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• Front Matter
• Contents in Brief
• Contents
• Preface
• Acknowledgments
• About the Authors
• INTRO: The Accounting Environment
• Accounting Defined
• Employment Opportunities in Accounting
• Public Accounting
• Management (or Industrial) Accounting
• Governmental and Other Not-for-Profit Accounting
• Higher Education
• Financial Accounting versus Managerial Accounting
• Financial Accounting
• Managerial Accounting
• Development of Financial Accounting Standards
• American Institute of Certified Public Accountants (AICPA)
• Financial Accounting Standards Board (FASB)
• Governmental Accounting Standards Board (GASB)
• Securities and Exchange Commission (SEC)
• American Accounting Association (AAA)
• Financial Executives International (FEI)
• Institute of Management Accountants (IMA)
• International Accounting Standards Board (IASB)
• Other Organizations
• Ethical Behavior of Accountants
• Critical Thinking and Communication Skills
• How to Study the Chapters in This Text
• PART 1: Accounting: The Language of Business
• Careers in Accounting: Entrepreneurship
• CH 01: Accounting and Its Use in Business Decisions
• Forms of Business Organizations
• Sole Proprietorship
• Partnership
• Corporation
• Types of Activities Performed by Business Organizations
• Financial Statements of Business Organizations
• The Income Statement
• The Statement of Retained Earnings
• The Balance Sheet
• The Statement of Cash Flows
• The Financial Accounting Process
• The Accounting Equation
• Analysis of Transactions
• Analyzing and Using the Financial Results—The Equity Ratio
• Understanding the Learning Objectives
• Appendix: A Comparison of Corporate Accounting with Accounting for Sole Proprietorships and Partners
• Demonstration Problem
• Solution to Demonstration Problem
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• PART 2: Processing Information for Decisions and Establishing Accounting Policy
• Careers in Accounting: Salaries
• CH 02: Recording Business Transactions
• The Account and Rules of Debit and Credit
• The Account
• The T-Account
• Debits and Credits
• Double-Entry Procedure
• Determining the Balance of an Account
• Rules of Debit and Credit Summarized
• The Accounting Cycle
• The Journal
• The General Journal
• Functions and Advantages of a Journal
• The Ledger
• The Accounting Process in Operation
• The Recording of Transactions and Their Effects on the Accounts
• The Use of Ledger Accounts
• Posting to Ledger Accounts
• Cross-Indexing (Referencing)
• Posting and Cross-Indexing—An Illustration
• Compound Journal Entries
• The Trial Balance
• Analyzing and Using the Financial Results—Horizontal and Vertical Analyses
• Understanding the Learning Objectives
• Demonstration Problem
• Solution to Demonstration Problem
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Using the Internet—A View of the Real World
• Answers to Self-Test
• Careers in Accounting: Tax Specialist
• CH 03: Adjustments for Financial Reporting
• Cash versus Accrual Basis Accounting
• The Need for Adjusting Entries
• Classes and Types of Adjusting Entries
• Adjustments for Deferred Items
• Asset/Expense Adjustments—Prepaid Expenses and Depreciation
• Liability/Revenue Adjustments—Unearned Revenues
• Adjustments for Accrued Items
• Asset/Revenue Adjustments—Accrued Assets
• Liability/Expense Adjustments—Accrued Liabilities
• Adjustments for Deferred Items—A Second Look
• Effects of Failing to Prepare Adjusting Entries
• Analyzing and Using the Financial Results—Trend Percentages
• Understanding the Learning Objectives
• Demonstration Problem
• Solution to Demonstration Problem
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: Information Systems
• CH 04: Completing the Accounting Cycle
• The Accounting Cycle Summarized
• The Work Sheet
• The Trial Balance
• The Adjustment Columns
• The Adjusted Trial Balance Columns
• The Income Statement Columns
• The Statement of Retained Earnings Columns
• The Balance Sheet Columns
