Financial Accounting

, by Robert F. Meigs

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ISBN: 9780070434363 | 0070434360
Cover: Hardcover
Copyright: 8/1/1997

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Supplemental Materials

PART ONE An Introduction to Accounting

(210)

Accounting: The Language of Business

(52)

What is Accounting?

(1)

Accounting From a User's Perspective

Financial Reporting

(5)

Financial Statements

Case in Point

Annual Reports

Case in Point

Financial Reporting: A Multimedia Process

Developing Accounting Information

Generally Accepted Accounting Principles (GAAP)

(4)

The Nature of Accounting Principles

Organizations Influencing Accounting Practice

Forms of Business Organizations

Your Turn

Financial Statements: The Starting Point in the Study of Accounting

(7)

The Balance Sheet

Assets

Liabilities

Owners' Equity

What is Capital Stock?

The Accounting Equation

The Accounting Process: An Illustration

(6)

The Effects of Business Transactions

Effects of These Business Transactions Upon the Accounting Equation

The Use of Financial Statements by Outsiders

(10)

Your Turn

The Need for Adequate Disclosure

The Reliability of Financial Statements

Management's Interest in Financial Statements

Competence, Integrity, and Professional Judgment

Integrity and Ethics

Supplemental Topic A: Annotated Balance Sheet of a Publicly Owned Company

(1)

Supplemental Topic B: Careers in Accounting

(3)

Net Connections

(2)

End-of-Chapter Review

(5)

Assignment Material

(13)

Changes in Financial Position

(47)

The Role of Accounting Records

The Ledger

(9)

The Use of Ledger Accounts

Debit and Credit Entries

Double-Entry Accounting---The Equality of Debits and Credits

Your Turn

Recording Transactions in Ledger Accounts: An Illustration

Running Balance Form of Accounts

The Journal

(6)

Why Use a Journal?

The General Journal: Illustration of Entries

Posting Journal Entries to the Ledger Accounts (And How to ''Read`` a Journal Entry)

The Trial Balance

(1)

Uses and Limitations of the Trial Balance

The Accounting Cycle: An Introduction

(2)

Manual and Computer-Based Systems: A Comparison

Journals, Ledgers, and Accounting Education

(5)

The Usefulness of Journals and Ledgers to Managers

Your Turn

Net Connections

(1)

Supplemental Topic: Some Tips on Record-Keeping Procedures

(2)

End-of-Chapter Review

(5)

Assignment Material

(16)

Comprehensive Problem 1 Little Bear Railroad, Inc

(2)

Measuring Business Income and Completing the Accounting Cycle

101

(57)

What is Net Income?

102

(12)

Retained Earnings

Case in Point

The Income Statement: A Preview

Case in Point

Revenue

Expenses

Debit and Credit Rules for Revenue and Expense

Dividends

Recording Revenue and Expense Transactions: An Illustration

The Journal

The Ledger

The Trial Balance

Adjusting Entries: The Next Step in the Accounting Cycle

114

(8)

Shop Supplies: An Asset That Turns into an Expense

The Concept of Depreciation

Case in Point

Recording Depreciation Expense: An Illustration

Accounting for Corporate Income Taxes

The Adjusted Trial Balance

Preparing a Set of Financial Statements

122

(2)

The Income Statement

The Statement of Retained Earnings

The Balance Sheet

Relationship Among the Financial Statements

Closing the Temporary Accounts

124

(7)

Closing Entries for Revenue Accounts

Closing Entries for Expense Accounts

Closing the Income Summary Account

Closing the Dividends Account

Summary of the Closing Process

After-Closing Trial Balance

The Complete Accounting Cycle

131

(3)

Accounting Procedures in a Computer-Based System

The Accrual Basis of Accounting

Case in Point

Dividends-Declaration and Payment

Your Turn

Some Concluding Remarks

134

(2)

The Accounting Cycle in Perspective

A Look Back at Overnight: Was December a ''Good Month``?

Case in Point

Net Connections

135

(1)

End-of-Chapter Review

136

(6)

Assignment Material

142

(16)

Year-End!

