Financial accounting

Cover
FINANCIAL ACCOUNTING
Dedication
ABOUT THE AUTHORS
For Students
ACKNOWLEDGMENTS
CONTENTS IN BRIEF
CONTENTS
Chapter One: Financial Statements and Business Decisions
	Le-Nature’s Inc.
	Understanding the Business
	The Four Basic Financial Statements: An Overview
		The Balance Sheet
	FINANCIAL ANALYSIS: Interpreting Assets, Liabilities, and Stockholders’ Equity on the Balance Sheet
	Pause for Feedback
		The Income Statement
	FINANCIAL ANALYSIS: Analyzing the Income Statement: Beyond the Bottom Line
	Pause for Feedback
		Statement of Stockholders’ Equity
	FINANCIAL ANALYSIS: Interpreting Retained Earnings
	Pause for Feedback
		Statement of Cash Flows
	FINANCIAL ANALYSIS: Interpreting the Cash Flow Statement
	Pause for Feedback
		Relationships Among the Statements
		Notes and Financial Statement Formats
		Summary of the Four Basic Financial Statements
	Responsibilities for the Accounting Communication Process
		Generally Accepted Accounting Principles
	INTERNATIONAL PERSPECTIVE: The International Accounting Standards Board and Global Accounting Standards
		Ensuring the Accuracy of Financial Statements
	Demonstration Case
	Chapter Supplement A: Types of Business Entities
	Chapter Supplement B: Employment in the Accounting Profession Today
	Chapter Take-Aways
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Cases and Projects
Chapter Two: Investing and Financing Decisions and the Accounting System
	Chipotle Mexican Grill
	Understanding the Business
	Overview of Accounting Concepts
		Concepts Emphasized in Chapter 2
	Pause for Feedback
	FINANCIAL ANALYSIS: Unrecorded but Valuable Assets and Liabilities
	What Business Activities Cause Changes in Financial Statement Amounts?
		Nature of Business Transactions
		Accounts
	How Do Transactions Affect Accounts?
		Principles of Transaction Analysis
		Analyzing Common Transactions
	Pause for Feedback
	How Do Companies Keep Track of Account Balances?
		The Direction of Transaction Effects
	Pause for Feedback
		Analytical Tools
	FINANCIAL ANALYSIS: Inferring Business Activities from T-Accounts
		Transaction Analysis Illustrated
	Pause for Feedback
	Data Analytics: Using Big Data for Business Expansion
	How Is the Balance Sheet Prepared and Analyzed?
		Classified Balance Sheet
	INTERNATIONAL PERSPECTIVE: Understanding Foreign Financial Statements
		Ratio Analysis in Decision Making
	KEY RATIO ANALYSIS:  Current Ratio
	Pause for Feedback
	FOCUS ON CASH FLOWS: Investing and Financing Activities
	Pause for Feedback
	Demonstration Case
	Chapter Take-Aways
	Key Ratio
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Cases and Projects
Chapter Three: Operating Decisions and the Accounting System
	Chipotle Mexican Grill
	Understanding the Business
	How Do Business Activities Affect the Income Statement?
		The Operating Cycle
		Elements of the Income Statement
	FINANCIAL ANALYSIS: Lower Federal Tax Rates and Corporate Impact
	Data Analytics: Using Big Data in the Restaurant Industry to Increase Revenues and Decrease Costs
	How Are Operating Activities Recognized and Measured?
		Accrual Accounting
	FINANCIAL ANALYSIS: Revenue Recognition for More Complex Sales Contracts:  A Five-Step Process
	Pause for Feedback
	Pause for Feedback
	A QUESTION OF ETHICS: Management’s Incentives to Violate  Accounting Rules
	The Expanded Transaction Analysis Model
		Transaction Analysis Rules
		Analyzing Common Transactions
	Pause for Feedback
	How Is the Income Statement Prepared and Analyzed?
