Financial Accounting: Tools for Business Decision Making, 6th Edition

Cover Page......Page 1
Title Page......Page 5
Dedication......Page 6
From the Authors......Page 7
Acknowledgments......Page 18
Brief Contents......Page 21
Contents......Page 22
chapter 1: Introduction to Financial Statements......Page 38
Knowing the Numbers......Page 39
Forms of Business Organization......Page 40
Internal Users......Page 41
External Users......Page 42
Ethics in Financial Reporting......Page 43
Investing Activities......Page 45
Operating Activities......Page 46
Income Statement......Page 47
Retained Earnings Statement......Page 48
Balance Sheet......Page 49
Statement of Cash Flows......Page 51
Interrelationships of Statements......Page 52
Other Elements of an Annual Report......Page 55
A Look at IFRS......Page 78
chapter 2: A Further Look at Financial Statements......Page 82
Just Fooling Around?......Page 83
The Classified Balance Sheet......Page 84
Current Assets......Page 85
Long-Term Investments......Page 86
Intangible Assets......Page 87
Long-Term Liabilities......Page 88
Stockholders’ Equity......Page 89
Ratio Analysis......Page 90
Using the Income Statement......Page 91
Using the Statement of Stockholders’ Equity......Page 92
Using a Classified Balance Sheet......Page 94
Keeping an Eye on Cash......Page 166
The Standard-Setting Environment......Page 99
Qualities of Useful Information......Page 100
Principles in Financial Reporting
......Page 102
Constraints in Financial Reporting......Page 103
A Look at IFRS......Page 132
chapter 3: The Accounting Information System......Page 136
Accidents Happen......Page 137
Accounting Transactions......Page 138
Analyzing Transactions......Page 139
Summary of Transactions......Page 145
Debits and Credits......Page 147
Debit and Credit Procedures......Page 148
Stockholders’ Equity Relationships......Page 151
Steps in the Recording Process......Page 152
The Journal......Page 153
The Ledger......Page 155
The Recording Process Illustrated......Page 156
Summary Illustration of Journalizing and Posting......Page 163
Limitations of a Trial Balance......Page 165
A Look at IFRS......Page 195
chapter 4: Accrual Accounting Concepts......Page 198
What Was Your Profit?......Page 199
The Revenue Recognition Principle......Page 200
The Expense Recognition Principle......Page 201
Accrual versus Cash Basis of Accounting......Page 202
The Basics of Adjusting Entries......Page 203
Types of Adjusting Entries......Page 204
Adjusting Entries for Deferrals......Page 205
Adjusting Entries for Accruals......Page 211
Summary of Basic Relationships......Page 217
Preparing the Adjusted Trial Balance......Page 219
Preparing Financial Statements......Page 220
Preparing Closing Entries......Page 222
Preparing a Post-Closing Trial Balance......Page 224
Quality of Earnings......Page 226
Keeping an Eye on Cash......Page 227
APPENDIX 4A Adjusting Entries in an Automated World–Using a Worksheet......Page 231
A Look at IFRS......Page 260
chapter 5: Merchandising Operations and the Multiple-Step Income Statement......Page 262
Who Doesn’t Shop at Wal-Mart?......Page 263
Merchandising Operations......Page 264
Flow of Costs......Page 265
Recording Purchases of Merchandise......Page 267
Freight Costs......Page 268
Purchase Returns and Allowances......Page 269
Purchase Discounts......Page 270
Summary of Purchasing Transactions......Page 271
Recording Sales of Merchandise......Page 272
Sales Returns and Allowances......Page 273
Sales Discounts......Page 274
Income Statement Presentation......Page 275
Operating Expenses......Page 277
Nonoperating Expenses......Page 278
Determining Cost of Goods Sold Under a Periodic System......Page 280
Gross Profit Rate......Page 281
Profit Margin Ratio......Page 283
Keeping an Eye on Cash......Page 284
Freight Costs......Page 287
Recording Sales of Merchandise......Page 288
Comparison of Entries–Perpetual vs. Periodic......Page 289
A Look at IFRS......Page 312
chapter 6: Reporting and Analyzing Inventory......Page 316
“Where Is That Spare Bulldozer Blade?“......Page 317