158

(53)

The ''Busy Season``

159

(1)

Case in Point

Adjusting Entries: A Closer Look

160

(15)

The Need for Adjusting Entries

Types of Adjusting Entries

Characteristics of Adjusting Entries

Year-End at Overnight Auto Service

Apportioning Recorded Costs

Apportioning Unearned Revenue

Case in Point

Recording Unrecorded Expenses

Recording Unrecorded Revenue

Accrual of Income Taxes Expense: The Final Adjusting Entry

Adjusting Entries and Accounting Principles

The concept of Materiality

Effects of the Adjusting Entries

Preparing the Statements

175

(6)

Drafting the ''Notes`` That Accompany Financial Statements

What Types of Information Must be Disclosed?

Closing the Accounts

A Last Look at Overnight: Was 1999 A ''Good Year``?

Preparing Financial Statements Covering Different Periods of Time

181

(6)

Your Turn

Net Connections

182

(1)

Supplemental Topic: The Worksheet

183

(4)

End-of-Chapter Review

187

(5)

Assignment Material

192

(16)

Comprehensive Problem 2 Friend With A Truck, Inc

208

(3)

PART TWO The Business World

211

(94)

Accounting for Merchandising Activities

212

(43)

Merchandising Companies

213

(7)

The Operating Cycle of a Merchandising Company

Case in Point

Income Statement of a Merchandising Company

What Accounting Information Does a Merchandising Company Need?

General Ledger Accounts

Subsidiary Ledgers: A Source of Needed Details

Case in Point

Your Turn

Two Approaches Used in Accounting For Merchandising Transactions

Perpetual Inventory Systems

220

(3)

Taking a Physical Inventory

Closing Entries in a Perpetual Inventory System

Periodic Inventory Systems

223

(4)

Operation of a Periodic Inventory System

Closing Process in a Periodic Inventory System

Comparison of Perpetual and Periodic Inventory Systems

Case in Point

Selecting an Inventory System

Your Turn

Modifying an Accounting System

227

(1)

Special Journals Provide Speed and Efficiency

Evaluating the Performance of a Merchandising Company

228

(6)

Net Sales

Gross Profit Margins

using Information About Profit Margins

Net Connections

230

(1)

Supplemental Topic: Additional Merchandising Transactions

231

(3)

Transactions Relating to Sales

234

(3)

Sales Returns and Allowances

Sales Discounts

Delivery Expenses

Accounting for Sales Taxes

End-of-Chapter Review

237

(5)

Assignment Material

242

(13)

Introduction to Financial Statement Analysis and the Statement Of Cash Flows

255

(50)

Financial Statements are Designed For Analysis

Measures of Liquidity and Credit Risk

257

(6)

A Classified Balance Sheet

Working Capital

Current Ratio

Quick Ratio

Debt Ratio

Evaluating Financial Ratios

Case in Point

Your Turn

Concluding Comment-Solvency, Credit Risk, and the Law

Case in Point

Measures of Profitability

263

(8)

Classifications in the Income Statement

Multiple-Step Income Statements

Case in Point

Earnings Per Share

Price-Earnings Ratio

Single-Step Income Statements

Evaluating the Adequacy of Net Income

Return on Investment (ROI)

Return on Assets (ROA)

Return on Equity (ROE)

Case in Point

Introduction to the Statement of Cash Flows

271

(5)

Classifications of Cash Flows

Net Cash Flows

Your Turn

Who Uses Information About Cash Flows?

Management's Interest in Cash Flows

Some Concluding Comments

276

(3)

Sources of Financial Information

Financial Analysis and Stock Price

Summary of Analytical Measurements

Net Connections

278

(1)

End-of-Chapter Review

279

(4)

Assignment Material

283

(19)

Comprehensive Problem 3 Toys ''R`` Us, Inc

302

(3)

PART THREE Accounting For Assets

305

(158)

Financial Assets

306

(58)

How Much Cash Should a Business Have?

