Description
Book SynopsisTable of Contents1 Accounting in Action 1-1
Knowing the Numbers 1-1
1.1 Accounting Activities and Users 1-3
Who Uses Accounting Data 1-4
Data Analytics 1-5
1.2 The Building Blocks of Accounting 1-7
Ethics in Financial Reporting 1-7
Accounting Standards 1-8
Measurement Principles 1-9
Assumptions 1-9
1.3 The Accounting Equation 1-12
Assets 1-12
Liabilities 1-13
Equity 1-13
1.4 Analyzing Business Transactions 1-14
Accounting Transactions 1-15
Transaction Analysis 1-16
Summary of Transactions 1-21
1.5 Financial Statements 1-22
Income Statement 1-24
Retained Earnings Statement 1-24
Statement of Financial Position 1-24
Statement of Cash Flows 1-25
Comprehensive Income Statement 1-25
Appendix 1A: Career Opportunities in Accounting 1-27
Public Accounting 1-27
Private Accounting 1-28
Governmental Accounting 1-28
Forensic Accounting 1-28
A Look at U.S. GAAP 1-48
2 The Recording Process 2-1
Accidents Happen: Bank of Taiwan 2-1
2.1 Accounts, Debits, and Credits 2-2
The Account 2-2
Debits and Credits 2-3
Equity Relationships 2-7
Summary of Debit/Credit Rules 2-7
2.2 The Journal 2-8
The Recording Process 2-8
The Journal 2-9
2.3 The Ledger and Posting 2-11
The Ledger 2-11
Posting 2-13
Chart of Accounts 2-14
The Recording Process Illustrated 2-14
Summary Illustration of Journalizing and Posting 2-20
2.4 The Trial Balance 2-22
Limitations of a Trial Balance 2-23
Locating Errors 2-23
Currency Signs and Underlining 2-23
A Look at U.S. GAAP 2-47
3 Adjusting the Accounts 3-1
What Was Your Profit? 3-1
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 3-6
Types of Adjusting Entries 3-6
3.2 Adjusting Entries for Deferrals 3-7
Prepaid Expenses 3-7
Unearned Revenues 3-11
3.3 Adjusting Entries for Accruals 3-14
Accrued Revenues 3-14
Accrued Expenses 3-16
Summary of Basic Relationships 3-19
3.4 Adjusted Trial Balance and Financial Statements 3-22
Preparing the Adjusted Trial Balance 3-23
Preparing Financial Statements 3-23
Appendix 3A: Alternative Treatment of Deferrals 3-26
Prepaid Expenses 3-27
Unearned Revenues 3-28
Summary of Additional Adjustment Relationships 3-29
Appendix 3B: Financial Reporting Concepts 3-30
Qualities of Useful Information 3-30
Assumptions in Financial Reporting 3-31
Principles in Financial Reporting 3-31
Cost Constraint 3-32
A Look at U.S. GAAP 3-58
4 Completing the Accounting Cycle 4-1
Speaking the Same Language: IASB 4-1
4.1 The Worksheet 4-3
Steps in Preparing a Worksheet 4-3
Preparing Financial Statements from a Worksheet 4-11
Preparing Adjusting Entries from a Worksheet 4-12
4.2 Closing the Books 4-13
Preparing Closing Entries 4-13
Posting Closing Entries 4-15
Preparing a Post-Closing Trial Balance 4-17
4.3 The Accounting Cycle and Correcting Entries 4-20
Summary of the Accounting Cycle 4-20
Reversing Entries—An Optional Step 4-20
Correcting Entries—An Avoidable Step 4-20
4.4 Classified Statement of Financial Position 4-24
Intangible Assets 4-25
Property, Plant, and Equipment 4-26
Long-Term Investments 4-26
Current Assets 4-26
Equity 4-27
Non-Current Liabilities 4-27
Current Liabilities 4-28
Appendix 4A: Reversing Entries 4-30
Reversing Entries Example 4-30
A Look at U.S. GAAP 4-59
5 Accounting for Merchandise Operations 5-1
Who Doesn’t Shop?: Carrefour 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 Financial Statements for a Merchandiser 5-19
