Financial accounting

Cover......Page 1
Title Page......Page 4
Contents......Page 12
 Business, Accounting, and You......Page 36
  The Definition of a Business......Page 37
  The General Concept of Value......Page 38
  Business Owners and Other Stakeholders......Page 39
  Operating the Business......Page 40
  The Types of Businesses......Page 41
  The Legal Forms of Businesses......Page 42
  Generally Accepted Accounting Principles......Page 44
  Accounting Ethics: A Matter of Trust ......Page 45
 What Is the Role of Accountingin a Business?......Page 46
 How Do You Measure a BusinessTransaction?......Page 47
 How Do You Record Business Transactions Using the Accounting Equation?......Page 48
  Stockholders’ Equity......Page 49
  The Income Statement......Page 55
  The Statement of Cash Flows......Page 57
  Relationships Among the Financial Statements......Page 58
 Accounting, Business, and You—Putting It All Together......Page 59
 Summary......Page 60
 Accounting Practice......Page 63
 Apply Your Knowledge......Page 84
 Know Your Business......Page 85
 Business, Accounting, and You......Page 88
  Organizing Accounts......Page 89
  Stockholders’ Equity......Page 90
 What Is Double-Entry Accounting?......Page 91
 How Are the General Journal and GeneralLedger Used to Keep Track of BusinessTransactions?......Page 93
  Applying Transaction Analysis......Page 95
  Balancing the T-Accounts......Page 102
 How Is a Trial Balance Prepared, and WhatIs It Used For?......Page 104
  Correcting Errors......Page 105
  Preparation of Financial Statements......Page 106
 Summary......Page 109
 Accounting Practice......Page 110
 Know Your Business......Page 134
 Business, Accounting, and You......Page 137
  Revenue Recognition and Matching Principles......Page 139
 What Is the Role of Adjusting Entries, and WhenAre They Prepared?......Page 140
  Accruing Revenues......Page 141
  Adjusting Deferred Revenues......Page 142
  Adjusting Deferred Expenses......Page 143
  The Adjusted Trial Balance......Page 148
  Preparing the Financial Statements......Page 150
  Completing the Accounting Cycle......Page 152
  The Three Closing Entries: Revenues, Expenses, and Dividends......Page 153
  Summary of the Adjusting and Closing Processes......Page 155
 Summary......Page 158
 Accounting Practice......Page 160
 Know Your Business......Page 189
 Comprehensive Problem......Page 192
 Business, Accounting, and You......Page 194
 What Are the Relationships AmongManufacturers, Wholesalers, Retailers,and Customers?......Page 195
 How Do Periodic and Perpetual Inventory Systems Differ?......Page 196
  Purchase Returns and Allowances......Page 197
  Purchase Discounts......Page 198
 How Do You Account for the Sale of Inventory?......Page 199
  Credit Sales......Page 200
  Sales Returns and Allowances......Page 201
  Sales Allowances......Page 202
  Sales Discounts......Page 203
 How Do You Account for Freight Charges and Other Selling Expenses?......Page 204
  Costs Related to the Receipt of Goods from Suppliers......Page 205
  Costs Related to Delivering Goods to Customers......Page 206
  Other Selling Costs......Page 208
  The Income Statement......Page 209
  The Balance Sheet......Page 212
 Summary......Page 215
 Accounting Practice......Page 218
 Know Your Business......Page 240
 Business, Accounting, and You......Page 243
 What Inventory Costing Methods Are Allowed?......Page 244
  Cost Flow Versus Physical Flow of Inventory......Page 245
  Inventory Cost Flows......Page 247
  Specific-Identification Method......Page 248
  First-In, First-Out (FIFO) Method......Page 249
  Last-In, First-Out (LIFO) Method......Page 250
  Average Cost Method......Page 251
  Journalizing Inventory Transactions......Page 252
 What Effect Do the Different Costing Methods Have on Net Income?......Page 253
 What Else Determines How Inventory Is Valued?......Page 255
  Inventory Shrinkage......Page 257
 How Do Inventory Errors Affect the Financial Statements?......Page 258
 Is It Possible to Estimate the Value of Inventory If the Inventory Is Accidentally Destroyed?......Page 259
 Summary......Page 263
 Accounting Practice......Page 265
 Know Your Business......Page 287
 Comprehensive Problem......Page 289
 Business, Accounting, and You......Page 291
  Understandable......Page 292
  Generally Accepted Accounting Principles (GAAP) in the United States......Page 293
  Differences Between FASB and IFRS......Page 294
  Elements of an Internal Control System......Page 296
  Employee Embezzlement......Page 300
  The Factors Usually Present When Fraud Is Committed......Page 301
  Audits......Page 303
  Audit Opinions......Page 304
  The Legal Responsibilities of Accountants......Page 305
  Ethical Responsibilities of Accountants......Page 306
 Summary......Page 308
 Accounting Practice......Page 310
 Apply Your Knowledge......Page 317
 Know Your Business......Page 320
 Business, Accounting, and You......Page 323
  Cash Sales......Page 324
  Credit/Debit Card Processing......Page 325
  Internal Controls over Cash Receipts......Page 326
  Internal Control over Cash Payments......Page 327
  Purchase and Payment Process......Page 328
  Preparing the Bank Reconciliation......Page 329
  Book Side of the Reconciliation......Page 330
  Online Banking ......Page 334
  Types of Receivables......Page 335
  The Direct Write-Off Method......Page 336
  Direct Write-Off Method: Recovery of Accounts Previously Written Off ......Page 337
  Estimating the Amount of Uncollectible Accounts......Page 338
  Writing Off Uncollectible Accounts Under the Allowance Method......Page 341