The Valuation of Financial Assets

Cash

308

(9)

Reporting Cash in the Balance Sheet

Case in Point

The Statement of Cash Flows

Cash Management

Your Turn

Internal Control Over Cash

Cash Disbursements

Bank Statements

Reconciling the Bank Statement

Petty Cash Funds

The Cash Budget as a Control Device

Short-Term Investments

317

(3)

Case in Point

Mark-to-Market: A New Principle of Asset Valuation

Accounts Receivable

320

(20)

Uncollectible Accounts

The Allowance for Doubtful Accounts

Writing Off an Uncollectible Account Receivable

Recovery of an Account Receivable Previously Written Off

Monthly Estimates of Credit Losses

Direct Write-Off Method

Income Tax Regulations and Financial Reporting

Internal Controls for Receivables

Management of Accounts Receivable

Factoring Accounts Receivable

Credit Card Sales

Evaluating the Quality of Accounts Receivable

Your Turn

Notes Receivable and Interest Charges

Financial Assets: Reporting the Effects of Transactions

Net Connections

332

(1)

Supplemental Topic A: Accounting for Marketable Securities

332

(4)

Supplemental Topic B: Notes Receivable and Interest Revenue

336

(4)

End-of-Chapter Review

340

(5)

Assignment Material

345

(19)

Inventories and The Cost of Goods Sold

364

(47)

Inventory Defined

The Flow of Inventory Costs

365

(11)

Which Unit Did We Sell? Does it Really Matter?

Data for an Illustration

Specific Identification

Cost Flow Assumptions

Average-Cost Method

First-In, First-Out Method

Last-In, First-Out Method

Evaluation of the Methods

Do Inventory Methods Really Affect Performance?

The Principle of Consistency

Just-In-Time (JIT) Inventory Systems

Case in Point

Taking a Physical Inventory

376

(9)

Recording Shrinkage Losses

LCM and Other Write-Downs of Inventory

Case in Point

The Year-End Cutoff of Transactions

Periodic Inventory Systems

Importance of an Accurate Valuation of Inventory

Case in Point

Techniques for Estimating the Cost of Goods Sold and the Ending Inventory

The Gross Profit Method

The Retail Method

''Textbook`` Inventory Systems Can Be Modified...And They Often Are

Case in Point

Evaluating the Liquidity of Inventory

385

(5)

Inventory Turnover Rate

Your Turn

Accounting Methods Can Affect Analytical Ratios

Case in Point

Net Connections

387

(1)

Supplemental Topic: LIFO Reserves

388

(2)

End-of-Chapter Review

390

(4)

Assignment Material

394

(17)

Plant Assets and Depreciation

411

(52)

Plant Assets as a ''Stream of Future Services``

Major Categories of Plant Assets

Accountable Events in the Lives of Plant Assets

Acquisitions of Plant Assets

413

(2)

Determining Cost: An Example

Some Special Considerations

Capital Expenditures and Revenue Expenditures

Depreciation

415

(11)

Allocating the Cost of Plant and Equipment Over the Years of Use

Causes of Depreciation

Case in Point

Methods of Computing Depreciation

The Straight-Line Method

Your Turn

The Declining-Balance Method

MACRS: The ''Tax Method``

Which Depreciation Methods Do Most Businesses Use?

Your Turn

Financial Statement Disclosures

Disposal of Plant and Equipment

426

(5)

Gains and Losses on Disposals of Plant and Equipment

Case in Point

Gains and Losses for Income Tax Purposes

Which Amounts are Recorded in the Accounting Records?

Trading in Used Assets on New

Other Income Tax Reporting Obligations

Intangible Assets

431

(6)

Characteristics

Operating Expenses Versus Intangible Assets

Amortization

Goodwill

Case in Point

Patents

Trademarks and Trade Names

Franchises

Copyrights

Other Intangibles and Deferred Charges

Research and Development (R&D) Costs

Case in Point

Natural Resources

437

(2)

Accounting for Natural Resources

Depreciation, Amortization, and Depletion- A Common Goal

The Impairment of Plant Assets

Case in Point

Plant Transactions: The Cash Effects

439

(4)

Supplemental Topic: Other Depreciation Methods

439

(2)

Net Connections

441

(2)

End-of-Chapter Review

443

(4)

Assignment Material

447

(14)

Comprehensive Problem 4 Alpine Village and Nordic Sports

461

(2)

PART FOUR Accounting For Liabilities and Owners' Equity

463

(148)

Liabilities

464

(53)

The Nature of Liabilities

Current Liabilities

466

(4)

Accounts Payable

Notes Payable

The Current Portion of Long-Term Debt

Accrued Liabilities

Payroll Liabilities

Unearned Revenue

Long-Term Liabilities

470

(3)

Maturing Obligations Intended To Be Refinanced

Installment Notes Payable

Special Types of Liabilities

473

(14)

Bonds Payable

What are Bonds?