Income Statement 5-19
Classified Statement of Financial Position 5-23
Appendix 5A: Worksheet for a Merchandising Company 5-25
Using a Worksheet 5-25
Appendix 5B: Periodic Inventory System 5-26
Determining Cost of Goods Sold Under a Periodic System 5-27
Recording Merchandise Transactions 5-28
Recording Purchases of Merchandise 5-28
Recording Sales of Merchandise 5-29
Journalizing and Posting Closing Entries 5-29
Using a Worksheet 5-31
Appendix 5C: Adjusting Entries for Credit Sales with Returns and Allowances 5-33
Data Analytics in Action 5-54
A Look at U.S. GAAP 5-58
6 Inventories 6-1
“Where Is That Spare Bulldozer Blade?”:
Komatsu 6-1
6.1 Classifying and Determining Inventory 6-2
Classifying Inventory 6-2
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 6-11
Using Inventory Cost Flow Methods Consistently 6-13
6.3 Effects of Inventory Errors 6-14
Income Statement Effects 6-14
Statement of Financial Position Effects 6-15
6.4 Inventory Statement Presentation and Analysis 6-16
Presentation 6-16
Lower of Cost or Net Realizable Value 6-16
Financial Analysis and Data Analytics 6-17
Appendix 6A: Inventory Cost Flow Methods in Perpetual Inventory Systems 6-21
First-In, First-Out (FIFO) 6-21
Average-Cost 6-22
Appendix 6B: Estimating Inventories 6-23
Gross Profit Method 6-23
Retail Inventory Method 6-24
Appendix 6C: LIFO Inventory Method 6-25
Data Analytics in Action 6-47
A Look at U.S. GAAP 6-50
7 Fraud, Internal Control, and Cash 7-1
Minding the Money at Nick’s: Nick’s Steakhouse and Pizza 7-1
7.1 Fraud and Internal Control 7-2
Fraud 7-3
Internal Control 7-3
Principles of Internal Control Activities 7-4
Data Analytics and Internal Controls 7-10
Limitations of Internal Control 7-10
7.2 Cash Controls 7-11
Cash Receipts Controls 7-11
Cash Disbursements Controls 7-14
Petty Cash Fund 7-16
7.3 Control Features of a Bank Account 7-19
Making Bank Deposits 7-19
Writing Checks 7-20
Electronic Banking 7-21
Bank Statements 7-21
Reconciling the Bank Account 7-22
7.4 Reporting Cash 7-27
Cash Equivalents 7-27
Restricted Cash 7-28
Data Analytics in Action 7-46
A Look at U.S. GAAP 7-49
Appendix 9A: Exchange of Plant Assets 9-26
Loss Treatment 9-27
Gain Treatment 9-27
Data Analytics in Action 9-47
A Look at U.S. GAAP 9-50
8 Accounting for Receivables 8-1
Are You Going to Pay Me—or Not?: BNP Paribas 8-1
8.1 Recognition of Accounts Receivable 8-2
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 8-12
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 8-20
Presentation 8-20
Analysis 8-20
Data Analytics and Receivables Management 8-21
Data Analytics in Action 8-38
A Look at U.S. GAAP 8-41
9 Plant Assets, Natural Resources, and Intangible Assets 9-1
How Much for a Ride to the Beach?: Rent-A-Wreck 9-1
9.1 Plant Asset Expenditures 9-2
Determining the Cost of Plant Assets 9-3
Expenditures During Useful Life 9-6
9.2 Depreciation Methods 9-7
Factors in Computing Depreciation 9-8
Depreciation Methods 9-9
Component Depreciation 9-13
Depreciation and Income Taxes 9-14
Revaluation of Plant Assets 9-14
Revising Periodic Depreciation 9-15
9.3 Plant Asset Disposals 9-16
Retirement of Plant Assets 9-17
Sale of Plant Assets 9-18
9.4 Natural Resources and Intangible Assets 9-19