• Locating Errors
• Preparing Financial Statements from the Work Sheet
• Income Statement
• Statement of Retained Earnings
• Balance Sheet
• Journalizing Adjusting Entries
• The Closing Process
• Step 1: Closing the Revenue Accounts
• Step 2: Closing the Expense Accounts
• Step 3: Closing the Income Summary Account
• Step 4: Closing the Dividends Account
• Post-Closing Trial Balance
• Accounting Systems: From Manual to Computerized
• The Role of an Accounting System
• A Classified Balance Sheet
• Current Assets
• Long-Term Assets
• Current Liabilities
• Long-Term Liabilities
• Stockholders’ Equity
• Analyzing and Using the Financial Results—The Current Ratio
• Understanding the Learning Objectives
• Demonstration Problem
• Solution to Demonstration Problem
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• A View of the Real World
• Answers to Self-Test
• Comprehensive Review Problem
• Careers in Accounting: Accounting Professor
• CH 05: Accounting Theory
• Accounting Standards—Generally Accepted Accounting Principles
• The Role of the Financial Accounting Standards Board in Standard Setting
• The Financial Accounting Standards Board’s Conceptual Framework Project
• Components of the FASB Conceptual Framework
• Objective of Financial Reporting
• Underlying Assumptions
• Business Entity
• Going Concern (continuity)
• Money Measurement
• Periodicity (Time Periods)
• The Major Principles
• Measurement Principle
• Revenue Recognition Principle
• Expense Recognition Principle
• Full Disclosure Principle
• Qualitative Characteristics
• Relevance
• Faithful Representation
• Enhancing Qualitative Characteristics
• Comparability
• Verifiability
• Timeliness
• Understandability
• Pervasive Constraint
• The Basic Elements of Financial Statements
• Summary of Significant Accounting Policies
• Understanding the Learning Objectives
• Demonstration Problem
• Solution to Demonstration Problem
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: CPAs as CEOs
• CH 06: Merchandising Transactions: Introduction to Inventories and the Classified Income Statement
• Two Income Statements Compared: Service Company and Merchandising Company
• Sales Revenues
• Recording Gross Sales
• Determining Gross Selling Price when Companies Offer Trade Discounts
• Recording Deductions from Gross Sales
• Reporting Net Sales in the Income Statement
• Cost of Goods Sold
• Two Procedures for Accounting for Inventories
• Purchases of Merchandise
• Deductions from Purchases
• Transportation Costs
• Merchandise Inventory
• Determining Cost of Goods Sold
• Lack of Control under Periodic Inventory Procedure
• Classified Income Statement
• Important Relationships in the Income Statement
• Analyzing and Using the Financial Results—Gross Margin Percentage
• Understanding the Learning Objectives
• Appendix: The Work Sheet for a Merchandising Company
• Completing the Work Sheet
• Financial Statements for a Merchandising Company
• Closing Entries
• Demonstration Problem
• Solution to Demonstration Problem
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: Career Opportunities
• CH 07: Measuring and Reporting Inventories
• Inventories and Cost of Goods Sold
• Importance of Proper Inventory Valuation
• Determining Inventory Cost
• Taking a Physical Inventory
• Costs Included in Inventory Cost
• Inventory Valuation under Changing Prices
• Methods of Determining Inventory Cost
• Perpetual Inventory Procedure
• Comparing Journal Entries under Periodic and Perpetual Inventory Procedures
• An Illustration of Four Inventory Methods under Periodic and Perpetual Inventory Procedures
• Periodic Inventory Procedure
• Perpetual Inventory Procedure
• Advantages and Disadvantages of Inventory Methods
• Differences in Costing Methods Summarized
• Changing Inventory Methods
• Journal Entries under Perpetual Inventory Procedure
• Departures from Cost Basis of Inventory Measurement
• Net Realizable Value
• Lower-of-Cost-or-Market Method
• Estimating Inventory
• Analyzing and Using Financial Results—Inventory Turnover Ratio
