Page 581
Admitting a Partner......Page 583
Death of a Partner......Page 588
Liquidating Partnerships......Page 589
Gain on Realization......Page 590
Loss on Realization......Page 591
Loss on Realization—Capital Deficiency......Page 593
Statement of Partnership Equity......Page 596
Financial Analysis and Interpretation......Page 597
CHAPTER 13 Corporations: Organization, Stock Transactions, and Dividends......Page 617
Characteristics of a Corporation......Page 618
Forming a Corporation......Page 619
Stockholders\' Equity......Page 621
Classes of Stock......Page 622
Issuing Stock......Page 624
No-Par Stock......Page 625
Business Connection: Cisco Systems, Inc.......Page 626
Cash Dividends......Page 627
Stock Dividends......Page 629
Treasury Stock Transactions......Page 630
Stockholders\' Equity in the Balance Sheet......Page 632
Reporting Retained Earnings......Page 634
Statement of Stockholders\' Equity......Page 635
Reporting Stockholders\' Equity for Mornin\' Joe......Page 636
Stock Splits......Page 637
Financial Analysis and Interpretation......Page 638
CHAPTER 14 Long-Term Liabilities: Bonds and Notes......Page 660
Financing Corporations......Page 661
Proceeds from Issuing Bonds......Page 664
Bonds Issued at Face Amount......Page 665
Bonds Issued at a Discount......Page 666
Amortizing a Bond Discount......Page 667
Bonds Issued at a Premium......Page 668
Amortizing a Bond Premium......Page 669
Bond Redemption......Page 670
Annual Payments......Page 672
Reporting Long-Term Liabilities......Page 674
Appendix: Present Value Concepts and Pricing Bonds Payable......Page 675
Present Value Concepts......Page 676
Pricing Bonds......Page 678
Amortization of Discount by the Interest Method......Page 680
Amortization of Premium by the Interest Method......Page 681
CHAPTER 15 Investments and Fair Value Accounting......Page 700
Investing Cash in Current Operations......Page 701
Investing Cash in Long-Term Investments......Page 702
Interest Revenue......Page 703
Sale of Bonds......Page 704
Less Than 20% Ownership......Page 705
Between 20%–50% Ownership......Page 707
More Than 50% Ownership......Page 709
Trading Securities......Page 710
Held-to-Maturity Securities......Page 713
Available-for-Sale Securities......Page 714
Summary......Page 717
Trend to Fair Value Accounting......Page 719
Effect of Fair Value Accounting on the Financial Statements......Page 720
Purchase of Bonds......Page 721
Amortization of Premium or Discount......Page 722
Receipt of Maturity Value of Bond......Page 723
Appendix: Comprehensive Income......Page 724
Comprehensive Problem 4......Page 746
Financial Statements for Mornin\' Joe......Page 750
CHAPTER 16 Statement of Cash Flows......Page 753
Reporting Cash Flows......Page 754
Cash Flows from Operating Activities......Page 755
Business Connection: Too Much Cash!......Page 757
Statement of Cash Flows—The Indirect Method......Page 758
Adjustments to Net Income......Page 760
Common Stock......Page 765
Building......Page 766
Preparing the Statement of Cash Flows......Page 767
Statement of Cash Flows—The Direct Method......Page 768
Cash Received from Customers......Page 769
Cash Payments for Merchandise......Page 770
Interest Expense......Page 771
Reporting Cash Flows from Operating Activities—Direct Method......Page 772
Financial Analysis and Interpretation......Page 773
Retained Earnings......Page 774
Preparing the Statement of Cash Flows......Page 776
CHAPTER 17 Financial Statement Analysis......Page 805
Basic Analytical Methods......Page 806
Horizontal Analysis......Page 807
Vertical Analysis......Page 809
Common-Sized Statements......Page 810
Solvency Analysis......Page 812
Current Position Analysis......Page 813
Accounts Receivable Analysis......Page 815
Inventory Analysis......Page 816
Ratio of Liabilities to Stockholders\' Equity......Page 818
Number of Times Interest Charges Earned......Page 819
Ratio of Net Sales to Assets......Page 820
Rate Earned on Total Assets......Page 821
Rate Earned on Stockholders\' Equity......Page 822
Rate Earned on Common Stockholders\' Equity......Page 823
Earnings Per Share on Common Stock......Page 824
Price-Earnings Ratio......Page 825
Summary of Analytical Measures......Page 826
Report on Internal Control......Page 828
Business Connection: Investing Strategies......Page 829
Unusual Items Affecting the Current Period\'s Income Statement......Page 830
Unusual Items Affecting the Prior Period\'s Income Statement......Page 832
Nike, Inc., Problem......Page 856
CHAPTER 18 Managerial Accounting Concepts and Principles......Page 860
Managerial Accounting......Page 861
Differences Between Managerial and Financial Accounting......Page 862
The Management Accountant in the Organization......Page 863
Managerial Accounting in the Management Process......Page 864
Manufacturing Operations: Costs and Terminology......Page 866
Direct and Indirect Costs......Page 867
Manufacturing Costs......Page 868
Balance Sheet for a Manufacturing Business......Page 872
Income Statement for a Manufacturing Company......Page 873
Uses of Managerial Accounting......Page 875
Business Connection: Navigating the Information Highway......Page 878
CHAPTER 19 Job Order Costing......Page 897
Cost Accounting System Overview......Page 898
Job Order Cost Systems for Manufacturing Businesses......Page 899
Materials......Page 900
Factory Labor......Page 902
Factory Overhead Cost......Page 904
Work in Process......Page 909
Finished Goods......Page 910
