Description
Book SynopsisTable of Contents1 Accounting in Action 1-1
Knowing the Numbers: Columbia Sportswear 1-1
1.1 Accounting Activities and Users 1-3
Three Activities 1-3
Data Analytics 1-4
Who Uses Accounting Data 1-5
1.2 The Building Blocks of Accounting 1-7
Ethics in Financial Reporting 1-8
Generally Accepted Accounting Principles 1-9
Measurement Principles 1-10
Assumptions 1-10
1.3 The Accounting Equation 1-13
Assets 1-13
Liabilities 1-13
Stockholders’ Equity 1-14
1.4 Analyzing Business Transactions 1-15
Accounting Transactions 1-16
Transaction Analysis 1-17
Summary of Transactions 1-21
1.5 The Four Financial Statements 1-22
Income Statement 1-23
Retained Earnings Statement 1-25
Balance Sheet 1-25
Statement of Cash Flows 1-25
Financial Statements: Order of Preparation 1-26
ESG Reporting: Beyond the Four Financial Statements 1-27
Appendix 1A: Career Opportunities in Accounting 1-28
Public Accounting 1-29
Private Accounting 1-29
Governmental Accounting 1-29
Forensic Accounting 1-30
“Show Me the Money” 1-30
2 The Recording Process 2-1
Accidents Happen: MF Global Holdings 2-1
2.1 Accounts, Debits, and Credits 2-3
Debits and Credits 2-3
Debit and Credit Procedures 2-4
Stockholders’ Equity Relationships 2-7
Summary of Debit/Credit Rules 2-8
2.2 The Journal 2-9
The Recording Process 2-9
The Journal 2-10
2.3 The Ledger and Posting 2-12
The Ledger 2-12
Posting 2-14
Chart of Accounts 2-15
The Recording Process Illustrated 2-16
Summary Illustration of Journalizing and Posting 2-22
2.4 The Trial Balance 2-24
Limitations of a Trial Balance 2-25
Locating Errors 2-25
Dollar Signs and Underlining 2-25
3 Adjusting the Accounts 3-1
Keeping Track of Groupons: Groupon 3-1
3.1 Accrual-Basis Accounting and Adjusting Entries 3-2
Fiscal and Calendar Years 3-3
Accrual- versus Cash-Basis Accounting 3-4
Recognizing Revenues and Expenses 3-4
The Need for Adjusting Entries 3-6
Types of Adjusting Entries 3-7
3.2 Adjusting Entries for Deferrals 3-8
Prepaid Expenses 3-8
Unearned Revenues 3-13
3.3 Adjusting Entries for Accruals 3-16
Accrued Revenues 3-17
Accrued Expenses 3-18
Summary of Basic Relationships 3-22
3.4 Adjusted Trial Balance and Financial Statements 3-24
Preparing the Adjusted Trial Balance 3-25
Preparing Financial Statements 3-25
Appendix 3A: Adjusting Entries for the Alternative Treatment of Deferrals 3-28
Prepaid Expenses 3-29
Unearned Revenues 3-30
Summary of Additional Adjustment Relationships 3-31
Appendix 3B: Financial Reporting Concepts 3-31
Qualities of Useful Information 3-32
Assumptions in Financial Reporting 3-33
Principles in Financial Reporting 3-33
Cost Constraint 3-34
4 Completing the Accounting Cycle 4-1
Everyone Likes to Win: Rhino Foods 4-1
4.1 The Worksheet 4-3
Steps in Preparing a Worksheet 4-4
Preparing Financial Statements from a Worksheet 4-6
Preparing Adjusting Entries from a Worksheet 4-8
4.2 Closing the Books 4-8
Preparing Closing Entries 4-9
Posting Closing Entries 4-11
Preparing a Post-Closing Trial Balance 4-12
4.3 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
4.4 The Classified Balance Sheet 4-19
Current Assets 4-19
Long-Term Investments 4-21
Property, Plant, and Equipment 4-21
Intangible Assets 4-22
Current Liabilities 4-23
Long-Term Liabilities 4-24
Stockholders’ (Owners’) Equity 4-24