Natural Resources and Depletion 9-20
Intangible Assets 9-21
9.5 Statement Presentation and Analysis 9-25
Presentation 9-25
Analysis 9-26
10 Current Liabilities 10-1
Financing His Dreams: Wilbert Murdock 10-1
10.1 Accounting for Current Liabilities 10-2
What Is a Current Liability? 10-2
Notes Payable 10-3
Value-Added and Sales Taxes Payable 10-4
Unearned Revenues 10-5
Salaries and Wages 10-6
Current Maturities of Long-Term Debt 10-8
10.2 Reporting and Analyzing Current Liabilities 10-8
Reporting Uncertainty 10-8
Reporting of Current Liabilities 10-10
Analysis of Current Liabilities 10-11
A Look at U.S. GAAP 10-27
11 Non-Current Liabilities 11-1
Are We Living on Borrowed Time? 11-1
11.1 Overview of Bonds 11-2
Types of Bonds 11-3
Issuing Procedures 11-3
Bond Trading 11-4
Determining the Market Price of a Bond 11-5
11.2 Accounting for Bond Transactions 11-7
Issuing Bonds at Face Value 11-7
Discount or Premium on Bonds 11-8
Issuing Bonds at a Discount 11-9
Issuing Bonds at a Premium 11-10
Redeeming Bonds 11-12
11.3 Accounting for Non-Current Liabilities 11-13
Long-Term Notes Payable 11-13
Lease Liabilities 11-15
11.4 Reporting and Analyzing Non-Current Liabilities 11-16
Presentation 11-16
Analysis 11-16
Debt and Equity Financing 11-17
Appendix 11A: Effective-Interest Method of Bond Amortization 11-19
Amortizing Bond Discount 11-19
Amortizing Bond Premium 11-21
Appendix 11B: Straight-Line Amortization 11-22
Amortizing Bond Discount 11-22
Amortizing Bond Premium 11-23
A Look at U.S. GAAP 11-40
12 Corporations: Organization, Share Transactions, and Equity 12-1
To the Victor Go the Spoils: adidas 12-1
12.1 The Corporate Form of Organization 12-2
Characteristics of a Corporation 12-3
Forming a Corporation 12-6
Shareholder Rights 12-6
Share Issue Considerations 12-8
Corporate Capital 12-10
12.2 Accounting for Share Transactions 12-12
Accounting for Ordinary Shares 12-12
Accounting for Preference Shares 12-14
Accounting for Treasury Shares 12-15
12.3 Accounting for Dividends and Splits 12-19
Accounting for Cash Dividends 12-19
Dividend Preferences 12-21
Accounting for Share Dividends 12-24
Accounting for Share Splits 12-26
12.4 Reporting and Analyzing Equity 12-28
Retained Earnings 12-28
Presentation of Statement of Financial Position 12-29
Analysis 12-31
Appendix 12A: Statement of Changes in Equity 12-32
Appendix 12B: Book Value—Another per Share Amount 12-33
Book Value per Share 12-33
Book Value versus Market Price 12-34
Data Analytics in Action 12-58
A Look at U.S. GAAP 12-61
13 Investments 13-1
Playing for Fun and Profit: Sony 13-1
13.1 Debt Investments 13-2
Why Companies Invest 13-3
Classification and Measurement of Investments 13-4
Accounting for Debt Investments 13-4
13.2 Share Investments 13-7
Holdings of Less than 20% 13-7
Holdings Between 20% and 50% 13-9
Holdings of More than 50% 13-10
13.3 Valuing and Reporting Investments 13-12
Categories of Securities 13-12
Statement of Financial Position Presentation 13-18
Presentation of Realized and Unrealized Gain or Loss 13-19
Classified Statement of Financial Position 13-20
Appendix 13A: Preparing Consolidated Financial Statements 13-22
Consolidated Statement of Financial Position 13-22
Consolidated Income Statement 13-26
A Look at U.S. GAAP 13-43
14 Statement of Cash Flows 14-1