  Allowance Method: Recovery of Accounts Previously Written Off......Page 342
 How Are Accounts Receivable Reported on the Balance Sheet?......Page 343
  Identifying the Maturity Date......Page 344
  Computing Interest on a Note......Page 345
  Accruing Interest Revenue......Page 346
 Summary ......Page 350
 Accounting Practice......Page 353
 Apply Your Knowledge......Page 379
 Know Your Business......Page 380
  Setting Up the Petty Cash Fund......Page 382
  Replenishing the Petty Cash Fund......Page 383
  Changing the Petty Cash Fund......Page 384
 Accounting Practice......Page 385
 Business, Accounting, and You......Page 388
 What Are the Different Types of Long-Term Assets?......Page 389
  land and land improvements......Page 390
  Machinery and Equipment......Page 391
  Lump-Sum (Basket) Purchase of Assets......Page 392
 How Are Fixed Assets Depreciated?......Page 393
  Measuring Depreciation ......Page 394
  Depreciation Methods......Page 395
  Partial Year Depreciation......Page 399
  Changing the Useful Life of a Depreciable Asset......Page 400
  Using Fully Depreciated Assets......Page 401
  Extraordinary Repairs......Page 402
 What Happens When a Fixed Asset Is Disposed?......Page 403
  Specific Intangibles......Page 406
 How Are Natural Resources Accounted For?......Page 408
 What Are Other Assets?......Page 409
 How Are Long-Term Assets Reported on the Balance Sheet?......Page 410
 Summary......Page 412
 Accounting Practice......Page 415
 Apply Your Knowledge......Page 435
 Know Your Business......Page 436
 Business, Accounting, and You......Page 439
 What Are the Differences Among Known, Estimated, and Contingent Liabilities?......Page 440
  Notes Payable......Page 441
  Unearned Revenues......Page 443
  Estimated Warranty Liability......Page 444
 How Do You Account for a Contingent Liability?......Page 445
  Notes Payable......Page 446
  Bonds Payable......Page 448
  Lease Liabilities......Page 454
 How Are Liabilities Reported on the Balance Sheet?......Page 456
 Summary......Page 460
 Accounting Practice......Page 463
 Apply Your Knowledge......Page 483
 Know Your Business......Page 484
 Business, Accounting, and You......Page 487
 How Are Corporations Organized?......Page 488
  Classes of Stock......Page 490
 How Is the Issuance of Stock Recorded?......Page 491
  Issuing Common Stock......Page 492
 How Are Cash Dividends Accounted For? ......Page 493
  Declaring and Paying Dividends......Page 494
  Dividing Dividends Between Preferred and Common Shareholders......Page 495
  Dividends on Cumulative and Noncumulative Preferred Stock......Page 496
  Stock Dividends......Page 497
  Recording Stock Dividends......Page 498
  Stock Splits......Page 500
  Treasury Stock Basics......Page 502
  Sale of Treasury Stock......Page 503
 How Is Stockholders’ Equity Reported on the Balance Sheet?......Page 506
 Summary......Page 508
 Accounting Practice......Page 510
 Know Your Business......Page 537
 Business, Accounting, and You......Page 540
 What Is the Statement of Cash Flows?......Page 542
 How Does a Business Create a Statement of Cash Flows?......Page 543
  Sources and Uses of Cash: Categorizing Changes as Operating, Investing, or Financing......Page 544
  Statement of Cash Flows: Two Formats......Page 546
 How Is the Statement of Cash Flows Prepared Using the Indirect Method?......Page 547
  Cash Flows from Operating Activities......Page 549
  Cash Flows from Investing Activities......Page 551
  Cash Flows from Financing Activities......Page 553
  Noncash Investing and Financing Activities......Page 555
 How Is the Statement of Cash Flows Prepared Using the Direct Method?......Page 558
  Cash Flows from Operating Activities......Page 559
 Summary......Page 565
 Accounting Practice......Page 566
 Apply Your Knowledge......Page 594
 Know Your Business......Page 595
 Comprehensive Problem......Page 597
 Business, Accounting, and You......Page 600
 What Is Financial Analysis?......Page 601
  Step Two: Understand the Environment in Which a BusinessOperates......Page 602
  Step Four: Analyze the Business’s Operations......Page 603
 What Measures Does Someone Use to Analyze the Performance of a Business?......Page 604
  The Techniques of Financial Analysis......Page 605
  Vertical Analysis......Page 607
  Horizontal Analysis......Page 608
  Question 1: Is the Business a Going Concern?......Page 610
  An Example: Tucker Enterprises, Inc.......Page 611
  Question 2: How Is the Business Earning a Net Income or Loss?......Page 612
  An Example: Tucker Enterprises, Inc.......Page 614
  An Example: Tucker Enterprises, Inc. ......Page 615
  Question 4: How Is the Business Investing Its Money, and Is It Using Its Assets Efficiently?......Page 616
  An Example: Tucker Enterprises, Inc.......Page 617
  Question 5: Is the Business Generating Enough Net Income to Reward the Stockholders for the Use of Their Money?......Page 618
  An Example: Tucker Enterprises, Inc.......Page 619
 How Do You Put Everything Together to Make Decisions?......Page 621
  What Are Red Flags in Financial Statement Analysis?......Page 623
 Summary......Page 626
 Accounting Practice......Page 628
 Apply Your Knowledge......Page 653
 Know Your Business......Page 654
Appendix A Columbia Sportswear Company 2012 Annual Report to Shareholders......Page 656
Future Value......Page 724
 Future-Value Tables......Page 725
 Future Value of an Annuity......Page 726
Present Value......Page 727
 Present Value of an Annuity......Page 728
Accounting Practice......Page 730
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Credits......Page 758