Classifying Inventory......Page 318
Taking a Physical Inventory......Page 319
Determining Ownership of Goods......Page 320
Specific Identification......Page 322
Cost Flow Assumptions......Page 323
Financial Statement and Tax Effects of Cost Flow Methods......Page 328
Keeping an Eye on Cash......Page 330
Lower-of-Cost-or-Market......Page 331
Inventory Turnover Ratio......Page 332
Analysts’ Adjustments for LIFO Reserve......Page 335
APPENDIX 6 A Inventory Cost Flow Methods in Perpetual Inventory System......Page 339
Last-In, First-Out (LIFO)......Page 340
Average Cost......Page 341
Income Statement Effects......Page 342
Balance Sheet Effects......Page 343
A Look at IFRS......Page 366
chapter 7: Fraud, Internal Control, and Cash......Page 370
Minding the Money in Moose Jaw......Page 371
Fraud......Page 372
Internal Control......Page 373
Principles of Internal Control Activities......Page 374
Limitations of Internal Control......Page 381
Cash Receipts Controls......Page 382
Cash Disbursements Controls......Page 385
Control Features: Use of a Bank......Page 387
Bank Statements......Page 388
Reconciling the Bank Account......Page 389
Cash Equivalents......Page 394
Managing and Monitoring Cash......Page 395
Basic Principles of Cash Management......Page 396
Keeping an Eye on Cash......Page 398
APPENDIX 7A Operation of the Petty Cash Fund......Page 402
Replenishing the Petty Cash Fund......Page 403
A Look at IFRS......Page 429
chapter 8: Reporting and Analyzing Receivables......Page 432
A Dose of Careful Management Keeps Receivables Healthy......Page 433
Types of Receivables......Page 434
Recognizing Accounts Receivable......Page 435
Valuing Accounts Receivable......Page 436
Notes Receivable......Page 443
Computing Interest......Page 444
Valuing Notes Receivable......Page 445
Disposing of Notes Receivable......Page 446
Financial Statement Presentation of Receivables......Page 447
Extending Credit......Page 448
Monitoring Collections......Page 449
Evaluating Liquidity of Receivables......Page 451
Accelerating Cash Receipts......Page 453
Keeping an Eye on Cash......Page 456
A Look at IFRS......Page 480
chapter 9: Reporting and Analyzing Long-Lived Assets......Page 482
A Tale of Two Airlines......Page 483
SECTION 1 Plant Assets......Page 484
Land......Page 485
Buildings......Page 486
Equipment......Page 487
To Buy or Lease?......Page 488
Depreciation......Page 489
Depreciation Methods......Page 490
Revising Periodic Depreciation......Page 495
Expenditures During Useful Life......Page 496
Impairments......Page 497
Plant Asset Disposals......Page 498
Return on Assets Ratio......Page 500
Profit Margin Ratio Revisited......Page 502
SECTION 2 Intangible Assets......Page 503
Accounting for Intangible Assets......Page 504
Research and Development Costs......Page 505
Franchises and Licenses......Page 506
Goodwill......Page 507
Financial Statement Presentation of Long-Lived Assets......Page 508
Keeping an Eye on Cash......Page 509
Declining-Balance......Page 512
Units-of-Activity......Page 513
A Look at IFRS......Page 536
chapter 10: Reporting and Analyzing Liabilities......Page 540
And Then There Were Two......Page 541
Notes Payable......Page 542
Sales Taxes Payable......Page 543
Unearned Revenues......Page 544
Current Maturities of Long-Term Debt......Page 545
Payroll and Payroll Taxes Payable......Page 546
Types of Bonds......Page 548
Determinging the Market Value of Bonds......Page 549
Accounting for Bond Issues......Page 551
Discount or Premium on Bonds......Page 552
Issuing Bonds at a Discount......Page 553
Issuing Bonds at a Premium......Page 555
Redeeming Bonds at Maturity......Page 556
Redeeming Bonds before Maturity......Page 557
Keeping an Eye on Cash......Page 558
Analysis......Page 559
Off-Balance-Sheet Financing......Page 562
Amortizing Bond Discount......Page 567
Amortizing Bond Premium......Page 568
APPENDIX 10B Effective-Interest Amortization......Page 569
Amortizing Bond Discount......Page 570
Amortizing Bond Premium......Page 572
