Accounting Principles, 10th Edition

Cover......Page 1
Title Page......Page 5
Copyright......Page 6
Brief Contents......Page 18
Contents......Page 19
Feature Story: Knowing the Numbers......Page 27
Three Activities......Page 29
Who Uses Accounting Data......Page 31
Ethics in Financial Reporting......Page 32
Measurement Principles......Page 34
Assumptions......Page 35
Assets......Page 37
Owner’s Equity......Page 38
Using the Accounting Equation......Page 39
Transaction Analysis......Page 40
Summary of Transactions......Page 45
Financial Statements......Page 46
Owner’s Equity Statement......Page 48
Statement of Cash Flows......Page 49
Private Accounting......Page 54
“Show Me the Money”......Page 55
A Look at IFRS......Page 71
Feature Story: Accidents Happen......Page 75
Debits and Credits......Page 77
Summary of Debit/Credit Rules......Page 81
Steps in the Recording Process......Page 82
The Journal......Page 83
The Ledger......Page 85
The Recording Process Illustrated......Page 88
The Trial Balance......Page 95
Locating Errors......Page 97
Use of Dollar Signs......Page 98
A Look at IFRS......Page 119
Feature Story: What Was Your Profit?......Page 123
Fiscal and Calendar Years......Page 125
Recognizing Revenues and Expenses......Page 126
Types of Adjusting Entries......Page 128
Adjusting Entries for Deferrals......Page 129
Adjusting Entries for Accruals......Page 136
Summary of Basic Relationships......Page 142
Preparing the Adjusted Trial Balance......Page 144
Preparing Financial Statements......Page 145
APPENDIX 3A: Alternative Treatment of Prepaid Expenses and Unearned Revenues......Page 149
Prepaid Expenses......Page 150
Unearned Revenues......Page 151
Summary of Additional Adjustment Relationships......Page 152
A Look at IFRS......Page 173
Feature Story: Everyone Likes to Win......Page 177
Steps in Preparing a Worksheet......Page 179
Preparing Adjusting Entries from a Worksheet......Page 187
Closing the Books......Page 189
Preparing Closing Entries......Page 190
Posting Closing Entries......Page 192
Preparing a Post-Closing Trial Balance......Page 194
Summary of the Accounting Cycle......Page 196
Correcting Entries—An Avoidable Step......Page 197
The Classified Balance Sheet......Page 199
Long-Term Investments......Page 201
Intangible Assets......Page 202
Current Liabilities......Page 203
Long-Term Liabilities......Page 204
Owner’s Equity......Page 205
Reversing Entries Example......Page 210
A Look at IFRS
......Page 233
Feature Story: Who Doesn’t Shop at Wal-Mart?......Page 237
Merchandising Operations......Page 239
Flow of Costs......Page 240
Recording Purchases of Merchandise......Page 242
Freight Costs......Page 244
Purchase Discounts......Page 245
Summary of Purchasing Transactions......Page 246
Recording Sales of Merchandise......Page 247
Sales Returns and Allowances......Page 248
Sales Discounts......Page 249
Closing Entries......Page 251
Summary of Merchandising Entries......Page 252
Multiple-Step Income Statement......Page 253
Classified Balance Sheet......Page 256
Determining Cost of Goods Sold Under a Periodic System......Page 261
Recording Purchases of Merchandise......Page 262
Recording Sales of Merchandise......Page 263
Using a Worksheet......Page 265
A Look at IFRS......Page 286
Feature Story: “Where Is That Spare Bulldozer Blade?”......Page 289
Classifying Inventory......Page 291
Taking a Physical Inventory......Page 292
Determining Ownership of Goods......Page 293
Inventory Costing......Page 295
Cost Flow Assumptions......Page 296
Financial Statement and Tax Effects of Cost Flow Methods......Page 301
Using Inventory Cost Flow Methods Consistently......Page 303
Lower-of-Cost-or-Market......Page 304
Income Statement Effects......Page 305
Balance Sheet Effects......Page 306
Presentation......Page 307
Analysis......Page 308
First-In, First-Out (FIFO)......Page 312
Average-Cost......Page 313
APPENDIX 6B: Estimating Inventories......Page 315
Gross Profit Method......Page 316
Retail Inventory Method......Page 317
A Look at IFRS......Page 339
Feature Story: QuickBooks® Helps This Retailer Sell Guitars......Page 343
Computerized Accounting Systems......Page 345
Subsidiary Ledgers......Page 348
Subsidiary Ledger Example......Page 349
Advantages of Subsidiary Ledgers......Page 350
Special Journals......Page 351
Sales Journal......Page 352
Cash Receipts Journal......Page 354
Purchases Journal......Page 358
Cash Payments Journal......Page 360
Effects of Special Journals on the General Journal......Page 363
A Look at IFRS......Page 386
Feature Story: Minding the Money in Moose Jaw......Page 389
