Description
TABLE OF CONTENTS
1 Accounting in Action 1-1
Knowing the Numbers: Columbia Sportswear 1-1
Accounting Activities and Users 1-3
Three Activities 1-3
Who Uses Accounting Data 1-4
The Building Blocks of Accounting 1-6
Ethics in Financial Reporting 1-6
Generally Accepted Accounting Principles 1-8
Measurement Principles 1-8
Assumptions 1-9
The Accounting Equation 1-11
Assets 1-11
Liabilities 1-12
Stockholders’ Equity 1-12
Analyzing Business Transactions 1-13
Accounting Transactions 1-14
Transaction Analysis 1-15
Summary of Transactions 1-19
The Financial Statements 1-21
Income Statement 1-21
Retained Earnings Statement 1-23
Balance Sheet 1-23
Statement of Cash Flows 1-23
Appendix 1A: Career Opportunities in Accounting 1-25
Public Accounting 1-25
Private Accounting 1-25
Governmental Accounting 1-26
Forensic Accounting 1-26
“Show Me the Money” 1-26
2 The Recording Process 2-1
Accidents Happen: MF Global Holdings 2-1
Accounts, Debits, and Credits 2-3
Debits and Credits 2-3
Stockholders’ Equity Relationships 2-7
Summary of Debit/Credit Rules 2-7
The Journal 2-8
The Recording Process 2-8
The Journal 2-9
The Ledger and Posting 2-11
The Ledger 2-11
Posting 2-12
Chart of Accounts 2-13
The Recording Process Illustrated 2-14
Summary Illustration of Journalizing and Posting 2-20
The Trial Balance 2-22
Limitations of a Trial Balance 2-23
Locating Errors 2-23
Dollar Signs and Underlining 2-23
3 Adjusting the Accounts 3-1
Keeping Track of Groupons: Groupon 3-1
Accrual-Basis Accounting and Adjusting Entries 3-2
Fiscal and Calendar Years 3-3
Accrual- versus Cash-Basis Accounting 3-3
Recognizing Revenues and Expenses 3-3
The Need for Adjusting Entries 3-5
Types of Adjusting Entries 3-6
Adjusting Entries for Deferrals 3-7
Prepaid Expenses 3-7
Unearned Revenues 3-11
Adjusting Entries for Accruals 3-14
Accrued Revenues 3-14
Accrued Expenses 3-15
Summary of Basic Relationships 3-18
Adjusted Trial Balance and Financial Statements 3-21
Preparing the Adjusted Trial Balance 3-22
Preparing Financial Statements 3-22
Appendix 3A: Adjusting Entries for the Alternative Treatment of Deferrals 3-25
Prepaid Expenses 3-26
Unearned Revenues 3-27
Summary of Additional Adjustment Relationships 3-28
Appendix 3B: Financial Reporting Concepts 3-28
Qualities of Useful Information 3-28
Assumptions in Financial Reporting 3-29
Principles in Financial Reporting 3-29
Cost Constraint 3-31
4 Completing the Accounting Cycle 4-1
Everyone Likes to Win: Rhino Foods 4-1
The Worksheet 4-3
Steps in Preparing a Worksheet 4-3
Preparing Financial Statements from a Worksheet 4-7
Preparing Adjusting Entries from a Worksheet 4-8
Closing the Books 4-8
Preparing Closing Entries 4-9
Posting Closing Entries 4-11
Preparing a Post-Closing Trial Balance 4-12
The Accounting Cycle and Correcting Entries 4-15
Summary of the Accounting Cycle 4-15
Reversing Entries—An Optional Step 4-15
Correcting Entries—An Avoidable Step 4-15
Classified Balance Sheet 4-18
Current Assets 4-20
Long-Term Investments 4-20
Property, Plant, and Equipment 4-20
Intangible Assets 4-21
Current Liabilities 4-22
Long-Term Liabilities 4-23
Stockholders’ (Owners’) Equity 4-23
Appendix 4A: Reversing Entries 4-24
Reversing Entries Example 4-25
5 Accounting for Merchandising Operations 5-1
Buy Now, Vote Later: REI 5-1
Merchandising Operations and Inventory Systems 5-3
Operating Cycles 5-3
Flow of Costs 5-4
Recording Purchases Under a Perpetual System 5-6
Freight Costs 5-8
Purchase Returns and Allowances 5-9
Purchase Discounts 5-9
Summary of Purchasing Transactions 5-10
Recording Sales Under a Perpetual System 5-11
Sales Returns and Allowances 5-12
Sales Discounts 5-13
Data Analytics and Credit Sales 5-14
The Accounting Cycle for a Merchandising Company 5-15
Adjusting Entries 5-15
Closing Entries 5-16
Summary of Merchandising Entries 5-16
Multiple-Step Income Statement 5-18
Multiple-Step Income Statement 5-18
Single-Step Income Statement 5-21
Classified Balance Sheet 5-21
Appendix 5A: Merchandising Company Worksheet 5-23
Using a Worksheet 5-23
Appendix 5B: Periodic Inventory System 5-24
Determining Cost of Goods Sold Under a Periodic System 5-25