What Should We Do with This Cash?: Keyence 14-1
14.1 Statement of Cash Flows: Usefulness and Format 14-3
Usefulness of the Statement of Cash Flows 14-3
Classification of Cash Flows 14-3
Significant Non-Cash Activities 14-5
Format of the Statement of Cash Flows 14-5
14.2 Preparing the Statement of Cash Flows—Indirect Method 14-7
Indirect and Direct Methods 14-7
Indirect Method—Computer Services International 14-8
Step 1: Operating Activities 14-9
Summary of Conversion to Net Cash Provided by Operating Activities—Indirect Method 14-12
Step 2: Investing and Financing Activities 14-13
Step 3: Net Change in Cash 14-14
14.3 Using Cash Flows to Evaluate a Company 14-17
Free Cash Flow 14-17
Appendix 14A: Statement of Cash Flows—Direct Method 14-19
Step 1: Operating Activities 14-21
Step 2: Investing and Financing Activities 14-25
Step 3: Net Change in Cash 14-26
Appendix 14B: Statement of Cash Flows—T-Account Approach 14-26
Data Analytics in Action 14-48
A Look at U.S. GAAP 14-51
15 Financial Analysis: The Big Picture 15-1
Making Money the Old-Fashioned Way: Li Ka-shing 15-1
15.1 Basics of Financial Statement Analysis 15-2
Need for Comparative Analysis 15-3
Tools of Analysis 15-3
Horizontal Analysis 15-3
Vertical Analysis 15-6
15.2 Ratio Analysis 15-9
Liquidity Ratios 15-9
Profitability Ratios 15-13
Solvency Ratios 15-16
Summary of Ratios 15-18
15.3 Sustainable Income 15-20
Discontinued Operations 15-21
Changes in Accounting Principle 15-22
Comprehensive Income 15-22
A Look at U.S. GAAP 15-48
Appendix A Specimen Financial Statements: Taiwan Semiconductor Manufacturing Company, Limited A-1
Appendix B Specimen Financial Statements: Nestlé SA B-1
Appendix C Specimen Financial Statements: Delfi Limited C-1
Appendix D Specimen Financial Statements: Apple Inc. D-1
Appendix E Time Value of Money E-1
E.1 Interest and Future Values E-1
Nature of Interest E-1
Future Value of a Single Amount E-3
Future Value of an Annuity E-5
E.2 Present Value Concepts E-7
Present Value Variables E-7
Present Value of a Single Amount E-8
Present Value of an Annuity E-10
Time Periods and Discounting E-12
Present Value of a Long-Term Note or Bond E-12
E.3 Using Financial Calculators E-15
Present Value of a Single Sum E-15
Present Value of an Annuity E-16
Useful Applications of the Financial Calculator E-17
Appendix F Accounting for Partnerships F-1
F.1 Forming a Partnership F-1
Characteristics of Partnerships F-2
Organizations with Partnership Characteristics F-3
Advantages and Disadvantages of Partnerships F-4
The Partnership Agreement F-5
Accounting for a Partnership Formation F-5
F.2 Accounting for Net Income or Net Loss F-6
Dividing Net Income or Net Loss F-6
Partnership Financial Statements F-9
F.3 Liquidation of a Partnership F-10
No Capital Deficiency F-11
Capital Deficiency F-12
F.4 Admissions and Withdrawals of Partners F-14
Admission of a Partner F-15
Withdrawal of a Partner F-18
Appendix G Subsidiary Ledgers and Special Journals G-1
G.1 Subsidiary Ledgers G-1
Subsidiary Ledger Example G-2
Advantages of Subsidiary Ledgers G-3
G.2 Special Journals G-4
Sales Journal G-5
Cash Receipts Journal G-7
Purchases Journal G-11
Cash Payments Journal G-13
Effects of Special Journals on the General Journal G-16
Cybersecurity: A Final Comment G-17
Subject Index I-1
Company Index I-13
