Financial accounting

Cover
Financial Accounting
Dedication
About the Authors
Contents in Brief
Contents
CHAPTER 1: A Framework for Financial Accounting
	Berkshire Hathaway: Speaking the Language of Business
	Part A: Accounting as a Measurement/Communication Process
	Defining Accounting
	Measuring Business Activities
	Communicating through Financial Statements
		Income Statement
		Statement of Stockholders’ Equity
		Balance Sheet
		Statement of Cash Flows
		Decision Maker’s Perspective
		The Links among Financial Statements
		Other Information Reported to Outsiders
	Making Decisions with Accounting Information
	Part B: Financial Accounting Information
	Financial Accounting Standards
		Standard Setting Today
		Standard Setting in the Past Century
		The Importance of Auditors
		Objectives of Financial Accounting
	An Ethical Foundation
	Part C: Careers in Accounting
	Demand for Accounting
	Career Options in Accounting
		Public Accounting
		Private Accounting
	Appendix: Conceptual Framework
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 2: The Accounting Cycle: During the Period
	Walmart: Shelves of Business Transactions
	Part A: Measuring Business Activities
	External Transactions
	Effects of Transactions on the Basic Accounting Equation
		Transaction (1): Issue Common Stock
		Transaction (2): Borrow Cash from the Bank
		Transaction (3): Purchase Equipment
		Transaction (4): Pay for Rent in Advance
		Transaction (5): Purchase Supplies on Account
	Effects of Transactions on the Expanded Accounting Equation
		Transaction (6): Provide Services for Cash
		Transaction (7): Provide Services on Account
		Transaction (8): Receive Cash in Advance from Customers
		Transaction (9): Pay Salaries to Employees
		Transaction (10): Pay Cash Dividends
	Part B: Debits And Credits
	Effects on Account Balances in the Basic Accounting Equation
	Effects on Account Balances in the Expanded Accounting Equation
	Recording Transactions in a Journal
	Posting to the General Ledger
		Transaction (1): Issue Common Stock
		Transaction (2): Borrow Cash from the Bank
		Transaction (3): Purchase Equipment
		Transaction (4): Pay for Rent in Advance
		Transaction (5): Purchase Supplies on Account
		Transaction (6): Provide Services for Cash
		Transaction (7): Provide Services on Account
		Transaction (8): Receive Cash in Advance from Customers
		Transaction (9): Pay Salaries to Employees
		Transaction (10): Pay Cash Dividends
	Trial Balance
		Order of Accounts
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 3:  The Accounting Cycle: End of the Period
	Federal Express: Delivering Profits to Investors
	Part A: The Measurement Process
	Accrual-Basis Accounting
		Revenue Recognition
		Expense Recognition
	Accrual-Basis Compared with Cash-Basis Accounting
		No Timing Differences
	Adjusting Entries
		Prepaid Expenses
		Deferred Revenues
		Accrued Expenses
		Accrued Revenues
		No Adjustment Necessary
	Adjusted Trial Balance
	Part B: The Reporting Process: Financial Statements
	Income Statement
	Statement of Stockholders’ Equity
	Balance Sheet
		Decision Maker’s Perspective
	Statement of Cash Flows
	Part C: The Closing Process
	Closing Entries
	Post-Closing Trial Balance
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 4: Cash and Internal Controls
	Regal Entertainment: Internal Controls Are a Box-Office Hit
	Part A: Internal Controls
	Accounting Scandals and Response by Congress
		Sarbanes-Oxley Act of 2002
	Framework for Internal Control
		Components of Internal Control
		Responsibilities for Internal Control
		Limitations of Internal Control
	Part B: Cash
	Cash and Cash Equivalents
		Decision Maker’s Perspective
	Cash Controls
		Controls over Cash Receipts
		Controls over Cash Disbursements
	Bank Reconciliation
		Step 1: Reconcile the Bank’s Cash Balance
		Step 2: Reconcile the Company’s Cash Balance
		Step 3: Update the Company’s Cash Account
	Employee Purchases
	Part C: Statement of Cash Flows
	Analysis: Cash Analysis
	Regal Entertainment vs. Cinemark
		Cash Reporting
		Cash Holdings
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 5:  Receivables and Sales
	Tenet Healthcare: Bad Debts Cause Pain to Investors