Case in Point

Tax Advantage of Bond Financing

Accounting for Bonds Payable

The Concept of Present Value

Bond Prices After Issuance

Case in Point

Your Turn

Early Retirement of Bonds Payable

Lease Payment Obligations

Operating Leases

Capital Leases

Liabilities For Pensions and Other Postretirement Benefits

Case in Point

Deferred Income Taxes

Liabilities and Cash Flows

Liabilities and Financial Statement Disclosures

Evaluating the Safety of Creditor's Claims

487

(9)

Your Turn

How Much Debt Should A Business Have?

Net Connections

490

(1)

Supplemental Topic A: Estimated Liabilities, Loss Contingencies, And Commitments

491

(2)

Supplemental Topic B: Bonds Issued at a Discount or a Premium

493

(3)

End-of-Chapter Review

496

(6)

Assignment Material

502

(15)

Forms of Business Organization

517

(48)

Sole Proprietorships

518

(3)

Accounting for the Owner's Equity in a Sole Proprietorship

Closing the Accounts

Financial Statements for a Sole Proprietorship

Evaluating the Financial Statements of a Proprietorship

Partnerships

521

(1)

Corporations

522

(3)

Why Businesses Incorporate

Publicly Owned Corporations

Case in Point

Formation of a Corporation

525

(13)

Case in Point

Authorization and Issuance of Capital Stock

Common Stocks and Preferred Stocks

Characteristics of Preferred Stock

Case in Point

The Role of an Underwriter

Stock Issued for Assets Other Than Cash

Subscriptions to Capital Stock

Donated Capital

Case in Point

Issuance of Capital Stock: The Cash Effects

Retained Earnings or Deficit

Stockholder Records in a Corporation

Book Value Per Share of Common Stock

Market Value

538

(5)

Case in Point

Market Price of Preferred Stock

Case in Point

Market Price of Common Stock

Case in Point

''Following`` the Market

Your Turn

Book Value and Market Price

Case in Point

Selecting an Appropriate Form of Business Organization

543

(4)

What Types of Businesses Choose the Corporate Form of Organization?

Case in Point

Your Turn

Net Connections

544

(1)

Supplemental Topic: Incorporating a Going Concern

545

(2)

End-of-Chapter Review

547

(4)

Assignment Material

551

(14)

Reporting Unusual Events and Special Equity Transactions

565

(46)

Reporting the Results of Operations

566

(10)

Developing Predictive Information

Reporting Unusual Items --- An Illustration

Continuing Operations

Discontinued Operations

Case in Point

Extraordinary Items

Case in Point

Changes in Accounting Principles

Case in Point

Your Turn

Earnings Per Share (EPS)

Basic and Diluted Earnings Per Share

Other Stockholders' Equity Transactions

576

(14)

Cash Dividends

Dividend Dates

Liquidating Dividends

Stock Dividends

Case in Point

Stock Splits

Your Turn

Statement of Retained Earnings

Prior Period Adjustments

Treasury Stock

Recording Purchases of Treasury Stock

Reissuance of Treasury Stock

Stock ''Buyback`` Programs

Case in Point

Equity Transactions: The Cash Effects

Statement of Stockholders' Equity

Illustration of a Stockholders' Equity Section

Net Connections

587

(1)

Supplemental Topic: Employee Stock Plans

588

(2)

End-of-Chapter Review

590

(5)

Assignment Material

595

(16)

PART FIVE A Look Back-And Ahead

611

(1)

Measuring Cash Flows

612

(1)

Statement of Cash Flows

613

(4)

Purpose of the Statement

Example of a Statement of Cash Flows

Classification of Cash Flows

Critical Importance of Cash Flow From Operating Activities

The Approach to Preparing a Statement of Cash Flows

Preparing a Statement of Cash Flows: An Illustration

617

(12)