Appendix 4A: Reversing Entries 4-25
Reversing Entries Example 4-26
5 Accounting for Merchandising Operations 5-1
Buy Now, Vote Later: REI 5-1
5.1 Merchandising Operations and Inventory Systems 5-3
Operating Cycles 5-3
Flow of Costs 5-4
5.2 Recording Purchases Under a Perpetual System 5-7
Freight Costs 5-8
Purchase Returns and Allowances 5-9
Purchase Discounts 5-10
Summary of Purchasing Transactions 5-11
5.3 Recording Sales Under a Perpetual System 5-11
Sales Returns and Allowances 5-13
Sales Discounts 5-14
Data Analytics and Credit Sales 5-15
5.4 The Accounting Cycle for a Merchandising Company 5-16
Adjusting Entries 5-16
Closing Entries 5-17
Summary of Merchandising Entries 5-17
5.5 Preparing the Multiple-Step Income Statement 5-19
Multiple-Step Income Statement 5-19
Single-Step Income Statement 5-22
Classified Balance Sheet 5-22
Appendix 5A: Merchandising Company Worksheet 5-24
Using a Worksheet 5-24
Appendix 5B: Periodic Inventory System 5-25
Determining Cost of Goods Sold Under a Periodic System 5-26
Recording Merchandise Transactions 5-27
Recording Purchases of Merchandise 5-27
Recording Sales of Merchandise 5-28
Journalizing and Posting Closing Entries 5-29
Using a Worksheet 5-30
Data Analytics in Action 5-54
6 Inventories 6-1
“Where Is That Spare Bulldozer Blade?”: Caterpillar 6-1
6.1 Classifying and Determining Inventory 6-2
Classifying Inventory 6-3
Determining Inventory Quantities 6-4
6.2 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
6.3 Effects of Inventory Errors 6-17
Income Statement Effects 6-17
Balance Sheet Effects 6-18
6.4 Inventory Presentation and Analysis 6-19
Presentation 6-19
Lower-of-Cost-or-Net Realizable Value 6-19
Financial Analysis and Data Analytics 6-20
Appendix 6A: Inventory Cost Flow Methods in Perpetual Inventory Systems 6-24
First-In, First-Out (FIFO) 6-24
Last-In, First-Out (LIFO) 6-25
Average-Cost 6-25
Appendix 6B: Estimating Inventories 6-26
Gross Profit Method 6-27
Retail Inventory Method 6-27
Data Analytics in Action 6-50
7 Fraud, Internal Control, and Cash 7-1
Minding the Money in Madison: Barriques 7-2
7.1 Fraud and Internal Control 7-3
Fraud 7-3
The Sarbanes-Oxley Act 7-3
Internal Control 7-4
Principles of Internal Control Activities 7-5
Data Analytics and Internal Controls 7-10
Limitations of Internal Control 7-11
7.2 Cash Controls 7-12
Cash Receipts Controls 7-12
Cash Disbursements Controls 7-15
Petty Cash Fund 7-16
7.3 Control Features of a Bank Account 7-19
Making Bank Deposits 7-20
Writing Checks 7-20
Electronic Banking 7-21
Bank Statements 7-22
Reconciling the Bank Account 7-23
7.4 Reporting Cash 7-28
Cash Equivalents 7-29
Restricted Cash 7-29
Data Analytics in Action 7-49
8 Accounting for Receivables 8-1
What’s Cooking?: Nike 8-1
8.1 Recognition of Accounts Receivable 8-3
Types of Receivables 8-3
Recognizing Accounts Receivable 8-3
8.2 Valuation and Disposition of Accounts Receivable 8-5
Valuing Accounts Receivable 8-5
Disposing of Accounts Receivable 8-13
8.3 Notes Receivable 8-15
Determining the Maturity Date 8-16
Computing Interest 8-16
Recognizing Notes Receivable 8-17
Valuing Notes Receivable 8-17
Disposing of Notes Receivable 8-17
8.4 Presentation and Analysis of Receivables 8-20
Presentation 8-20
Analysis 8-21
Data Analytics and Receivables Management 8-22
