Contents
Prologue
Your Introduction to Business,
Accounting, and Ethics
Accounting and Its Role in
Organizations
What Goes on in Organizations?
Using Accounting to Serve Intemal
Needs
Using Accounting to Serve Extemal
Needs
The Difference between Accounting and
Bookkeeping
Accounting and Computers
Why Studdy Accounting?
The Types of Accountants
The Fields of Accounting
Summary
The Importance of Ethics in
Accounting
1 Financial Statements and Accounting
Principles
Financial Statements
Assets, Liabiliries, and Equity
Generally Accepted Accounting Principles
(GAAP)
How Accounting Principles Are
Established
Intemational Accounting Standards
Understanding Generally Accepted
Accounting Principles
Legal Fonns of Business Organizations
Using the Balance Sheet Equation to
Provide Useful Information
The Effects of Transactions on the
Accoundng Equation
Revenue Recognitionn Principle
The Effects ofAdditional Transactions
on the Accounting Equattion
Understanding More about the Financial
Statements
Using the Information--Return on Equity
2 Recording Transactins
The Accounting Process
Source Documents and Business Papers
Recording Infonnation in the Accounts
The Ledger and the Chart of Accounts
Using T-Accounts
Using Debits and Credits in Double-Entry
Accounting
Examples of Debits and Credits
Accounts and the AccountingEquation
Transactions Are First Recorded in the Joumal
Balance Column Accounts
Posting Journal Entries
Preparing and Using the Trial Balance
Other Formatting Conventions
Using the Infonnation-The Debt Ratio
3 Adjusting the Accounts and Preparing the
Statements
Accounting Periods and Fiscal Years
Why Are the Accounts Adjusted at the
End of an Accounting Period?
The Adjusting Process
Accrual Basis Compared with Cash Basis
Accounting
Adjusting Specific Accounts
The Adjusted Trial Balance
Preparing Financial Statements frrom the Adjusted
Trial Balance
Removing Accrued Assets and Liabilities
from the Accounts
Classifying Balance Sheet Items
Equity on the Balance Sheet
Altemative Balance Sheet Formats
Using Code Numbers for Accounts
Using the Information--The Current Ratio
Appendlx A Recording Prepaid and Unearned
Items in Income Statement Accounts
4 The Work Sheet and the Closing Process
Using Work Sheets at the End of
Accounting Periods
Preparing the Work Sheet
Preparing Adjusting Entries from the
Work Sheet
Preparing Pinancial Statements from the
Work Sheet
Why Use a Work Sheet?
Altemate Formats of the Work Sheet
Closing Entries
Sources of Closing Entry Infonnation
The Post-Closing Trial Balance
The Ledger for Clear Copy Co.
Closing Entries for Corporations
A Review of the Accounting Cycle
Using the Infonnation-The Profit Margin
Appendix B Reversing Entries
5 Accounting for Merchandising Activities
The Nature of Merchandising Activities
Total Revenue from Sales
Measuring Inventory and Goods Sold
Calculating the Cost of Goods'Sold with a Periodic
Inventory System
Altemative Income Statement Formats
Closing Entries for Merchandising Companies
A Work Sheet for a Merchandising Company
The Adjusting Entry Approach to Recording the
Change in the Merchandise Inventory
Account
Using the Informadon--The Acid-Test Rado
6 Accounting Systems
The Components of an Accoundng System
Small and Large Computer-Based Systems
Custom-Designed and Off-the-Shelf Programs
Batch and On-Line Systems
Computer Networks
Special Joumals
Keeping a Separate Account for Each
Credit Customer
Maintaining a Separate Record for Each
Account Payable
Posdng the Sales Journal
Idendfying Posted Amounts
Cash Receipts Journal
Posting Rule
Purchases Joumal
The Cash Disbursements Joumal or Check
Register
Tesdng the Accuracy of the Ledgers
Sales Taxes
Sales Invoices as a Sales Joumal
Sales Retums
General Joumal Entries
Using the Infonnadon-Business Segments
7 Accoundng for Cash and the Principles of
Intemal Control
Cash, Cash Equivalents, and the Concept of
Liquidity
Intemal Control
Computers and Intemal Control
Intemal Control for Cash
The Voucher System and Control
The Voucher System and Expenses
The Petty Cash Fund
lllustradon of a Petty Cash Fund
Cash Over and Short
Reconciling the Bank Balance
lllustradon of a Bank Reconciliadon
Other Intemal Control Procedures
Using the Informadon-Days' Sales Uncollected
8 Short-Term Investments and Receivables
Short-Term Investments
Credit Sales and Receivables
Credit Card Sales
Maintaining a Separate Account for Each Credit
Customer
Bad Debts
Matching Bad Debt Expenses with Sales
Allowance Method of Accoundng for Bad
Debts
Esdmadng the Amount of Bad Debts Expense