• Understanding the Learning Objectives
• Appendix: LIFO Reserve
• The LIFO Reserve
• Financial Statement Analysis Using the LIFO Reserve
• LIFO Liquidations
• Demonstration Problem 7-A
• Solution to Demonstration Problem 7-A
• Demonstration Problem 7-B
• Solution to Demonstration Problem 7-B
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• PART 3: Management’s Perspectives in Accounting for Resources
• Careers in Accounting: Forensic Accounting
• CH 08: Control of Cash
• Internal Control
• Protection of Assets
• Compliance with Company Policies and Federal Law
• Evaluation of Personnel Performance
• Accuracy of Accounting Records
• Components of Internal Control
• Responsibility for Internal Control
• Internal Control in a Computer Environment
• Controlling Cash
• Controlling Cash Receipts
• Controlling Cash Disbursements
• The Bank Checking Account
• Signature Card
• Deposit Ticket
• Check
• Bank Statement
• Bank Reconciliation
• Certified and Cashier’s Checks
• Petty Cash Funds
• Establishing the Fund
• Operating the Fund
• Replenishing the Fund
• Cash Short and Over
• Analyzing and Using the Financial Results—The Quick Ratio
• Understanding the Learning Objectives
• Demonstration Problem 8-A
• Solution to Demonstration Problem 8-A
• Demonstration Problem 8-B
• Solution to Demonstration Problem 8-B
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Using the Internet—A View of the Real World
• Answers to Self-Test
• Careers in Accounting: Litigation Support
• CH 09: Receivables and Payables
• Accounts Receivable
• The Allowance Method for Recording Uncollectible Accounts
• Credit Cards
• Current Liabilities
• Clearly Determinable Liabilities
• Estimated Liabilities
• Contingent Liabilities
• Notes Receivable and Notes Payable
• Interest Calculation
• Determination of Maturity Date
• Accounting for Notes in Normal Business Transactions
• Dishonored Notes
• Renewal of Notes
• Accruing Interest
• Short-Term Financing through Notes Payable
• Analyzing and Using the Financial Results—Accounts Receivable Turnover and Number of Days’ Sales
• Understanding the Learning Objectives
• Demonstration Problem 9-A
• Solution to Demonstration Problem 9-A
• Demonstration Problem 9-B
• Solution to Demonstration Problem 9-B
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: Plant Assets
• CH 10: Property, Plant, and Equipment
• Nature of Plant Assets
• Initial Recording of Plant Assets
• Land and Land Improvements
• Buildings
• Group Purchases of Assets
• Machinery and Other Equipment
• Self-Constructed Assets
• Noncash Acquisitions
• Gifts of Plant Assets
• Depreciation of Plant Assets
• Factors Affecting Depreciation
• Depreciation Methods
• Partial-Year Depreciation
• Changes in Estimates
• Depreciation and Financial Reporting
• Subsequent Expenditures (Capital and Revenue) on Assets
• Expenditures Capitalized in Asset Accounts
• Expenditures Capitalized as Charges to Accumulated Depreciation
• Expenditures Charged to Expense
• Errors in Classification
• Subsidiary Records Used to Control Plant Assets
• Analyzing and Using the Financial Results—Rate of Return on Operating Assets
• Understanding the Learning Objectives
• Demonstration Problem 10-A
• Solution to Demonstration Problem 10-A
• Demonstration Problem 10-B
• Solution to Demonstration Problem 10-B
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: Measuring Intangibles
• CH 11: Plant Asset Disposals, Natural Resources, and Intangible Assets
• Disposal of Plant Assets
• Retirement of Plant Assets without Sale
• Destruction of Plant Assets
• Exchanges of Nonmonetary Assets
• Removal Costs
• Natural Resources
• Depletion
• Depreciation of Plant Assets Located on Extractive Industry Property
• Intangible Assets
• Acquisition of Intangible Assets
• Amortization of Intangible Assets
• Patents
• Copyrights
• Franchises
• Trademarks; Trade Names
• Leases
• Leasehold Improvements
• Goodwill
• Balance Sheet Presentation
• Analyzing and Using the Financial Results—Total Assets Turnover