		Classified Income Statement
	KEY RATIO ANALYSIS:  Net Profit Margin
	FOCUS ON CASH FLOWS: Operating Activities
	Pause for Feedback
	Demonstration Case
	Chapter Take-Aways
	Key Ratio
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Comprehensive Problem (Chapters 1–3)
	Cases and Projects
Chapter Four: Adjustments, Financial Statements, and the Quality of Earnings
	Chipotle Mexican Grill
	Understanding the Business
	Adjusting Revenues and Expenses
		Accounting Cycle
		Purpose of Adjustments
		Types of Adjustments
		Adjustment Process
	Pause for Feedback
	A QUESTION OF ETHICS: Adjustments and Incentives
	Preparing Financial Statements
		Income Statement
		Statement of Stockholders’ Equity
		Balance Sheet
	FOCUS ON CASH FLOWS: Cash Flows from Operations, Net Income, and the Quality of Earnings
	KEY RATIO ANALYSIS:  Total Asset Turnover Ratio
	Data Analytics: The SEC Uses Big Data
	Closing the Books
		End of the Accounting Cycle
	Pause for Feedback
		Post-Closing Trial Balance
	Demonstration Case
	Chapter Take-Aways
	Key Ratio
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Comprehensive Problems (Chapters 1–4)
	Cases and Projects
Chapter Five: Communicating and Interpreting Accounting Information
	Apple Inc.
	Understanding the Business
	A QUESTION OF ETHICS: The Fraud Triangle
	Players in the Accounting Communication Process
		Regulators (SEC, FASB, PCAOB, Stock Exchanges)
		Managers (CEO, CFO, and Accounting Staff)
		Board of Directors (Audit Committee)
		Auditors
	Data Analytics: How Data Analytics Are Affecting What Auditors Do
		Information Intermediaries: Information Services and Financial Analysts
	FINANCIAL ANALYSIS: Information Services and Your Job Search
		Users: Institutional and Private Investors, Creditors, and Others
	Pause for Feedback
	The Disclosure Process
		Press Releases
	FINANCIAL ANALYSIS: How Does the Stock Market React to Earnings Announcements?
		Annual Reports and Form 10-K
		Quarterly Reports and Form 10-Q
		Other SEC Reports
	A Closer Look at Financial Statement Formats and Notes
		Classified Balance Sheet
		Classified Income Statement
	FINANCIAL ANALYSIS: Statement of Comprehensive Income
	Pause for Feedback
	KEY RATIO ANALYSIS:  Gross Profit Percentage
		Statement of Stockholders’ Equity
		Statement of Cash Flows
		Notes to Financial Statements
		Voluntary Disclosures
	INTERNATIONAL PERSPECTIVE: Differences in Accounting Methods Acceptable under IFRS and U.S. GAAP
	Return on Assets Analysis: A Framework for Evaluating Company Performance
	KEY RATIO ANALYSIS:  Return on Assets (ROA)
		ROA Profit Driver Analysis and Business Strategy
		How Transactions Affect Ratios
	Pause for Feedback
	Demonstration Case
	Chapter Take-Aways
	Key Ratios
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problems
	Cases and Projects
Chapter Six: Reporting and Interpreting Sales Revenue, Receivables, and Cash
	Skechers U.S.A.