Direct Write-Off Method of Accoundng for Bad
Debts
The Materiality Principle
Installment Accounts and Notes Receivable
Promissory Notes
Converdng Receivables into Cash before They
Are Due
Full-Disclosure Principle
Using the Informadon-Accounts Receivable
Turmover
9 Inventories and Cost of Goods Sold
Matching Merchandise Costs with Revenues
Items to Include in Merchandise inventory
Elements of Merchandise Cost
Taking an Ending Inventory
Assigning Costs to Inventory Items
Inventory Errors-Periodic System
Perpetual Inventory Systems
Comparing Joumal Entries under Periodic and
Perpetual Inventory Systems
Subsidiary Inventory Records--Perpetual
System
Lower of Cost or Market
The Conservatism Principle
The Retail Method of Estimating Inventories
Gross Profit Method of Estimating Inventories
Using the Information-Merchandise Tumover
and Days' Stock on Hand
10 Plant and Equipment
Plant Assets Compared to Other Types of Assets
Cost of a Plant Asset
Nature of Depreciation
Service (Useful) Life of a Plant Asset
Salvage Value
Allocating Depreciation
Depreciation for Partial Years
Depreciation on the Balance Sheet
Revising Depreciation Rates
Accelerated Depreciation
Revenue-and Capital Expenditures
Plant Asset Disposals
Exchanging Plant Assets
Using the Information-Total Asset Turmover
11 Natural Resources, Intangible Assets, and
Long-Term Investments
Natural Resources
Intangible Assets
/ Classifying Investments
Long-Tenn Investments in Securities
Investments in Intemational Operations
Using the Infonnation--Retum on Total Assets
12 Current and Long-Term Liabilities
Defining and Classifying Liabilities
Uncertain Aspects of Some Liabilities
Estimated Liabilities
Contingent Liabilities
Accounting for Known Liabilities
Payroll Liabilities
Employer's Payroll Taxes
Employec Benefits
Short-Tenn Notes Payable
Adjustments at the End of the Reporting Period
Long-Tenn Liabilities
Present Value Concepts
Compounding Periods, Shorter than a Year
Applying Present Value Concepts to Long-Term
Notes
Liabilities from Leasing
Using the Information--Times Fixed Interest
Charges Eamed
13 Corporations and Partnerships
CORPORATIONS
Characteristics of Corporations
Organizing a Corporadon
Organization Costs
Management of a Corporation
Stock Certificates and the Transfer of Stock
Authorization and Issuance of Stock
Par Value and Minimum Legal Capital
Stock Premiums and Discounts
No-Par Stock
Sale of Stock through Subscriptions
Corporate Dividends
Rights of Common Stockholders
Preferred Stock
Why Preferred Stock Is Issued
Convertible Preferred Stock
Stock Values
PARTNERSHIPS
Characteristics of Partnerships
Partnership Accoundng
Nature of Partnership Eamings
Division of Eamings
Using the Information-Dividend Yield
14 Additional Corporate Transactions; Reporting
Income and Retained Eamings; Eamings per
Sharc
CORPORATE DlVlDENDS AND OTHER STOCK
TRANSACTlONS
Retained Eamings and Dividends
Dividends Based on Contributed Capital
Stock Dividends
Stock Splits
Treasury Stock
Purchasing Treasury Stock
Reissuing Treasury Stock
Retiring Stock
REPORTlNG INCOME AND RETAlNED
EARNlNGSINFORMATlON
Continuing Operations
Discontinued Segments
Extraordinary Items
Changes in Accounting Principles
Eamings per Share Section of the Income
Statement
Prior Period Adjustments for Correcting Material
Errors
Changes in Accounting Estimates
Statement of Changes in Stockholders' Equity
EARNlNGS PER SHARE
Companies with Simple Capital Structures
Companies with Complex Capital Structures
Presenting Earnings per Share on the Income
Statement
Using the Infonnation--The Price-Earnings Ratio
15 Installment Notes Payable and Bonds
Installment Notes Payable
Borrowing by Issuing Bonds
Advantages of Issuing Bonds
Characteristics of Bonds
The Process of Issuing Bonds
Selling Bonds between Interest Dates
Bond Interest Rates
Bonds Sold at a Discount
Bonds Sold at a Premium
Accounting for Accrued Interest Expense
Retiring Bonds Payable
Mortgages as Security for Bonds and Notes
Using the Information-Pledged Assets to Secured
Liabilities
Present Value Tables
16 Reporting and Using Cash Flows in Decision
Making
Why Cash Flow Information Is Important
Statement of Cash Flows
Classifying Cash Transactions
Noncash Investing and Financing Activities
Preparing a Statement of Cash Flows
Grover Company: A Comprehensive Example
Reconciling Net Income to Net Cash Provided
(or Used) by Operating Activities
The Indirect Method of Calculating Net Cash
Provided (or Used) by Operating Activides
Adjustments for Changes in Current Assets and