Fraud......Page 391
Internal Control......Page 392
Principles of Internal Control Activities......Page 393
Limitations of Internal Control......Page 400
Cash Receipts Controls......Page 401
Cash Disbursements Controls......Page 404
Writing Checks......Page 409
Bank Statements......Page 411
Reconciling the Bank Account......Page 412
Electronic Funds Transfer (EFT) System......Page 416
Cash Equivalents......Page 417
Restricted Cash......Page 418
A Look at IFRS......Page 439
Feature Story: A Dose of Careful Management Keeps Receivables Healthy......Page 443
Types of Receivables......Page 445
Recognizing Accounts Receivable......Page 446
Valuing Accounts Receivable......Page 447
Disposing of Accounts Receivable......Page 454
Notes Receivable......Page 456
Determining the Maturity Date......Page 457
Computing Interest......Page 458
Valuing Notes Receivable......Page 459
Disposing of Notes Receivable......Page 460
Analysis......Page 462
A Look at IFRS......Page 482
Feature Story: How Much for a 
Ride to the Beach?......Page 485
SECTION 1 Plant Assets......Page 487
Land Improvements......Page 488
Equipment......Page 489
Depreciation......Page 491
Factors in Computing Depreciation......Page 492
Depreciation Methods......Page 493
Revising Periodic Depreciation......Page 497
Expenditures During Useful Life......Page 499
Retirement of Plant Assets......Page 500
Sale of Plant Assets......Page 501
SECTION 2 Natural Resources......Page 503
Accounting for Intangible Assets......Page 504
Trademarks and Trade Names......Page 505
Goodwill......Page 506
Research and Development Costs......Page 507
Presentation......Page 508
Analysis......Page 509
Loss Treatment......Page 513
Gain Treatment......Page 514
A Look at IFRS......Page 533
Feature Story: Financing His Dreams......Page 537
Notes Payable......Page 539
Sales Taxes Payable......Page 540
Unearned Revenues......Page 541
Current Maturities of Long-Term Debt......Page 542
Statement Presentation and Analysis......Page 543
Contingent Liabilities......Page 544
Recording a Contingent Liability......Page 545
Disclosure of Contingent Liabilities......Page 546
Payroll Accounting......Page 547
Determining the Payroll......Page 548
Recording the Payroll......Page 551
Employer Payroll Taxes......Page 554
Filing and Remitting Payroll Taxes......Page 557
Internal Control for Payroll......Page 558
Paid Absences......Page 561
Post-Retirement Benefits......Page 562
A Look at IFRS......Page 578
Feature Story: From Trials to the
Top Ten......Page 581
Characteristics of Partnerships......Page 583
Organizations with Partnership Characteristics......Page 584
Advantages and Disadvantages of Partnerships......Page 585
The Partnership Agreement......Page 587
Forming a Partnership......Page 588
Dividing Net Income or Net Loss......Page 589
Partnership Financial Statements......Page 592
Liquidation of a Partnership......Page 593
No Capital Deficiency......Page 594
Capital Deficiency......Page 597
Admission of a Partner......Page 601
Withdrawal of a Partner......Page 605
Feature Story: What’s Cooking?......Page 621
The Corporate Form of Organization......Page 623
Characteristics of a Corporation......Page 624
Forming a Corporation......Page 626
Stock Issue Considerations......Page 627
Corporate Capital......Page 630
Issuing Par Value Common Stock for Cash......Page 632
Issuing No-Par Common Stock for Cash......Page 633
Issuing Common Stock for Services or Noncash Assets......Page 634
Accounting for Treasury Stock......Page 635
Purchase of Treasury Stock......Page 636
Disposal of Treasury Stock......Page 637
Dividend Preferences......Page 639
Statement Presentation......Page 640
A Look at IFRS......Page 658
Feature Story: Owning a Piece of the Action......Page 661
Cash Dividends......Page 663
Stock Dividends......Page 667
Stock Splits......Page 669
Retained Earnings......Page 671
Retained Earnings Restrictions......Page 672
Prior Period Adjustments......Page 673
Retained Earnings Statement......Page 674
Stockholders’ Equity Presentation......Page 675
Income Statement Presentation......Page 676
Income Statement Analysis......Page 677
A Look at IFRS......Page 694
Feature Story: Thanks Goodness for Bankruptcy......Page 697
Bond Basics......Page 699
Types of Bonds......Page 700
Determining the Market Value of Bonds......Page 701
Issuing Bonds at Face Value......Page 703
Discount or Premium on Bonds......Page 704
Issuing Bonds at a Discount......Page 705
Issuing Bonds at a Premium......Page 706
Accounting for Bond Retirements......Page 707