Operating Activities

Investing Activities

Financing Activities

Cash and Cash Equivalents

Cash Flows from Operating Activities

Cash Payments for Merchandise and for Expenses

Differences Between Net Income and Net Cash Flow From Operating Activities

Reporting Operating Cash Flow: The Direct and Indirect Methods

Cash Flows from Investing Activities

Cash Flows From Financing Activities

Relationship Between the Statement of Cash Flows and the Balance Sheet

The Statement of Cash Flows: A Second Look

Using the Statement of Cash Flows

Annotated Statement of Cash Flows: MCI Corporation

Managing Cash Flows

629

(5)

Budgeting: The Primary Cash Management Tool

Your Turn

What Priority Should Managers Give to Increasing Net Cash Flows?

Case in Point

Some Strategies for Permanent Improvements in Cash Flow

Case in Point

Your Turn

Case in Point

Concluding Comments

Net Connections

634

Supplemental Topic A: The Indirect Method

624

(15)

Supplemental Topic B: A Worksheet for Preparing a Statement of Cash Flows

639

(5)

End-of-Chapter Review

644

(6)

Assignment Material

650

(16)

Accounting: Concepts, Professional Judgment, and Ethical Conduct

666

(1)

The Need for Recognized Accounting Standards

667

(1)

Generally Accepted Accounting Principles (GAAP)

667

(11)

Nature of Accounting Principles

Authoritative Support for Accounting Principles

The Accounting Entity Concept

The Going-Concern Assumption

The Time Period Principle

The Stable-Dollar Assumption

The Objectivity Principle

Asset Valuation: The Cost Principle

Revenue Recognition: The Realization Principle

Your Turn

Expense Recognition: The Matching Principle

Case in Point

The Consistency Principle

The Disclosure Principle

Materiality

Conservatism as a Guide in Resolving

Uncertaintie

Setting New Accounting Standards

The Conceptual Framework Project

Professional Judgement: An Essential Element in Financial Reporting

678

(1)

Business and Professional Ethics

679

(12)

What are ''Ethics``?

Ethical Dilemmas

Business Ethics

Your Turn

Ethics Relating to the Practice of Accounting

Professional Codes of Ethics

The AICPA Code of Professional Conduct

Two of the AICPA ''Rules``

Applicability of the AICPA Code of Professional Conduct

A Closer Look at Some Key Concepts

Case in Point

IMA Standards of Ethical Conduct for Management Accountants

Applicability of the IMA Code of Ethics

A Closer Look at Some Key Concepts

Case in Point

Resolution of Ethical Conflicts

The Challenge of Adhering to a Code of Ethics

Case in Point

Net Connections

691

(1)

End-of-Chapter Review

692

(3)

Assignment Material

695

Appendix A Annual Report of Toys ''R`` Us

A-1

Appendix B Exploring The Internet

B-1

Getting Started

Use of the Internet in This Textbook

B-1

Internet Assignment Materials

B-2

Appendix C Accounting Systems, Internal Control, and Audits

C-1

Accounting Systems

C-1

Determining Information Needs

The Cost of Producing Accounting Information

Basic Functions of an Accounting System

Recording Transactions: The Need for Special Journals

Classifying and Storing the Recorded Data

Ledger Accounts

Database Systems

Comparison of Ledger Accounts to a Database

Summarizing and Communicating Accounting Information

Internal Control

C-5

Components of Internal Control

Case in Point

Guidelines for Achieving Strong Internal Control

The Role of Business Documents

Internal Control in Computer-Based Systems

Case in Point

Limitations of Internal Control

Prevention of Fraud

Case in Point

Employee Fraud

Management Fraud

Case in Point

Audits

C-13

Audits of Financial Statements

Case in Point

Operational Auditing

Compliance Auditing

Assignment Material

C-17

Appendix D The ''Time-Value`` of Money: Future Amounts and Present Values

D-1

The Concept

D-1

Relationships Between Present Values and Future Amounts

Compound Interest

Case in Point

Applications of the Time-Value of Money Concept

Future Amounts

D-3

The ''Tables Approach``

The Future Amount of an Annuity

Interest Periods of Less Than One Year

Present Values

D-7

Using Present Value Tables

What is the Appropriate Discount Rate?