	Understanding the Business
	Accounting for Net Sales Revenue
		Motivating Sales and Collections
		Credit Card Sales to Consumers
		Sales Discounts to Businesses
	FINANCIAL ANALYSIS: To Take or Not to Take the Discount, That Is the Question
		Sales Returns and Allowances
		Reporting Net Sales
	A QUESTION OF ETHICS: Volume Discounts/Rebates and Earnings Misstatements at Monsanto
	Pause for Feedback
		Revenue Recognition for Bundled Goods and Services: A Five-Step Process
	Measuring and Reporting Receivables
		Classifying Receivables
	INTERNATIONAL PERSPECTIVE: Foreign Currency Receivables
		Accounting for Bad Debts
	FINANCIAL ANALYSIS: Bad Debt Recoveries
		Reporting Accounts Receivable and Bad Debts
	Pause for Feedback
		Estimating Bad Debts
		Control over Accounts Receivable
	KEY RATIO ANALYSIS:  Receivables Turnover Ratio
	Pause for Feedback
	Reporting and Safeguarding Cash
		Cash and Cash Equivalents Defined
		Cash Management
		Internal Control of Cash
	A QUESTION OF ETHICS: Ethics and the Need for Internal Control
		Reconciliation of the Cash Accounts and the Bank Statements
	Pause for Feedback
	Demonstration Case A
	Demonstration Case B
	Chapter Supplement: Recording Discounts and Returns
	Chapter Take-Aways
	Key Ratio
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Cases and Projects
Chapter Seven: Reporting and Interpreting Cost of Goods Sold and Inventory
	Harley-Davidson, Inc.
	Understanding the Business
	Nature of Inventory and Cost of Goods Sold
		Items Included in Inventory
		Costs Included in Inventory Purchases
	FINANCIAL ANALYSIS: Applying the Materiality Constraint in Practice
		Flow of Inventory Costs
		Cost of Goods Sold Equation
	Pause for Feedback
		Perpetual and Periodic Inventory Systems
	Inventory Costing Methods
		Specific Identification Method
		Cost Flow Assumptions
	INTERNATIONAL PERSPECTIVE: LIFO and International Comparisons
		Financial Statement Effects of Inventory Methods
	A QUESTION OF ETHICS: LIFO and Conflicts between Managers’ and Owners’ Interests
	Pause for Feedback
	Valuation at Lower of Cost or Net Realizable Value
	Evaluating Inventory Management
	KEY RATIO ANALYSIS:  Inventory Turnover
	Pause for Feedback
	FINANCIAL ANALYSIS: LIFO and Inventory Turnover Ratio
	Pause for Feedback
	Control of Inventory
		Errors in Measuring Ending Inventory
	Pause for Feedback
		Inventory and Cash Flows
	Demonstration Case
	Chapter Supplement A: LIFO Liquidations
	Chapter Supplement B: FIFO and LIFO Cost of Goods Sold under Periodic versus Perpetual Inventory Systems
	Chapter Supplement C: Additional Issues in Measuring Purchases
	Chapter Take-Aways
	Key Ratio
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Comprehensive Problem (Chapters 6–7)
	Cases and Projects
Chapter Eight: Reporting and Interpreting Property, Plant, and Equipment; Intangibles; and Natural Resources
	Southwest Airlines
	Understanding the Business
	Acquisition and Maintenance of Plant and  Equipment
		Classifying Long-Lived Assets
		Measuring and Recording Acquisition Cost
	Key Ratio Analysis: Fixed Asset Turnover
	Pause for Feedback
		Repairs, Maintenance, and Improvements
	A QUESTION OF ETHICS: WorldCom: Hiding Billions in Expenses through Capitalization
	Pause for Feedback
	Use, Impairment, and Disposal of Plant and Equipment
		Depreciation Concepts
	FINANCIAL ANALYSIS: Book Value as an Approximation of Remaining Life
	FINANCIAL ANALYSIS: Differences in Estimated Lives within a  Single Industry
		Alternative Depreciation Methods
	FINANCIAL ANALYSIS: Impact of Alternative Depreciation Methods
	Pause for Feedback
	FINANCIAL ANALYSIS: Increased Profitability Due to an Accounting Adjustment? Reading the Notes
	INTERNATIONAL PERSPECTIVE: Component Allocation
		How Managers Choose
	A QUESTION OF ETHICS: Two Sets of Books
		Measuring Asset Impairment
		Disposal of Property, Plant, and Equipment
	Pause for Feedback
	Intangible Assets and Natural Resources
		Acquisition and Amortization of Intangible Assets
	FINANCIAL ANALYSIS: Research and Development Costs: Not an Intangible Asset Under U.S. GAAP
	INTERNATIONAL PERSPECTIVE: Differences in Accounting for Tangible and Intangible Assets
		Acquisition and Depletion of Natural Resources
	FINANCIAL ANALYSIS: A Misinterpretation
	Demonstration Case A
	Demonstration Case B
	Chapter Supplement: Changes in Depreciation Estimates
	Pause for Feedback
	Chapter Take-Aways
	Key Ratio
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Comprehensive Problems (Chapters 6–8)
	Cases and Projects
Chapter Nine: Reporting and Interpreting Liabilities
	Understanding the Business
	Starbucks
	Liabilities Defined and Classified
	Current Liabilities
		Accounts Payable
	KEY RATIO ANALYSIS: Accounts Payable Turnover
		Accrued Liabilities
		Deferred Revenues
	Data Analytics: Big Data and Data Analytics
		Notes Payable
		Current Portion of Long-Term Debt
	FINANCIAL ANALYSIS: Refinancing Debt: Current or Long-Term  Liability?