• Understanding the Learning Objectives
• Appendix: Accounting for Operating and Financing Leases
• Demonstration Problem 11-A
• Solution to Demonstration Problem 11-A
• Demonstration Problem 11-B
• Solution to Demonstration Problem 11-B
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• PART 4: Sources of Equity Capital for Management’s Use in Producing Revenues
• Careers in Accounting: Corporate Treasurer
• CH 12: Stockholders’ Equity: Classes of Capital Stock
• The Corporation
• Advantages of the Corporate Form of Business
• Disadvantages of the Corporate Form of Business
• Incorporating
• Articles of Incorporation
• Bylaws
• Directing the Corporation
• Documents, Books, and Records Relating to Capital Stock
• Stockholders’ Ledger
• The Minutes Book
• Par Value and No-Par Capital Stock
• Par Value Stock
• No-Par Stock
• No-Par Stock with a Stated Value
• Other Values Commonly Associated with Capital Stock
• Market Value
• Book Value
• Liquidation Value
• Redemption Value
• Capital Stock Authorized and Outstanding
• Classes of Capital Stock
• Common Stock
• Preferred Stock
• Types of Preferred Stock
• Stock Preferred as to Dividends
• Stock Preferred as to Assets
• Convertible Preferred Stock
• Callable Preferred Stock
• Balance Sheet Presentation of Stock
• Stock Issuances for Cash
• Issuance of Par Value Stock for Cash
• Issuance of No-Par, Stated Value Stock for Cash
• Issuance of No-Par Stock without a Stated Value for Cash
• Capital Stock Issued for Property
• Balance Sheet Presentation of Paid-In Capital in Excess of Par (or Stated) Value—Common or Preferr
• Book Value
• Analyzing and Using the Financial Results—Return on Average Common Stockholders’ Equity
• Understanding the Learning Objectives
• Demonstration Problem 12-A
• Solution to Demonstration Problem 12-A
• Demonstration Problem 12-B
• Solution to Demonstration Problem 12-B
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: Financial Analyst
• CH 13: Corporations: Paid-In Capital, Retained Earnings, Dividends, and Treasury Stock
• Paid-In (or Contributed) Capital
• Retained Earnings
• Paid-In Capital and Retained Earnings on the Balance Sheet
• Dividends
• Cash Dividends
• Stock Dividends
• Stock Splits
• Legality of Dividends
• Liquidating Dividends
• Retained Earnings Appropriation
• Retained Earnings Appropriations on the Balance Sheet
• Statement of Retained Earnings
• Statement of Stockholders’ Equity
• Treasury Stock
• Acquisition and Reissuance of Treasury Stock
• Treasury Stock on the Balance Sheet
• Stockholders’ Equity on the Balance Sheet
• Net Income Inclusions and Exclusions
• Discontinued Operations
• Retained Earnings Adjustments
• Changes in Accounting Principle
• Corrections of Errors through Prior Period Adjustments
• Accounting for Tax Effects
• Summary of Illustrative Financial Statements
• Analyzing and Using the Financial Results—Earnings per Share and Price-Earnings Ratio
• Understanding the Learning Objectives
• Appendix: Other Comprehensive Income
• Demonstration Problem 13-A
• Solution to Demonstration Problem 13-A
• Demonstration Problem 13-B
• Solution to Demonstration Problem 13-B
• Demonstration Problem 13-C
• Solution to Demonstration Problem 13-C
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: Business Acquisitions
• CH 14: Stock Investments
• Fair Value and Equity Methods
• Accounting for Short-Term Stock Investments and for Long-Term Stock Investments of Less Than 20%
• Subsequent Valuation of Stock Investments under the Fair Market Value Method
• The Equity Method for Long-Term Investments of between 20% and 50%
• Reporting for Stock Investments of More Than 50%
• Parent and Subsidiary Corporations
• Eliminations
• Consolidated Balance Sheet at Time of Acquisition
• Acquisition of Subsidiary at Book Value
• Acquisition of Subsidiary at a Cost above or below Book Value
• Acquisition of Less Than 100% of a Subsidiary
• Accounting for Income, Losses, and Dividends of a Subsidiary
• Consolidated Financial Statements at a Date after Acquisition