Recording Merchandise Transactions 5-26
Recording Purchases of Merchandise 5-26
Recording Sales of Merchandise 5-27
Journalizing and Posting Closing Entries 5-28
Using a Worksheet 5-29
6 Inventories 6-1
“Where is That Spare Bulldozer Blade?”: Caterpillar 6-1
Classifying and Determining Inventory 6-2
Classifying Inventory 6-3
Determining Inventory Quantities 6-4
Inventory Methods and Financial Effects 6-7
Specific Identification 6-7
Cost Flow Assumptions 6-8
Financial Statement and Tax Effects of Cost Flow Methods 6-13
Using Inventory Cost Flow Methods Consistently 6-15
Effects of Inventory Errors 6-16
Income Statement Effects 6-17
Balance Sheet Effects 6-18
Inventory Presentation and Analysis 6-18
Presentation 6-18
Lower-of-Cost-or-Net Realizable Value 6-19
Analysis 6-20
Appendix 6A: Inventory Cost Flow Methods in Perpetual Inventory Systems 6-22
First-In, First-Out (FIFO) 6-22
Last-In, First-Out (LIFO) 6-23
Average-Cost 6-23
Appendix 6B: Estimating Inventories 6-24
Gross Profit Method 6-24
Retail Inventory Method 6-25
7 Fraud, Internal Control, and Cash 7-1
Minding the Money in Madison: Barriques 7-2
Fraud and Internal Control 7-3
Fraud 7-3
The Sarbanes-Oxley Act 7-3
Internal Control 7-4
Principles of Internal Control Activities 7-4
Data Analytics and Internal Controls 7-10
Limitations of Internal Control 7-11
Cash Controls 7-12
Cash Receipts Controls 7-12
Cash Disbursements Controls 7-15
Petty Cash Fund 7-16
Control Features of a Bank Account 7-19
Making Bank Deposits 7-19
Writing Checks 7-20
Electronic Funds Transfer (EFT) System 7-21
Bank Statements 7-21
Reconciling the Bank Account 7-22
Reporting Cash 7-27
Cash Equivalents 7-27
Restricted Cash 7-28
8 Accounting for Receivables 8-1
What’s Cooking?: Nike 8-1
Recognition of Accounts Receivable 8-3
Types of Receivables 8-3
Recognizing Accounts Receivable 8-3
Valuation and Disposition of Accounts Receivable 8-5
Valuing Accounts Receivable 8-5
Disposing of Accounts Receivable 8-12
Notes Receivable 8-14
Determining the Maturity Date 8-15
Computing Interest 8-16
Recognizing Notes Receivable 8-16
Valuing Notes Receivable 8-16
Disposing of Notes Receivable 8-16
Presentation and Analysis of Receivables 8-19
Presentation 8-19
Analysis 8-20
Data Analytics and Receivables Management 8-21
9 Plant Assets, Natural Resources, and Intangible Assets 9-1
A Tale of Two Airlines: American Airlines 9-2
Plant Asset Expenditures 9-3
Determining the Cost of Plant Assets 9-3
Expenditures During Useful Life 9-5
Depreciation Methods 9-7
Factors in Computing Depreciation 9-8
Depreciation Methods 9-9
Depreciation and Income Taxes 9-14
Revising Periodic Depreciation 9-15
Impairments 9-16
Plant Asset Disposals 9-16
Sale of Plant Assets 9-17
Retirement of Plant Assets 9-18
Natural Resources and Intangible Assets 9-19
Natural Resources 9-19
Depletion 9-20
Intangible Assets 9-20
Accounting for Intangible Assets 9-21
Types of Intangible Assets 9-22
Research and Development Costs 9-23
Statement Presentation and Analysis 9-24
Presentation 9-24
Analysis 9-25
Appendix 9A: Exchange of Plant Assets 9-27
Loss Treatment 9-27
Gain Treatment 9-28
10 Liabilities 10-1
And Then There Were Two: Maxwell Car Company 10-1
Accounting for Current Liabilities 10-3
What is a Current Liability? 10-3
Notes Payable 10-3
Sales Taxes Payable 10-4
Unearned Revenues 10-5
Current Maturities of Long-Term Debt 10-5
Payroll and Payroll Taxes Payable 10-6
Major Characteristics of Bonds 10-8
Types of Bonds 10-8
Issuing Procedures 10-9
Bond Trading 10-9
Determining the Market Price of a Bond 10-10
Accounting for Bond Transactions 10-12
Issuing Bonds at Face Value 10-13
Discount or Premium on Bonds 10-13
Issuing Bonds at a Discount 10-14
Issuing Bonds at a Premium 10-15
Redeeming Bonds at Maturity 10-17
Redeeming Bonds Before Maturity 10-17
Accounting for Long-Term Notes Payable 10-18
Mortgage Notes Payable 10-18
Lease Liabilities 10-19
Reporting and Analyzing Liabilities 10-21
Presentation 10-21
Analysis 10-21
Debt and Equity Financing 10-23
Appendix 10A: Straight-Line Amortization 10-25
Amortizing Bond Discount 10-25
