Accounting: What the Numbers Mean

Cover Page......Page 1
Connect......Page 3
Half Title Page......Page 6
Title Page......Page 8
Copyright Page......Page 9
About the Author......Page 10
Preface......Page 11
Brief Contents......Page 27
Financial Accounting......Page 28
1. Accounting—Present and Past......Page 33
What Is Accounting?......Page 34
Auditing—Public Accounting......Page 38
Governmental and Not-for-Profit Accounting......Page 39
The Accounting Profession in the United States......Page 40
Financial Accounting Standard Setting at the Present Time......Page 41
Standards for Other Types of Accounting......Page 43
International Accounting Standards......Page 44
The Conceptual Framework......Page 46
Summary of Concepts Statement No. 8, Chapter 1: “The Objective of General Purpose Financial Reporting”......Page 48
Objectives of Financial Reporting for Nonbusiness Organizations......Page 50
Plan of the Book......Page 51
Resources for Students......Page 52
2. Financial Statements and Accounting Concepts/Principles......Page 63
From Transactions to Financial Statements......Page 64
Explanations and Defi nitions......Page 66
Illustration of Financial Statement Relationships......Page 75
Accounting Concepts and Principles......Page 78
Concepts/Principles Related to the Entire Model......Page 79
Concepts/Principles Related to Bookkeeping Procedures and the Accounting Process......Page 80
Limitations of Financial Statements......Page 81
The Corporation’s Annual Report......Page 83
3. Fundamental Interpretations Made from Financial Statement Data......Page 105
Financial Ratios and Trend Analysis......Page 106
Return on Investment......Page 107
The DuPont Model: An Expansion of the ROI Calculation......Page 110
Return on Equity......Page 112
Working Capital and Measures of Liquidity......Page 113
Illustration of Trend Analysis......Page 115
4. The Bookkeeping Process and Made from Financial Statement Data......Page 135
The Balance Sheet Equation—A Mechanical Key......Page 136
Transactions......Page 138
Bookkeeping Jargon and Procedures......Page 139
Understanding the Effects of Transactions on the Financial Statements......Page 143
Adjustments......Page 146
Transaction Analysis Methodology......Page 150
5. Accounting for and Presentation of Current Assets......Page 179
Cash and Cash Equivalents......Page 182
The Bank Reconciliation as a Control over Cash......Page 183
Balance Sheet Valuation......Page 185
Interest Accrual......Page 187
Bad Debts/Uncollectible Accounts......Page 188
Cash Discounts......Page 190
Notes Receivable......Page 191
Interest Accrual......Page 192
Inventories......Page 193
Inventory Cost Flow Assumptions......Page 194
Selecting an Inventory Cost Flow Assumption......Page 198
Inventory Accounting System Alternatives......Page 201
Inventory Errors......Page 203
Balance Sheet Valuation at the Lower of Cost or Market......Page 204
Prepaid Expenses and Other Current Assets......Page 205
6. Accounting for and Presentation of Property, Plant, and Equipment, and Other Noncurrent Assets......Page 231
Land......Page 232
Cost of Assets Acquired......Page 235
Depreciation for Financial Accounting Purposes......Page 236
Repair and Maintenance Expenditures......Page 241
Disposal of Depreciable Assets......Page 242
Assets Acquired by Capital Lease......Page 244
Intangible Assets......Page 247
Patents, Trademarks, and Copyrights......Page 248
Goodwill......Page 249
Other Noncurrent Assets......Page 251
Future Value......Page 253
Future Value of an Annuity......Page 254
Present Value......Page 255
Present Value of an Annuity......Page 257
Impact of Compounding Frequency......Page 260
7. Accounting for and Presentation of Liabilities......Page 281
Short-Term Debt......Page 284
Current Maturities of Long-Term Debt......Page 287
Unearned Revenue or Deferred Credits......Page 288
Payroll Taxes and Other Withholdings......Page 289
Other Accrued Liabilities......Page 290
Long-Term Debt......Page 292
Deferred Tax Liabilities......Page 301
Other Noncurrent Liabilities......Page 302
Contingent Liabilities......Page 304
8. Accounting for and Presentation of Stockholders' Equity......Page 327
Common Stock......Page 329
Preferred Stock......Page 333
Retained Earnings......Page 336
Cash Dividends......Page 337
Stock Dividends and Stock Splits......Page 338
Accumulated Other Comprehensive Income (Loss)......Page 341
Treasury Stock......Page 344
Noncontrolling Interest......Page 346
Not-for-Profi t and Governmental Organizations......Page 348
Appendix—Personal Investing......Page 351