Converting Bonds into Common Stock......Page 708
Long-Term Notes Payable......Page 709
Lease Liabilities......Page 712
Presentation......Page 713
Analysis......Page 714
Present Value of Face Value......Page 719
Present Value of Interest Payments (Annuities)......Page 721
Computing the Present Value of a Bond......Page 722
Amortizing Bond Discount......Page 724
Amortizing Bond Premium......Page 726
Amortizing Bond Discount......Page 728
Amortizing Bond Premium......Page 729
A Look at IFRS......Page 747
Feature Story: “Is There Anything Else We Can Buy?”......Page 751
Why Corporations Invest......Page 753
Accounting for Debt Investments......Page 754
Recording Sale of Bonds......Page 755
Accounting for Stock Investments......Page 756
Holdings of Less than 20%......Page 757
Holdings Between 20% and 50%......Page 758
Holdings of More than 50%......Page 759
Valuing and Reporting Investments......Page 761
Categories of Securities......Page 762
Balance Sheet Presentation......Page 765
Presentation of Realized and Unrealized Gain or Loss......Page 766
Classified Balance Sheet......Page 767
A Look at IFRS......Page 786
Feature Story: Got Cash?......Page 789
Usefulness of the Statement of Cash Flows......Page 791
Classification of Cash Flows......Page 792
Significant Noncash Activities......Page 793
Format of the Statement of Cash Flows......Page 794
Preparing the Statement of Cash Flows......Page 795
Indirect and Direct Methods......Page 796
Preparing the Statement of Cash Flows—Indirect Method......Page 797
Step 1: Operating Activities......Page 798
Summary of Conversion to Net Cash Provided by Operating Activities—Indirect Method......Page 802
Step 2: Investing and Financing Activities......Page 803
Step 3: Net Change in Cash......Page 804
Free Cash Flow......Page 807
Appendix 17A: Using a Worksheet to Prepare the Statement of Cash Flows––Indirect Method
......Page 812
Preparing the Worksheet......Page 813
APPENDIX 17B: Statement of Cash Flows—Direct Method......Page 818
Step 1: Operating Activities......Page 819
Step 2: Investing and Financing Activities......Page 823
Step 3: Net Change in Cash......Page 824
A Look at IFRS......Page 849
Feature Story: It Pays to Be Patient......Page 853
Need for Comparative Analysis......Page 855
Horizontal Analysis......Page 856
Balance Sheet......Page 857
Income Statement......Page 858
Retained Earnings Statement......Page 859
Income Statement......Page 860
Ratio Analysis......Page 862
Liquidity Ratios......Page 864
Profitability Ratios......Page 867
Solvency Ratios......Page 871
Summary of Ratios......Page 872
Discontinued Operations......Page 875
Extraordinary Items......Page 876
Changes in Accounting Principle......Page 877
Comprehensive Income......Page 878
Pro Forma Income......Page 879
Improper Recognition......Page 880
A Look at IFRS......Page 903
Feature Story: Think Fast......Page 905
Managerial Accounting Basics......Page 907
Comparing Managerial and Financial Accounting......Page 908
Management Functions......Page 909
Organizational Structure......Page 910
Business Ethics......Page 911
Manufacturing Costs......Page 913
Product versus Period Costs......Page 915
Income Statement......Page 916
Cost of Goods Manufactured......Page 917
Balance Sheet......Page 919
Cost Concepts—A Review......Page 920
Product Costing for Service Industries......Page 922
The Value Chain......Page 923
Just-in-Time Inventory Methods......Page 924
Theory of Constraints......Page 925
Balanced Scorecard......Page 926
Feature Story: “. . . And We’d Like It in Red”......Page 951
Job Order Cost System......Page 953
Process Cost System......Page 954
Job Order Cost Flow......Page 955
Accumulating Manufacturing Costs......Page 956
Assigning Manufacturing Costs to Work in Process......Page 958
Assigning Costs to Finished Goods......Page 965
Job Order Costing for Service Companies......Page 966
Summary of Job Order Cost Flows......Page 967
Advantages and Disadvantages of Job Order Costing......Page 969
Under- or Overapplied Manufacturing Overhead......Page 970
Feature Story: Ben & Jerry’s Tracks Its Mix-Ups......Page 993
Uses of Process Cost Systems......Page 995
Similarities and Differences between Job Order Cost and Process Cost Systems......Page 996
Process Cost Flow......Page 998
Assignment of Manufacturing Costs—Journal Entries......Page 999
Equivalent Units......Page 1001
Weighted-Average Method......Page 1002
Refinements on the Weighted-Average Method......Page 1003
Production Cost Report......Page 1004
Comprehensive Example of Process Costing......Page 1005