• Uses and Limitations of Consolidated Statements
• Analyzing and Using the Financial Results—Dividend Yield on Common Stock and Payout Ratios
• Understanding the Learning Objectives
• Demonstration Problem 14-A
• Solution to Demonstration Problem 14-A
• Demonstration Problem 14-B
• Solution to Demonstration Problem 14-B
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: Financial Institutions
• CH 15: Long-Term Financing: Bonds and Time Value of Money
• Bonds Payable
• Comparison with Stock
• Selling (Issuing) Bonds
• Characteristics of Bonds
• Advantages of Issuing Debt
• Disadvantages of Issuing Debt
• Accounting for Bonds Issued at Face Value
• Bond Prices and Interest Rates
• Computing Bond Prices
• Discount/Premium Amortization
• Redeeming Bonds Payable
• Serial Bonds
• Bond Redemption or Sinking Funds
• Convertible Bonds
• Bond Rating Services
• Analyzing and Using the Financial Results—Times Interest Earned Ratio
• Understanding the Learning Objectives
• Appendix: Future Value and Present Value
• The Time Value of Money
• Future Value
• Future Value of an Annuity
• Present Value
• Present Value of an Annuity
• Demonstration Problem
• Solution to Demonstration Problem
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Using the Internet—A View of the Real World
• Answers to Self-Test
• PART 5: Analysis of Financial Statements: Using the Statement of Cash Flows
• Careers in Accounting: External Auditing
• CH 16: Analysis Using the Statement of Cash Flows
• Purposes of the Statement of Cash Flows
• Uses of the Statement of Cash Flows
• Management Uses
• Investor and Creditor Uses
• Information in the Statement of Cash Flows
• A Separate Schedule for Significant Noncash Investing and Financing Activities
• Cash Flows from Operating Activities
• Steps in Preparing Statement of Cash Flows
• Step 1: Determining Cash Flows from Operating Activities—Direct Method
• Alternate Step 1: Determining Cash Flows from Operating Activities—Indirect Method
• Step 2: Analyzing the Noncurrent Accounts and Additional Data
• Step 3: Arranging Information in the Statement of Cash Flows
• Analysis of the Statement of Cash Flows
• Synotech’s Consolidated Statement of Cash Flows
• Management’s Discussion and Analysis
• Explanation of Items in Synotech’s Consolidated Statements of Cash Flows
• Use of the Cash Flow Information for Decision Making
• Analyzing and Using the Financial Results—Cash Flow per Share of Common Stock, Cash Flow Margin, a
• Understanding the Learning Objectives
• Appendix: Use of a Working Paper to Prepare a Statement of Cash Flows
• Completing the Working Paper
• Preparing the Statement of Cash Flows
• Demonstration Problem
• Solution to Demonstration Problem
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Careers in Accounting: Investment Analyst
• CH 17: Analysis and Interpretation of Financial Statements
• Objectives of Financial Statement Analysis
• Financial Statement Analysis
• Sources of Information
• Published Reports
• Government Reports
• Financial Service Information, Business Publications, Newspapers, and Periodicals
• Horizontal Analysis and Vertical Analysis: An Illustration
• Analysis of a Balance Sheet
• Analysis of Statement of Income and Retained Earnings
• Trend Percentages
• Ratio Analysis
• Liquidity Ratios
• Equity, or Long-Term Solvency, Ratios
• Profitability Tests
• Market Tests
• Final Considerations in Financial Statement Analysis
• Need for Comparable Data
• Influence of External Factors
• Need for Standards of Comparison
• The Future
• Understanding the Learning Objectives
• Demonstration Problem 17-A
• Solution to Demonstration Problem 17-A
• Demonstration Problem 17-B
• Solution to Demonstration Problem 17-B (in millions)
• New Terms
• Self-Test
• Questions
• Exercises
• Problems
• Alternate Problems
• Beyond the Numbers—Critical Thinking
• Answers to Self-Test
• Check Figures
• Appendix: Annual Report Apple Inc.
• Appendix Compound Interest and Annuity Tables
• New Terms Index
• Subject Index
• Chart of Accounts