Amortizing Bond Premium 10-26
Appendix 10B: Effective-Interest Amortization 10-27
Amortizing Bond Discount 10-28
Amortizing Bond Premium 10-29
11 Corporations: Organization, Stock Transactions, and Stockholders’ Equity 11-1
Oh Well, I Guess I’ll Get Rich: Facebook 11-2
Corporate Form of Organization 11-3
Characteristics of a Corporation 11-3
Forming a Corporation 11-6
Stockholder Rights 11-6
Stock Issue Considerations 11-8
Corporate Capital 11-10
Accounting for Stock Issuances 11-11
Accounting for Common Stock 11-11
Accounting for Preferred Stock 11-14
Accounting for Treasury Stock 11-15
Cash Dividends, Stock Dividends, and Stock Splits 11-18
Cash Dividends 11-19
Dividend Preferences 11-21
Stock Dividends 11-23
Stock Splits 11-25
Reporting and Analyzing Stockholders’ Equity 11-27
Retained Earnings 11-27
Retained Earnings Restrictions 11-28
Balance Sheet Presentation of Stockholders’ Equity 11-29
Analysis of Stockholders’ Equity 11-30
Appendix 11A: Stockholders’ Equity Statement 11-32
Appendix 11B: Book Value per Share 11-33
Book Value per Share Example 11-33
Book Value versus Market Price 11-34
12 Statement of Cash Flows 12-1
Got Cash?: Microsoft 12-2
Usefulness and Format of the Statement of Cash Flows 12-3
Usefulness of the Statement of Cash Flows 12-3
Classification of Cash Flows 12-3
Significant Noncash Activities 12-4
Format of the Statement of Cash Flows 12-5
Preparing the Statement of Cash Flows—Indirect Method 12-6
Indirect and Direct Methods 12-7
Indirect Method—Computer Services Company 12-7
Step 1: Operating Activities 12-9
Summary of Conversion to Net Cash Provided by Operating Activities—Indirect Method 12-12
Step 2: Investing and Financing Activities 12-13
Step 3: Net Change in Cash 12-15
Analyzing the Statement of Cash Flows 12-17
Free Cash Flow 12-17
Appendix 12A: Statement of Cash Flows—Direct Method 12-19
Step 1: Operating Activities 12-19
Step 2: Investing and Financing Activities 12-24
Step 3: Net Change in Cash 12-26
Appendix 12B: Worksheet for the Indirect Method 12-26
Preparing the Worksheet 12-27
Appendix 12C: Statement of Cash Flows—T-Account Approach 12-31
13 Financial Analysis: The Big Picture 13-1
It Pays to Be Patient: Warren Buffett 13-2
Sustainable Income and Quality of Earnings 13-3
Sustainable Income 13-3
Quality of Earnings 13-7
Horizontal Analysis and Vertical Analysis 13-9
Horizontal Analysis 13-10
Vertical Analysis 13-12
Ratio Analysis 13-15
Liquidity Ratios 13-16
Solvency Ratios 13-17
Profitability Ratios 13-17
Financial Analysis and Data Analytics 13-18
Comprehensive Example of Ratio Analysis 13-18
Appendix A Specimen Financial Statements: Apple Inc. A-1
Appendix B Specimen Financial Statements: PepsiCo, Inc. B-1
Appendix C Specimen Financial Statements: The Coca-Cola Company C-1
Appendix D Specimen Financial Statements: Amazon.com, Inc. D-1
Appendix E Specimen Financial Statements: Walmart Inc. E-1
Appendix F Specimen Financial Statements: Louis Vuitton F-1
Appendix G Time Value of Money G-1
Interest and Future Values G-2
Nature of Interest G-2
Future Value of a Single Amount G-3
Future Value of an Annuity G-5
Present Values G-7
Present Value Variables G-7
Present Value of a Single Amount G-8
Present Value of an Annuity G-10
Time Periods and Discounting G-12
Present Value of a Long-Term Note or Bond G-12
Capital Budgeting Situations G-15
Using Financial Calculators G-16
Present Value of a Single Sum G-17
Present Value of an Annuity G-18
Future Value of a Single Sum G-18
Future Value of an Annuity G-18
Internal Rate of Return G-19
Useful Applications of the Financial Calculator G-19
Appendix H Reporting and Analyzing Investments H-1
Accounting for Debt Investments H-1
Why Corporations Invest H-2
Accounting for Debt Investments H-3
Accounting for Stock Investments H-4
Holdings of Less Than 20% H-5
Holdings Between 20% and 50% H-6
Holdings of More Than 50% H-7
Reporting Investments in Financial Statements H-8
Debt Securities H-9
Equity Securities H-12
Balance Sheet Presentation H-12
Presentation of Realized and Unrealized Gain or Loss H-14
Company Index / Subject Index I-1