Data Analytics in Action 8-42
9 Plant Assets, Natural Resources, and Intangible Assets 9-1
A Tale of Two Airlines: American Airlines 9-1
9.1 Plant Asset Expenditures 9-3
Determining the Cost of Plant Assets 9-3
Expenditures During Useful Life 9-6
9.2 Depreciation Methods 9-8
Factors in Computing Depreciation 9-9
Depreciation Methods 9-9
Depreciation and Income Taxes 9-16
Revising Periodic Depreciation 9-16
Impairments 9-17
9.3 Plant Asset Disposals 9-18
Sale of Plant Assets 9-18
Retirement of Plant Assets 9-20
9.4 Natural Resources and Intangible Assets 9-21
Natural Resources 9-21
Depletion 9-21
Intangible Assets 9-22
Accounting for Intangible Assets 9-23
Types of Intangible Assets 9-23
Research and Development Costs 9-26
9.5 Statement Presentation and Analysis 9-27
Presentation 9-27
Analysis 9-28
Appendix 9A: Exchange of Plant Assets 9-29
Loss Treatment 9-29
Gain Treatment 9-30
Data Analytics in Action 9-51
10 Liabilities 10-1
And Then There Were Two: Maxwell Car Company 10-1
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 10-6
Payroll and Payroll Taxes Payable 10-6
10.2 Characteristics of Bonds 10-9
Types of Bonds 10-9
Issuing Procedures 10-10
Bond Trading 10-10
Determining the Market Price of a Bond 10-11
10.3 Accounting for Bond Transactions 10-14
Issuing Bonds at Face Value 10-14
Discount or Premium on Bonds 10-14
Issuing Bonds at a Discount 10-15
Issuing Bonds at a Premium 10-17
Redeeming Bonds at Maturity 10-19
Redeeming Bonds Before Maturity 10-19
10.4 Accounting for Long-Term Notes Payable 10-20
Mortgage Notes Payable 10-20
Lease Liabilities 10-21
10.5 Presentation and Analysis 10-23
Presentation 10-23
Analysis 10-23
Debt and Equity Financing 10-26
Appendix 10A: Straight-Line Amortization 10-28
Amortizing Bond Discount 10-28
Amortizing Bond Premium 10-29
Appendix 10B: Effective-Interest Amortization 10-30
Amortizing Bond Discount 10-31
Amortizing Bond Premium 10-32
11 Corporations: Organization, Stock Transactions, and Stockholders’ Equity 11-1
Oh Well, I Guess I’ll Get Rich: Meta 11-1
11.1 Corporate Form of Organization 11-3
Characteristics of a Corporation 11-3
Forming a Corporation 11-6
Stockholder Rights 11-7
Stock Issue Considerations 11-8
Corporate Capital 11-10
11.2 Accounting for Common, Preferred, and Treasury Stock 11-12
Accounting for Common Stock 11-12
Accounting for Preferred Stock 11-14
Accounting for Treasury Stock 11-15
11.3 Accounting for Dividends and Stock Splits 11-19
Cash Dividends 11-19
Dividend Preferences 11-21
Stock Dividends 11-24
Stock Splits 11-26
11.4 Reporting and Analyzing Stockholders’ Equity 11-28
Retained Earnings 11-28
Retained Earnings Restrictions 11-29
Balance Sheet Presentation of Stockholders’ Equity 11-30
Analysis of Stockholders’ Equity 11-31
Appendix 11A: Stockholders’ Equity Statement 11-33
Appendix 11B: Book Value per Share 11-34
Book Value per Share Example 11-35
Book Value versus Market Price 11-35
Data Analytics in Action 11-58
12 Statement of Cash Flows 12-1
Got Cash?: Microsoft 12-2
12.1 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
12.2 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
12.3 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 12-21
Step 2: Investing and Financing Activities 12-25
Step 3: Net Change in Cash 12-27