	Part A: Recognizing Accounts Receivable
	Credit Sales and Accounts Receivable
		Other Types of Receivables
	Net Revenues
		Trade Discounts
		Sales Returns and Sales Allowances
		Sales Discounts
		End-of-Period Adjustment for Contra Revenues
	Part B: Estimating Uncollectible Accounts
	Allowance Method (GAAP)
		Establishing an Allowance for Uncollectible Accounts
		Writing off Accounts Receivable
		Collecting on Accounts Previously Written Off
		Adjusting the Allowance in Subsequent Years
	Direct Write-Off Method (Not GAAP)
		Decision Maker’s Perspective
	Part C: Notes Receivable and Interest
	Accounting for Notes Receivable
		Interest Calculation
		Collection of Notes Receivable
		Accrued Interest
	Analysis: Receivables Analysis
	Tenet vs. LifePoint
		Receivables Turnover Ratio
		Average Collection Period
	Appendix: Percentage-of-Credit-Sales Method
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 6: Inventory and Cost of Goods Sold
	Best Buy: Taking Inventory of Electronics Sold
	Part A: Understanding Inventory and Cost of Goods Sold
	Types of Inventory
		Manufacturing Companies
		Merchandising Companies
		Flow of Inventory Costs
	Multiple-Step Income Statement
		Levels of Profitability
		Decision Maker’s Perspective
	Inventory Cost Methods
		Specific Identification
		First-In, First-Out
		Last-In, First-Out
		Weighted-Average Cost
	Effects of Inventory Cost Methods
		Decision Maker’s Perspective
		Reporting the LIFO Difference
		Consistency in Reporting
	Part B: Recording Inventory Transactions
	Perpetual Inventory System
		Inventory Purchases and Sales
		Additional Inventory Transactions
		Sales Transactions: The Other Side of Purchase Transactions
	Part C: Lower of Cost and Net Realizable Value
		Decision Maker’s Perspective
	Analysis: Inventory Analysis
	Best Buy vs. Tiffany’s
		Inventory Turnover Ratio
		Average Days in Inventory
		Gross Profit Ratio
	Appendix B: Inventory Errors
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 7: Long-Term Assets
	Worldcom: Expenses Called Assets
	Part A: Acquisitions
	Property, Plant, and Equipment
		Land
		Land Improvements
		Buildings
		Equipment
		Basket Purchases
		Natural Resources
	Intangible Assets
		Patents
		Copyrights
		Trademarks
		Franchises
		Goodwill
	Expenditures after Acquisition
		Repairs and Maintenance
		Additions
		Improvements
		Legal Defense of Intangible Assets
		Materiality
	Part B: Cost Allocation
	Depreciation of Property, Plant, and Equipment
		Straight-Line Depreciation
		Declining-Balance Depreciation
		Activity-Based Depreciation
		Decision Maker’s Perspective
		Tax Depreciation
	Amortization of Intangible Assets
		Intangible Assets Subject to Amortization
		Intangible Assets Not Subject to Amortization
	Part C: Asset Disposition: Sale, Retirement, or Exchange
	Sale of Long-Term Assets
		Decision Maker’s Perspective
	Retirement of Long-Term Assets
	Exchange of Long-Term Assets
	Analysis: Asset Analysis
	Walmart vs. Costco
		Return on Assets
		Profit Margin and Asset Turnover
		Decision Maker’s Perspective
	Appendix: Asset Impairment
		Decision Maker’s Perspective
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 8: Current Liabilities
	United Airlines: A Future up in the Air
	Part A: Current Liabilities
	Current vs. Long-Term Classification
	Notes Payable
	Accounts Payable
	Payroll Liabilities
		Employee Costs
		Employer Costs
	Other Current Liabilities
		Deferred Revenues
		Sales Tax Payable
		Current Portion of Long-Term Debt
		Decision Maker’s Perspective
	Part B: Contingencies
	Contingent Liabilities
		Litigation and Other Causes
		Warranties
	Contingent Gains
	Analysis: Liquidity Analysis
	United Airlines vs. American Airlines
		Working Capital
		Current Ratio
		Acid-Test Ratio
		Decision Maker’s Perspective
	Effect of Transactions on Liquidity Ratios
		Liquidity Management
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 9: Long-Term Liabilities
	Six Flags: The Ups and Downs of Borrowing
	Part A: Types of Long-Term Debt
	Financing Alternatives
	Installment Notes
	Leases
		Decision Maker’s Perspective
		Recording a Lease
	Bonds
		Secured and Unsecured Bonds