Compute the Physical Unit Flow (Step 1)......Page 1006
Compute Unit Production Costs (Step 3)......Page 1007
Prepare a Cost Reconciliation Schedule (Step 4)......Page 1008
Preparing the Production Cost Report......Page 1009
Costing Systems—Final Comments......Page 1010
Just-in-Time Processing......Page 1011
Activity-Based Costing......Page 1013
Unit Costs Under ABC......Page 1018
Comparing Unit Costs......Page 1019
Benefits and Limitations of Activity-Based Costing......Page 1020
Feature Story: Understanding Medical Costs Might Lead to Better Health Care......Page 1039
Variable Costs......Page 1041
Fixed Costs......Page 1042
Relevant Range......Page 1043
Mixed Costs......Page 1044
Importance of Identifying Variable and Fixed Costs......Page 1048
CVP Income Statement......Page 1049
Break-even Analysis......Page 1052
Target Net Income......Page 1055
Margin of Safety......Page 1056
CVP and Changes in the Business Environment......Page 1057
CVP Income Statement Revisited......Page 1059
APPENDIX 22A: Variable Costing......Page 1063
Effects of Variable Costing on Income......Page 1064
Rationale for Variable Costing......Page 1065
Feature Story: The Next amazon.com? Not Quite......Page 1081
Budgeting and Accounting......Page 1083
The Budgeting Process......Page 1084
Budgeting and Human Behavior......Page 1085
The Master Budget......Page 1087
Sales Budget......Page 1088
Production Budget......Page 1089
Direct Materials Budget......Page 1090
Direct Labor Budget......Page 1092
Manufacturing Overhead Budget......Page 1093
Budgeted Income Statement......Page 1094
Cash Budget......Page 1096
Budgeted Balance Sheet......Page 1099
Merchandisers......Page 1101
Not-for-Profit Organizations......Page 1102
Feature Story: Turning Trash into Treasure......Page 1125
The Concept of Budgetary Control
......Page 1127
Examples......Page 1128
Uses and Limitations......Page 1129
Why Flexible Budgets?......Page 1130
Developing the Flexible Budget......Page 1132
Flexible Budget—A Case Study......Page 1133
Flexible Budget Reports......Page 1135
Management by Exception......Page 1137
The Concept of Responsibility Accounting......Page 1138
Responsibility Reporting System......Page 1140
Types of Responsibility Centers......Page 1141
Responsibility Accounting for Cost Centers......Page 1143
Responsibility Accounting for Profit Centers......Page 1144
Responsibility Accounting for Investment Centers......Page 1146
Principles of Performance Evaluation......Page 1149
Feature Story: Highlighting Performance Efficiency......Page 1175
Distinguishing between Standards and Budgets......Page 1177
Why Standard Costs?......Page 1178
A Case Study......Page 1179
Analyzing and Reporting Variances from Standards......Page 1183
Direct Materials Variances......Page 1184
Direct Labor Variances......Page 1186
Causes of Labor Variances......Page 1187
Manufacturing Overhead Variances......Page 1188
Reporting Variances......Page 1189
Statement Presentation of Variances......Page 1190
Balanced Scorecard......Page 1191
Journal Entries......Page 1197
Ledger Accounts......Page 1199
Overhead Controllable Variance......Page 1200
Overhead Volume Variance......Page 1201
Feature Story: Soup Is Good Food......Page 1221
Management’s Decision-Making Process......Page 1223
How Incremental Analysis Works......Page 1224
Accept an Order at a Special Price......Page 1225
Make or Buy......Page 1227
Sell or Process Further......Page 1229
Retain or Replace Equipment......Page 1230
Eliminate an Unprofitable Segment......Page 1231
Allocate Limited Resources......Page 1233
SECTION 2 Capital Budgeting......Page 1234
Evaluation Process......Page 1235
Annual Rate of Return......Page 1236
Cash Payback......Page 1237
Net Present Value Method......Page 1239
Internal Rate of Return Method......Page 1241
Comparing Discounted Cash Flow Methods......Page 1243
Appendix A: Specimen Financial Statements: PepsiCo, Inc.......Page 1266
Appendix B: Specimen Financial Statements: The Coca-Cola Company......Page 1300
Appendix C: Specimen Financial Statements: Zetar plc......Page 1304
Simple Interest......Page 1308
Compound Interest......Page 1309
Present Value of a Single Amount......Page 1310
Present Value of an Annuity......Page 1312
Computing the Present Value of a Long-Term Note or Bond......Page 1314
Present Value of a Single Sum......Page 1320
Present Value of an Annuity......Page 1321
Mortgage Loan Amount......Page 1322
Standards......Page 1324
Resolution of Ethical Conflict......Page 1325
Photo credits......Page 1326
Company index......Page 1328
Subject index......Page 1330