Summary of Cost Flows for Legend Guitars......Page 911
Job Order Costing for Decision Making......Page 913
Job Order Cost Systems for Professional Service Businesses......Page 914
Business Connection: Making Money in the Movie Business......Page 915
CHAPTER 20 Process Cost Systems......Page 939
Process Cost Systems......Page 940
Comparing Job Order and Process Cost Systems......Page 941
Cost Flows for a Process Manufacturer......Page 943
Step 1: Determine the Units to Be Assigned Costs......Page 946
Step 2: Compute Equivalent Units of Production......Page 948
Step 3: Determine the Cost per Equivalent Unit......Page 951
Step 4: Allocate Costs to Units Transferred Out and Partially Completed Units......Page 953
Preparing the Cost of Production Report......Page 955
Journal Entries for a Process Cost System......Page 956
Frozen Delight......Page 959
Yield......Page 960
Just-in-Time Processing......Page 961
Determining Costs Using the Average Cost Method......Page 963
The Cost of Production Report......Page 965
CHAPTER 21 Cost Behavior and Cost-Volume- Profit Analysis......Page 990
Cost Behavior......Page 991
Variable Costs......Page 992
Mixed Costs......Page 993
Cost-Volume-Profit Relationships......Page 996
Contribution Margin Ratio......Page 997
Unit Contribution Margin......Page 998
Break-Even Point......Page 1000
Target Profit......Page 1003
Cost-Volume-Profit (Break-Even) Chart......Page 1005
Profit-Volume Chart......Page 1007
Assumptions of Cost-Volume-Profit Analysis......Page 1008
Special Cost-Volume-Profit Relationships......Page 1009
Sales Mix Considerations......Page 1010
Operating Leverage......Page 1011
Margin of Safety......Page 1013
Appendix: Variable Costing......Page 1014
CHAPTER 22 Budgeting......Page 1039
Nature and Objectives of Budgeting......Page 1040
Human Behavior and Budgeting......Page 1041
Budgeting Systems......Page 1043
Flexible Budget......Page 1044
Business Connection: Build Versus Harvest......Page 1045
Computerized Budgeting Systems......Page 1046
Master Budget......Page 1047
Sales Budget......Page 1048
Production Budget......Page 1049
Direct Materials Purchases Budget......Page 1050
Direct Labor Cost Budget......Page 1051
Factory Overhead Cost Budget......Page 1052
Cost of Goods Sold Budget......Page 1053
Balance Sheet Budgets......Page 1055
Cash Budget......Page 1056
Capital Expenditures Budget......Page 1059
Budgeted Balance Sheet......Page 1060
CHAPTER 23 Performance Evaluation Using Variances from Standard Costs......Page 1085
Standards......Page 1086
Types of Standards......Page 1087
Business Connection: Making the Grade in the Real World—The 360-Degree Review......Page 1088
Budgetary Performance Evaluation......Page 1089
Budget Performance Report......Page 1090
Manufacturing Cost Variances......Page 1091
Direct Materials Variances......Page 1092
Direct Labor Variances......Page 1094
The Factory Overhead Flexible Budget......Page 1097
Variable Factory Overhead Controllable Variance......Page 1098
Fixed Factory Overhead Volume Variance......Page 1099
Factory Overhead Account......Page 1101
Recording and Reporting Variances from Standards......Page 1103
Nonfinancial Performance Measures......Page 1106
Comprehensive Problem 5......Page 1124
CHAPTER 24 Performance Evaluation for Decentralized Operations......Page 1129
Centralized and Decentralized Operations......Page 1130
Responsibility Accounting......Page 1131
Responsibility Accounting for Cost Centers......Page 1132
Service Department Charges......Page 1134
Profit Center Reporting......Page 1137
Responsibility Accounting for Investment Centers......Page 1138
Rate of Return on Investment......Page 1139
Residual Income......Page 1142
The Balanced Scorecard......Page 1144
Transfer Pricing......Page 1145
Market Price Approach......Page 1146
Negotiated Price Approach......Page 1147
Cost Price Approach......Page 1149
CHAPTER 25 Differential Analysis and Product Pricing......Page 1174
Differential Analysis......Page 1175
Lease or Sell......Page 1177
Discontinue a Segment or Product......Page 1178
Make or Buy......Page 1180
Replace Equipment......Page 1182
Process or Sell......Page 1183
Accept Business at a Special Price......Page 1184
Total Cost Concept......Page 1186
Product Cost Concept......Page 1189
Variable Cost Concept......Page 1190
Choosing a Cost-Plus Approach Cost Concept......Page 1192
Target Costing......Page 1193
Production Bottlenecks and Profits......Page 1194
Production Bottlenecks and Pricing......Page 1195
Business Connection: What Is a Product?......Page 1196
Appendix: Activity-Based Costing......Page 1197
CHAPTER 26 Capital Investment Analysis......Page 1222
Nature of Capital Investment Analysis......Page 1223
Average Rate of Return Method......Page 1224
Cash Payback Method......Page 1225
Present Value Concepts......Page 1227
Net Present Value Method......Page 1230
Internal Rate of Return Method......Page 1232
Business Connection: Panera Bread Store Rate of Return......Page 1234
Unequal Proposal Lives......Page 1235
Changes in Price Levels......Page 1237
Capital Rationing......Page 1238
APPENDIX A: Interest Tables......Page 1261
APPENDIX B: Reversing Entries......Page 1266
APPENDIX C: End-of-Period Spreadsheet (Work Sheet) for a Merchandising Business......Page 1270
Temporary Differences......Page 1276
Permanent Differences......Page 1278
APPENDIX E: Nike, Inc., Annual Report......Page 1280
Glossary......Page 1310
Subject Index......Page 1322
Company Index......Page 1339