		Term and Serial Bonds
		Callable Bonds
		Convertible Bonds
	Part B: Accounting for Bonds Payable
	Bonds Issued at Face Amount
		Stated Interest Rate versus Market Interest Rate
	Bonds Issued at a Discount
		Decision Maker’s Perspective
	Bonds Issued at a Premium
	Retirement of Bonds
		Bond Retirements at Maturity
		Bond Retirements before Maturity
		Decision Maker’s Perspective
	Part C: Pricing a Bond
	Bonds Issued at Face Amount
	Bonds Issued at a Discount
	Bonds Issued at a Premium
	Analysis: Debt Analysis
	Coca-Cola vs. PepsiCo
		Debt to Equity Ratio
		Times Interest Earned Ratio
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 10: Stockholders’ Equity
	Part A: Invested Capital
	Corporations
		Stages of Equity Financing
		Public or Private
		Stockholder Rights
		Advantages of a Corporation
		Disadvantages of a Corporation
		Decision Maker’s Perspective
	Common Stock
		Authorized, Issued, Outstanding, and Treasury Stock
		Par Value
		Accounting for Common Stock Issues
	Preferred Stock
		Features of Preferred Stock
		Accounting for Preferred Stock Issues
		Dividends for Preferred Stock
	Treasury Stock
		Decision Maker’s Perspective
		Accounting for Treasury Stock
	Part B: Earned Capital
	Retained Earnings
	Cash Dividends
		Decision Maker’s Perspective
	Stock Dividends and Stock Splits
		Decision Maker’s Perspective
		Stock Splits/Large Stock Dividends
		Small Stock Dividends
	Part C: Reporting Stockholders’ Equity
	Stockholders’ Equity in the Balance Sheet
		Decision Maker’s Perspective
	Statement of Stockholders’ Equity
	Analysis: Equity Analysis
	Facebook vs. IBM
		Return on Equity
		Dividend Yield
		Earnings Per Share
		Price-Earnings Ratio
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 11: Statement of Cash Flows
	Apple Inc.: Cash Flows at the Core
	Part A: Classification of Cash Flow Activities
	Classification of Transactions
		Cash Flow Activities
		Noncash Activities
	Part B: Preparing the Statement of Cash Flows
	Steps in Preparing the Statement of Cash Flows
	Basic Format
		Operating Activities Format—Indirect and Direct Methods
	Operating Activities—Indirect Method
		Noncash Items
		Nonoperating Items
		Changes in Current Assets and Current Liabilities
	Investing Activities
	Financing Activities
	Analysis: Cash Flow Analysis
	Apple vs. Alphabet
		Decision Maker’s Perspective
		Return on Assets
		Cash Return on Assets
		Components of Cash Return on Assets
	Appendix: Operating Activities—Direct Method
	Chapter Highlights
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
CHAPTER 12: Financial Statement Analysis
	Under Armour: Making the Competition Sweat
	Part A: Comparison of Financial Accounting Information
	Vertical Analysis
		Vertical Analysis of the Income Statement
		Vertical Analysis of the Balance Sheet
	Horizontal Analysis
		Horizontal Analysis of the Income Statement
		Horizontal Analysis of the Balance Sheet
	Part B: Using Ratios to Assess Risk and Profitability
	Risk Analysis
		Receivables Turnover Ratio
		Average Collection Period
		Inventory Turnover Ratio
		Average Days in Inventory
		Current Ratio
		Acid-Test Ratio
		Debt to Equity Ratio
		Times Interest Earned Ratio
	Profitability Analysis
		Gross Profit Ratio
		Decision Maker’s Perspective
		Return on Assets
		Profit Margin
		Asset Turnover
		Return on Equity
		Price-Earnings Ratio
	Part C: Earnings Persistence and Earnings Quality
	Earnings Persistence and One-Time Income Items
		Discontinued Operations
		Other Revenues and Expenses
		Decision Maker’s Perspective
	Quality of Earnings
		Nadal Retires and Djokovic Is Hired
		Decision Maker’s Perspective
		Symbolism Revealed
	Key Points by Learning Objective
	Glossary
	Self-Study Questions
	Applying Excel
	Review Questions
	Brief Exercises
	Exercises
	Problems: Set A
	Problems: Set B
	Additional Perspectives
Appendix A: American Eagle Outfitters, Inc., 2017 Annual Report
Appendix B: The Buckle, Inc., 2017 Annual Report
Appendix C: Time Value of Money
Appendix D: Investments
Index
Future Value and Present Value Tables
Summary of Ratios Used in This Book
Framework for Financial Accounting
Representative Chart of Accounts