9. The Income Statement and the Statement of Cash Flows......Page 373
Revenues......Page 377
Expenses......Page 381
Cost of Goods Sold......Page 382
Gross Profi t or Gross Margin......Page 383
Income from Operations......Page 386
Income before Income Taxes and Income Tax Expense......Page 387
Net Income and Earnings per Share......Page 388
Unusual Items Sometimes Seen on an Income Statement......Page 390
Content and Format of the Statement......Page 394
Interpreting the Statement of Cash Flows......Page 398
10. Corporate Governance, Notes to the Financial Statements, and Othe Disclosures......Page 423
Corporate Governance......Page 424
Financial Reporting Misstatements......Page 426
Signifi cant Accounting Policies......Page 429
Details of Other Financial Statement Amounts......Page 432
Other Disclosures......Page 433
Management’s Discussion and Analysis (MD&A)......Page 436
Five-Year (or Longer) Summary of Financial Data......Page 437
Independent Auditors’ Report......Page 438
Financial Statement Compilations......Page 440
11. Financial Statement Analysis......Page 451
Liquidity Measures......Page 452
Activity Measures......Page 453
Profitability Measures......Page 457
Financial Leverage Measures......Page 462
Book Value per Share of Common Stock......Page 466
Common Size Financial Statements......Page 467
Other Operating Statistics......Page 469
12. Managerial Accounting and Cost–Volume–Profit Relationships......Page 489
Managerial Accounting Contrasted to Financial Accounting......Page 490
Cost Classifications......Page 493
Relationship of Total Cost to Volume of Activity......Page 494
Cost Behavior Pattern: The Key......Page 496
A Modifi ed Income Statement Format......Page 498
An Expanded Contribution Margin Model......Page 502
Multiple Products or Services and Sales Mix Considerations......Page 505
Break-Even Point Analysis......Page 506
Operating Leverage......Page 511
13. Cost Accounting and Reporting......Page 535
Cost Management......Page 536
Cost Accumulation and Assignment......Page 539
Cost Relationship to Products or Activity......Page 540
Costs for Cost Accounting Purposes......Page 541
Cost Accounting Systems—General Characteristics......Page 542
Cost Accounting Systems—Job Order Costing, Process Costing, and Hybrid Costing......Page 553
Cost Accounting Methods—Absorption Costing and Direct Costing......Page 554
Activity-Based Costing......Page 556
14. Cost Planning......Page 579
Relationship of Total Cost to Volume of Activity......Page 581
The Budgeting Process in General......Page 582
The Budget Time Frame......Page 583
The Budgeting Process......Page 584
The Purchases/Production Budget......Page 588
The Operating Expense Budget......Page 591
The Budgeted Income Statement......Page 592
The Cash Budget......Page 593
The Budgeted Balance Sheet......Page 595
Using Standard Costs......Page 597
Developing Standards......Page 598
Costing Products with Standard Costs......Page 599
Other Uses of Standards......Page 600
Budgeting for Other Analytical Purposes......Page 602
15. Cost Control......Page 623
Relationship of Total Cost to Volume of Activity......Page 624
Cost Classifi cation According to a Time Frame Perspective......Page 625
Characteristics of the Performance Report......Page 626
The Flexible Budget......Page 628
Analysis of Variable Cost Variances......Page 629
Analysis of Fixed Overhead Variance......Page 635
Accounting for Variances......Page 638
Reporting for Segments of an Organization......Page 639
The Analysis of Investment Centers......Page 641
The Balanced Scorecard......Page 643
16. Costs for Decision Making......Page 665
Cost Classifi cations for Other Analytical Purposes......Page 667
Relevant Costs......Page 668
Relevant Costs in Action—The Sell or Process Further Decision......Page 669
Relevant Costs in Action—The Special Pricing Decision......Page 670
Relevant Costs in Action—The Target Costing Question......Page 673
Relevant Costs in Action—The Make or Buy Decision......Page 674
Relevant Costs in Action—The Continue or Discontinue a Segment Decision......Page 676
Relevant Costs in Action—The Short-Term Allocation of Scarce Resources......Page 679
Investment Decision Special Considerations......Page 680
Cost of Capital......Page 681
Capital Budgeting Techniques......Page 682
The Investment Decision......Page 688
Integration of the Capital Budget with Operating Budgets......Page 689
Epilogue: Accounting—The Future......Page 715
Appendix: Excerpts from 2011 Annual Report of Campbell Soup Company......Page 725
Index......Page 793
Back Cover......Page 806