Appendix 12B: Worksheet for the Indirect Method 12-27
Preparing the Worksheet 12-28
Appendix 12C: Statement of Cash Flows—T-Account Approach 12-32
Data Analytics in Action 12-58
13 Financial Analysis: The Big Picture 13-1
It Pays to Be Patient: Warren Buffett 13-2
13.1 Sustainable Income and Quality of Earnings 13-3
Sustainable Income 13-3
Quality of Earnings 13-7
13.2 Horizontal Analysis and Vertical Analysis 13-9
Horizontal Analysis 13-10
Vertical Analysis 13-12
13.3 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 Time Value of Money F- 1
F.1 Interest and Future Values F- 2
Nature of Interest F- 2
Future Value of a Single Amount F- 3
Future Value of an Annuity F- 5
F.2 Present Values F- 8
Present Value Variables F- 8
Present Value of a Single Amount F- 9
Present Value of an Annuity F- 11
Time Periods and Discounting F- 13
Present Value of a Long-Term Note or Bond F- 13
F.3 Capital Budgeting Situations F- 16
F.4 Using Technological Tools F- 18
Present Value of a Single Sum F- 19
Present Value of an Annuity F- 20
Future Value of a Single Sum F- 21
Future Value of an Annuity F- 22
Internal Rate of Return F- 22
Useful Applications F- 23
Appendix G Reporting and Analyzing Investments G- 1
G.1 Accounting for Debt Investments G- 2
Why Corporations Invest G- 2
Accounting for Debt Investments G- 2
G.2 Accounting for Stock Investments G- 4
Holdings of Less Than 20% G- 5
Holdings Between 20% and 50% G- 6
Holdings of More Than 50% G- 7
G.3 Reporting Investments in Financial Statements G- 9
Debt Securities G- 9
Equity Securities G- 12
Balance Sheet Presentation G- 13
Presentation of Realized and Unrealized Gain or Loss G- 14
Company Index I- 1
Subject Index I- 3
Rapid Review: Chapter Content
Appendix H Payroll Accounting H- 1
H.1 Recording the Payroll H- 1
Determining the Payroll H- 2
Recording the Payroll H- 5
H.2 Employer Payroll Taxes H- 8
FICA Taxes H- 8
Federal Unemployment Taxes H- 8
State Unemployment Taxes H- 9
Recording Employer Payroll Taxes H- 10
Filing and Remitting Payroll Taxes H- 10
Appendix I Subsidiary Ledgers and Special Journals I- 1
I.1 Subsidiary Ledgers I- 1
Subsidiary Ledger Example I- 2
Advantages of Subsidiary Ledgers I- 3
I.2 Special Journals I- 4
Sales Journal I- 4
Cash Receipts Journal I- 7
Purchases Journal I- 10
Cash Payments Journal I- 12
Effects of Special Journals on the General Journal I- 15
Cybersecurity: A Final Comment I- 16
Appendix J Accounting for Partnerships J- 1
J.1 Forming a Partnership J- 1
Characteristics of Partnerships J- 1
Organizations with Partnership Characteristics J- 3
Advantages and Disadvantages of Partnerships J- 4
The Partnership Agreement J- 5
Accounting for a Partnership Formation J- 5
J.2 Accounting for Partnership Net Income or Net Loss J- 6
Dividing Net Income or Net Loss J- 6
Partnership Financial Statements J- 10
J.3 Accounting for Partnership Liquidation J- 11
No Capital Deficiency J- 11
Capital Deficiency J- 13
J.4 Admission and Withdrawal of Partners J- 15
Admission of a Partner J- 15
Withdrawal of a Partner J- 19
Appendix K Other Significant Liabilities K- 1
K.1 Contingent Liabilities K- 1
Reporting a Contingent Liability K- 2
Disclosure of Contingent Liabilities K- 3
K.2 Additional Employee Compensation Benefits K- 3
Paid Absences K- 3
Postretirement Benefits K- 4