APPENDIX 10C Accounting for Long-Term Notes Payable......Page 573
A Look at IFRS......Page 600
chapter 11: Reporting and Analyzing Stockholders’ Equity......Page 604
What’s Cooking?......Page 605
Characteristics of a Corporation......Page 606
Stockholder Rights......Page 610
Stock Issue Considerations......Page 611
Issuance of Stock......Page 612
Accounting for Common Stock Issues......Page 613
Accounting for Treasury Stock......Page 615
Purchase of Treasury Stock......Page 616
Dividend Preferences......Page 618
Liquidation Preference......Page 619
Cash Dividends......Page 620
Stock Dividends......Page 621
Stock Splits......Page 623
Retained Earnings......Page 625
Balance Sheet Presentation......Page 626
Keeping an Eye on Cash......Page 628
Dividend Record......Page 629
Debt versus Equity Decision......Page 630
APPENDIX 11A Entries for Stock Dividends......Page 634
A Look at IFRS......Page 655
chapter 12: Statement of Cash Flows......Page 658
Got Cash?......Page 659
Usefulness of the Statement of Cash Flows......Page 660
Significant Noncash Activities......Page 661
Format of the Statement of Cash Flows......Page 663
The Corporate Life Cycle......Page 664
Preparing the Statement of Cash Flows......Page 665
Indirect and Direct Methods......Page 666
Preparation of the Statement of Cash Flows–Indirect Method......Page 667
Step 1: Operating Activities......Page 668
Summary of Conversion to Net Cash Provided by Operating Activities–Indirect Methods......Page 671
Step 2: Investing and Financing Activities......Page 673
Free Cash Flow......Page 675
Assessing Liquidity and Solvency Using Cash Flows......Page 677
APPENDIX 12A Statement of Cash Flows–Direct Method......Page 682
Step 1: Operating Activities......Page 684
Step 2: Investing and Financing Activities......Page 688
Step 3: Net Change in Cash......Page 689
APPENDIX 12B Statement of Cash Flows–T-Account Approch......Page 690
A Look at IFRS......Page 716
chapter 13: Financial Analysis: The Big Picture......Page 720
It Pays to Be Patient......Page 721
Sustainable Income......Page 722
Irregular Items......Page 723
Comprehensive Income......Page 726
Concluding Remarks......Page 728
Comparative Analysis......Page 729
Horizontal Analysis......Page 730
Vertical Analysis......Page 732
Ratio Analysis......Page 735
Solvency Ratios......Page 736
Quality of Earnings......Page 737
Improper Recognition......Page 738
Price-Earnings Ratio......Page 739
APPENDIX 13A Comprehensive Illustration of Ratio Analysis......Page 744
Liquidity Ratios......Page 746
Solvency Ratios......Page 748
Profitability Ratios......Page 751
A Look at IFRS......Page 779
Financial Highlights......Page 782
Letter to the Stockholders......Page 783
Management Discussion and Analysis......Page 787
Management’s Report on Internal Control and Management Certifications of Financial Statements......Page 797
Financial Statements and Accompanying Notes......Page 798
Auditor’s Report......Page 813
Supplementary Financial Information......Page 814
appendix B Speciman Financial Statements: The Hershey Company......Page 818
appendix C Speciman Financial Statements: Zetar plc......Page 822
Simple Interest......Page 826
Future Value of a Single Amount......Page 827
Future Value of an Annuity......Page 829
Present Value of a Single Amount......Page 832
Present Value of an Annuity......Page 834
Computing the Present Value of a Long-Term Note or Bond......Page 836
Present Value of a Single Sum......Page 839
Present Value of an Annuity......Page 840
Mortgage Loan Amount......Page 841
Why Corporations Invest......Page 846
Recording Acquisition of Bonds......Page 847
Recording Sale of Bonds......Page 848
Holdings of Less Than 20%......Page 849
Holdings Between 20% and 50%......Page 850
Valuing and Reporting Investments......Page 852
Categories of Securities......Page 853
Balance Sheet Presentation......Page 855
Presentation of Realized and Unrealized Gain or Loss......Page 856
Statement of Cash Flows Presentation......Page 857
photo credits......Page 866
company index......Page 867
subject index......Page 870