The Present Value of an Annuity

Discount Periods of Less Than One Year

Valuation of Financial Instruments

D-11

Interest-Bearing Receivables and payables

''Non-Interest-Bearing`` Notes

Market Prices of Bonds

Capital Leases

Obligations for Postretirement Benefits

Disclosure of Up-To-Date Present Value Information

Deferred Income Taxes

Capital Budgeting: Another Application of Present Value

D-15

Assignment Material

D-16

Appendix E International Accounting and Foreign Currency Transactions

E-1

The Accounts Standards Problem

E-2

Case in Point

Foreign Currencies and Exchange Rates

E-2

Exchange Rates

Accounting for Transactions with Foreign Companies

Currency Fluctuations-Who Wins and Who Loses?

Consolidated Financial Statements That Include Foreign Subsidiaries

Assignment Material

E-9

Appendix F Income Taxes and Business Decisions

F-1

Why Study Income Taxes?

The Federal Income Tax

Tax Planning Versus Tax Evasion

Enforcement of Income Tax Laws

Income Taxes: Individuals

F-3

Cash Basis of Accounting For Income Tax Returns

Tax Rates

Marginal Tax Rates Case in Point

Income Tax Formula For Individuals

Total Income and Gross Income

Case in Point

Deductions to Arrive at Adjusted Gross Income

Adjusted Gross Income

Deductions From Adjusted Gross Income

Case in Point

Personal and Dependency Exemptions

Taxable Income-Individuals

Capital Gains and Losses

The Changing Treatment of Long-Term Capital Gains

Computing Tax Liability

Tax Returns, Tax Refunds, and Payment of the Tax

Computation of Individual Income Tax Illustrated

Alternative Minimum Tax

Partnerships

Income Taxes: Corporations

F-16

Corporation Tax Rates

Taxable Income of Corporations

Illustrative Tax Computation for a Corporation

Deferred Income Taxes

Accounting for Deferred Taxes: An Illustration

Tax Planning

F-21

Forms of Business Organization

Tax Planning in the Choice of Financial Structure

Tax Shelters

Assignment Material

F-23

Appendix G Analysis and Interpretation of Financial Statements: A Second Look

G-1

Corporate Profits

Case in Point

Some Specific Examples of Corporate Earnings... and Losses

Sources of Financial Information

Comparative Financial Statement

Tools of Analysis

G-3

Dollar and Percentage Changes

Trend Percentages

Case in Point

Component Percentages

Ratios

Standards of Comparison

Quality of Earnings

Quality of Assets and the Relative Amount of Debt

Impact of Inflation

Illustrative Analysis for Seacliff Company

G-8

Analysis By Common Stockholders

Return on Investment (ROI)

Leverage

Analysis By Long-Term Creditors

Analysis By Short-Term Creditors

Cash Flow Analysis

Usefulness of Notes to Financial Statements

Summary of Analytical Measurements

G-20

Assignment Material

G-22

Appendix H Not-For-Profit Organizations and Governmental Accounting

H-1

Private Not-For-Profit Organizations

H-2

Basic Characteristics of Not-For-Profit Organizations

H-2

Accounting Practices

H-2

Financial Statement Terminology

Restrictions on the Use of Assets

Asset Valuation

Case in Point

Who Uses the Financial Statements of Not-For-Profit Organizations?

Governmental Accounting

H-4

Governmental Accounting Standards

Governmental Accounting is ''Driven by the Budget``

Departures From the Accrual Basis of Accounting

Fund Accounting

The Problems of Valuing Governmental Assets

Case in Point

The Budget, the Deficit, and the Debt

H-8

Political Obstacles to Balancing the Budget

Governmental Financial Statements

H-9

Who Uses Governmental Financial Statements?

End-of-Appendix Review

H-10

Key Terms Introduced or Emphasized in Appendix

Assignment Material

H-11

Index A

I-1

Index B

I-4

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Financial Accounting

Table of Contents

Supplemental Materials