		Contingent Liabilities Reported on the  Balance Sheet
		Contingent Liabilities Reported in the  Footnotes
	INTERNATIONAL PERSPECTIVE: It’s a Matter of Degree
		Working Capital Management
	FOCUS ON CASH FLOWS: Working Capital and Cash Flows
	Pause for Feedback
	Long-Term Liabilities
		Long-Term Notes Payable and Bonds
	INTERNATIONAL PERSPECTIVE: Borrowing in Foreign Currencies
		Lease Liabilities
	Computing Present Values
		Present Value of a Single Amount
	Pause for Feedback
		Present Value of an Annuity
	A QUESTION OF ETHICS: Truth in Advertising
		Accounting Applications of Present Values
	Demonstration Case
	Chapter Supplement A: Present Value Computations Using a Calculator  or Excel
	Chapter Supplement B: Deferred Taxes
	Chapter Take-Aways
	Key Ratio
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Cases and Projects
Chapter Ten: Reporting and Interpreting Bond Securities
	Amazon
	Understanding the Business
	Characteristics of Bond Securities
		Reasons Why Companies Issue Bonds
		Bond Terminology
		Bond Issuance Process
	FINANCIAL ANALYSIS: Bond Rating Agencies and Their Assessments of Default Risk
	Reporting Bond Transactions
	FINANCIAL ANALYSIS: Bond Information from the Business Press
	Pause for Feedback
		Bonds Issued at Par
	Pause for Feedback
	KEY RATIO ANALYSIS: Times Interest Earned
		Bonds Issued at a Discount
	Pause for Feedback
		Bonds Issued at a Premium
	Pause for Feedback
		The Book Value of a Bond over Time
	KEY RATIO ANALYSIS: Debt-to-Equity
	Early Retirement of Bonds
	Demonstration Case
	Chapter Supplement: Accounting for Bonds without a Discount Account or Premium Account
	Pause for Feedback
	Pause for Feedback
	Chapter Take-Aways
	Key Ratios
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Cases and Projects
Chapter Eleven: Reporting and Interpreting Stockholders’ Equity
	Understanding the Business
	IBM
	Ownership of a Corporation
		Benefits of Stock Ownership
		Authorized, Issued, and Outstanding Shares
	KEY RATIO ANALYSIS: Earnings per Share (EPS)
	Common Stock Transactions
		Initial Sale of Stock
		Sale of Stock in Secondary Markets
		Stock Issued for Employee Compensation
		Repurchase of Stock
	Pause for Feedback
	Dividends on Common Stock
	KEY RATIO ANALYSIS: Dividend Yield
		Key Dividend Dates
	FINANCIAL ANALYSIS: Impact of Dividends on Stock Price
	Pause for Feedback
	Stock Dividends and Stock Splits
		Stock Dividends
		Stock Splits
	Pause for Feedback
	Statement of Stockholders’ Equity
	Preferred Stock Transactions
	INTERNATIONAL PERSPECTIVE: What’s in a Name?
