Financial Accounting

To understand a business, you have to understand the financial insides of a business organization. Through a focus on accounting transactions, real-world problem-solving, and engaging industry examples, Weygandt Financial Accounting, 11th edition demonstrates how accounting is an exciting field of study and helps connect core financial accounting concepts to students' everyday lives and future careers.

Continuing to help students succeed in their introductory financial accounting course for over two decades, this edition brings together the trusted Weygandt, Kimmel, and Kieso reputation with fresh, timely, and accurate updates to help build confidence and engage today's students.

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

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