Current Liabilities
Applying the Indirect Method to Grover Company
Using the Information--Cash FlBows
l7 Analyzing Financial Statements
Financial Reporting
Comparative Statements
Analysis of Short-Tenn Liquidity
Analysis of Long-Term Risk and Capital Structure
Analysis of Operatmg Efficiency and Profitability
Review of Financial Statement Ratios and Statistics
for Analysis
Standards of Comparison
l8 An Introduction to Managerial Accountmg
and Cost Accounting Concepts
Introduction to Managerial Accounting
Comparing Merchandising and ManufacturiDg
Activities
Financial Statements for a Manufacturing Company
The Difference between Period and Product Costs
Manufacturing Activities and the Manufacturing
Statement
Accounting for Manufacturing Activities with a
General Accounting System
Cost Flows and Joumal Entries under a General
Accounting System
Reporting Overhead Costs to Managers and to
Extemal Parties
Inventory Valuation Problems under a General
Accounting System
19 New Producdon Management Concepts and
Job Order Cost Accountmg Systems
New Production Management Concepts
Production Management and Cost Accounting '
Characteristics of Job Order Manufacturing
Operations
S.equence of Events in a Job Order Manufacturing
Operation
Job Order Operations of Service Companies
Job Order Cost Accounting
Materials Cost Flows and Related Documents
Labor Cost Flows and Related Documents
Overhead Cost Flows and Related Documents
Summary of All Manufacturing Cost Flows during
the Period
The Manufacturing Statement
Adjusting for Underapplied and Overapplied
Factory Overhead
20 Process Cost Accounting
Process Manufacturing Operations
Accumulating the Costs of Each Manufacturing
Process
Calculating and Using Equivalent Units of
Production
Accounting for Delta Processing Company's
Grinding Department
Accounting for Delta Processing Company's Mix-
ing Department
Transferring Costs to Finished Goods Inventory and
to Cost of Goods Sold
New Production Management Concepts and Process
Manufacturing Systems
2l Cost Allocation and Activity-Based Costing
Departmental Accounting
Creating Departments within a Business
Using Infonnation to Evaluate Departments
Obtaimng Infonnation about Departments
Allocating Expenses among Departments
Procedures for Allocating Costs and Expenses
Departmental Contributions to Overhead
Eliminating an Unprofitable Department
Controllable Costs and Expenses
Responsibility Accounting
Joint Costs
Activity-Based Costing
22 Cost-Volume-Profit Analysis
Quesdons Addressed by Cost-Volume-profit
Analysis
Cost Behavior
Assumptions Used in Cost-Volume-Profit Analysis
Identifying Cost Behavior
Finding the Break-Even Point
Drawing a CVP Chart
Finding the Income from an Expected Sales Level
Finding the Amount of Sales Needed for a Target
Net Income
Finding the Margin of Safety
Finding the Answers to Other Questions
Multiproduct Break-Even Point
Evaluating the Usefulness of Cost-Volumc-Profit
Analysis
23 The Master Budget: A Formal Plan for the
Business
The Importance of Budgeting
Benefits firom Budgeting
The Budget Committee
The Budget Period
The Master Budget
Preparing the Master Budget
IIlUlustrating the Preparation of the Master Budget
Flexible Budgets and Standard Costs
Fixed Budgets and Perfonnance Reports
24 FLEXlBLE BUDGETS
Prcparing a Flexible Budget
Flexible Budget Perfonnance Report
STANDARD COSTS
Setting the Amounts of Standard Costs
Variances
Assigning Standard Overhead Costs to Products and
Services
Overhead Variances
Using Standard Costs to Control a Business
Using Standard Costs for Service and Other
Nonmanufacturing Activities
Standard Costs in the Accounts
25 Capital Budgeting and Other Managerial
Decisions
CAPlTAL BUDGETlNG
Payback Period
Rate of Retum on Average Investment
Net Present Values
OTHER MANAGERlAL DEClSlONS
Replacing Plant Assets
Accepting Additional Business
Make or Buy Decisions
Other Cost Concepts
Scrapping or Reworking Defective Units
Process or Sell
Selecting a Sales Mix
Appendixes
C Payroll Reports, Records, and Procedures APD-l
D Accounting Principles, the FASB's Conceptual
Framework, and Altemative Valuation Methods
APD-lO
E Present and Future Values: An Expansion
APD-30
F Financial Statements and Related Disclosures from
Apple Computer, Inc.'s 1993 Annual Report
APD-42
G Financial Statements from the Annual Reports of
Federal Express Corporation and Ben & Jerry's
Homemade, Inc. APD-65
Comprehensive List of Accounts LA-l
Photo Credits PC-l
Index l-l
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