		Dividends on Preferred Stock
	FINANCIAL ANALYSIS: Preferred Stock and Limited Voting Rights
	Demonstration Case
	Chapter Supplement: Accounting for the Equity of Sole Proprietorships and Partnerships
	Chapter Take-Aways
	Key Ratios
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Comprehensive Problem (Chapters 9–11)
	Cases and Projects
Chapter Twelve: Statement of Cash Flows
	Understanding the Business
	National Beverage Corporation
	Classifications of the Statement of Cash Flows
		Cash Flows from Operating Activities
		Cash Flows from Investing Activities
		Cash Flows from Financing Activities
		Net Increase (Decrease) in Cash
	Pause for Feedback
		Relationships to the Balance Sheet and Income Statement
		Preliminary Steps in Preparing the Cash Flow Statement
	Reporting and Interpreting Cash Flows from Operating Activities
		Reporting Cash Flows from Operating Activities—Indirect Method
	INTERNATIONAL PERSPECTIVE: Classification of Interest on the Cash Flow Statement
	Pause for Feedback
		Interpreting Cash Flows from Operating Activities
	Key Ratio Analysis: Quality of Income Ratio
	A QUESTION OF ETHICS: Fraud and Cash Flows from Operations
	Reporting and Interpreting Cash Flows from Investing Activities
		Reporting Cash Flows from Investing Activities
		Interpreting Cash Flows from Investing Activities
	Key Ratio Analysis: Capital Acquisitions Ratio
	FINANCIAL ANALYSIS: Free Cash Flow
	Reporting and Interpreting Cash Flows from Financing Activities
		Reporting Cash Flows from Financing Activities
		Interpreting Cash Flows from Financing Activities
	Pause for Feedback
	Completing the Statement and Additional Disclosures
		Statement Structure
		Supplemental Cash Flow Information
	Demonstration Case
	Chapter Supplement A: Reporting Cash  Flows from Operating Activities—Direct Method
	Pause for Feedback
	Chapter Supplement B: Adjustment for Gains and Losses on Sale of Long-Term Assets—Indirect Method
	Chapter Supplement C: T-Account Approach (Indirect Method)
	Chapter Take-Aways
	Key Ratios
	Finding Financial Information
	Key Terms
	Questions
	Mini-Exercises
	Exercises
	Alternate Problems
	Continuing Problem
	Cases and Projects
Chapter Thirteen: Analyzing Financial Statements
	The Home Depot
	Understanding the Business
	The Investment Decision
	Understanding a Company’s Strategy
	Financial Statement Analysis
	Component Percentages and Ratio Analysis
		Component Percentages
	DATA ANALYTICS: Using Graphs to Assess a Company’s Performance
		Ratio Analysis
		Profitability Ratios
	Pause for Feedback
		Asset Turnover Ratios
	FINANCIAL ANALYSIS: ROA Profit Driver Analysis and the Dupont Model
		Liquidity Ratios
	Pause for Feedback
		Solvency Ratios
		Market Ratios
	Pause for Feedback
	Interpreting Ratios and Other Analytical Considerations
		Other Financial Information
	A QUESTION OF ETHICS: Insider Information
	Chapter Take-Aways
	Finding Financial Information
	Key Terms
	Questions
	Multiple-Choice Questions
	Mini-Exercises
	Exercises
	Problems
	Alternate Problems
	Continuing Problem
	Cases and Projects
Appendix A: Reporting and Interpreting Investments in Other Corporations
Appendix B: American Eagle Outfitters, Inc., Form 10-K Annual Report
Appendix C: Express, Inc., Form 10-K Annual Report
Appendix D: Industry Ratio Report
Appendix E: Present and Future Value Tables
Glossary
Company Index
Subject Index