Accounting: Tools for Business Decision Making

Accounting: Tools for Business Decision Making, 7th Edition is a two-semester financial and managerial accounting course designed to show students the importance of accounting in their everyday lives. Emphasizing decision-making, this new edition features relevant topics such as data analytics as well as the time-tested features that have proven to be of most help to students.

1 Introduction to Financial Statements 1-1

Knowing the Numbers: Columbia Sportswear Company 1-1

Business Organization and Accounting Information Uses 1-2

The Three Types of Business Activity 1-7

The Four Financial Statements 1-9

A Look at IFRS 1-42

2 A Further Look at Financial Statements 2-1

Just Fooling Around?: The Motley Fool 2-2

The Classified Balance Sheet 2-3

Analyzing the Financial Statements Using Ratios 2-8

Financial Reporting Concepts 2-15

A Look at IFRS 2-45

3 The Accounting Information System 3-1

Accidents Happen: MF Global Holdings Ltd 3-1

Using the Accounting Equation to Analyze Transactions 3-3

Accounts, Debits, and Credits 3-11

Using a Journal 3-17

The Ledger and Posting 3-20

The Trial Balance 3-30

A Look at IFRS 3-61

4 Accrual Accounting Concepts 4-1

Keeping Track of Groupons: Groupon 4-1

Accrual-Basis Accounting and Adjusting Entries 4-2

Adjusting Entries for Deferrals 4-7

Adjusting Entries for Accruals 4-14

The Adjusted Trial Balance and Closing Entries 4-21

Appendix 4A: Using a Worksheet 4-33

A Look at IFRS 4-65

5 Merchandising Operations and the Multiple-Step Income Statement 5-1

Buy Now, Vote Later: REI 5-1

Merchandising Operations and Inventory Systems 5-3

Recording Purchases under a Perpetual System 5-6

Recording Sales under a Perpetual System 5-11

Multiple-Step and Comprehensive Income Statements 5-15

Cost of Goods Sold Under a Periodic System 5-21

Gross Profit Rate and Profit Margin 5-22

Appendix 5A: Periodic Inventory System 5-26

Appendix 5B: Adjusting Entries for Credit Sales with Returns and Allowances 5-29

A Look at IFRS 5-54

6 Reporting and Analyzing Inventory 6-1

“Where Is That Spare Bulldozer Blade?”: Caterpillar 6-1

Classifying and Determining Inventory 6-2

Inventory Methods and Financial Effects 6-6

Inventory Presentation and Analysis 6-15

Appendix 6A: Inventory Cost Flow Methods in Perpetual Inventory Systems 6-21

Appendix 6B: Effects of Inventory Errors 6-23

7 Fraud, Internal Control, and Cash 7-1

Minding the Money in Madison: Barriques 7-1

Fraud and Internal Control 7-3

Cash Controls 7-12

Control Features of a Bank Account 7-17

Reporting Cash and Cash Management 7-24

Appendix 7A: Operation of a Petty Cash Fund 7-30

A Look at IFRS 7-56

8 Reporting and Analyzing Receivables 8-1

What’s cooking? Nike 8-1

Recognition of Accounts Receivable 8-3

Valuation and Disposition of Accounts Receivable 8-5

Notes Receivable 8-14

Receivables Presentation and Management 8-18

A Look at IFRS 8-47

9 Reporting and Analyzing Long-Lived Assets 9-1

A Tale of Two Airlines: American Airlines 9-1

Plant Asset Expenditures 9-3

Depreciation Methods 9-9

Plant Asset Disposals 9-15

Intangible Assets 9-18

Statement Presentation and Analysis 9-21

Appendix 9A: Other Depreciation Methods 9-27

A Look at IFRS 9-54

10 Reporting and Analyzing Liabilities 10-1

And Then There Were Two: Maxwell Car Company 10-1

Accounting for Current Liabilities 10-3

Major Characteristics of Bonds 10-8

Accounting for Bond Transactions 10-12

Presentation and Analysis 10-18

Appendix 10A: Straight-Line Amortization 10-24

Appendix 10B: Effective-Interest Amortization 10-27

Appendix 10C: Accounting for Long-Term Notes Payable 10-30

A Look at IFRS 10-58

11 Reporting and Analyzing Stockholders’ Equity 11-1

Oh Well, I Guess I’ll Get Rich: Facebook 11-1

Corporate Form of Organization 11-3

Accounting for Common, Preferred, and Treasury Stock 11-11

Cash Dividends, Stock Dividends, and Stock Splits 11-15

Presentation and Analysis 11-22

Appendix 11A: Entries for Stock Dividends 11-30

A Look at IFRS 11-54

12 Statement of Cash Flows 12-1

Got Cash?: Microsoft 12-1

Usefulness and Format of the Statement of Cash Flows 12-3

Preparing the Statement of Cash Flows—Indirect Method 12-6

Analyzing the Statement of Cash Flows 12-17

Appendix 12A: Statement of Cash Flows—Direct Method 12-22

Appendix 12B: Worksheet for the Indirect Method 12-29

Appendix 12C: Statement of Cash Flows—T-Account Approach 12-34

A Look at IFRS 12-61

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

Horizontal Analysis and Vertical Analysis 13-9

Ratio Analysis 13-14

A Look at IFRS 13-54

14 Managerial Accounting 14-1

Just Add Water … and Paddle: Current Designs 14-1

Managerial Accounting Basics 14-3

Managerial Cost Concepts 14-7

Manufacturing Costs in Financial Statements 14-10

Managerial Accounting Today 14-14

15 Job Order Costing 15-1

Profiting from the Silver Screen: Disney 15-1

Cost Accounting Systems 15-3

Assigning Manufacturing Costs 15-7

Predetermined Overhead Rates 15-12

Entries for Jobs Completed and Sold 15-15

Applied Manufacturing Overhead 15-20

16 Process Costing 16-1

The Little Guy Who Could: Jones Soda 16-1

Overview of Process Cost Systems 16-3

Process Cost Flow and Assigning Costs 16-6

Equivalent Units 16-9

The Production Cost Report 16-12

Appendix 16A: FIFO Method for Equivalent Units 16-19

17 Activity-Based Costing 17-1

Precor Is on Your SiÞ: Precor 17-1

Traditional vs. Activity-Based Costing 17-3

ABC and Manufacturers 17-7

ABC Benefits and Limitations 17-12

ABC and Service Industries 17-17

Appendix 17A: Just-in-Time Processing 17-22

18 Cost-Volume-Profit 18-1

Don’t Worry—Just Get Big: Amazon.com 18-1

Cost Behavior Analysis 18-2

Mixed Costs Analysis 18-7

Cost-Volume-Profit Analysis 18-10

Break-Even Analysis 18-14

Target Net Income and Margin of Safety 18-18

Appendix 18A: Regression Analysis 18-22

19 Cost-Volume-Profit Analysis: Additional Issues 19-1

Not Even a Flood Could Stop It: Whole Foods Market 19-1

Basic CVP Concepts 19-3

Sales Mix and Break-Even Sales 19-8

Sales Mix with Limited Resources 19-12

Operating Leverage and Profitability 19-14

Appendix 19A: Absorption Costing vs. Variable Costing 19-19

20 Incremental Analysis 20-1

Keeping It Clean: Method Products 20-1

Decision-Making and Incremental Analysis 20-3

Special Orders 20-6

Make or Buy 20-8

Sell or Process Further 20-10

Repair, Retain, or Replace Equipment 20-14

Eliminate Unprofitable Segment or Product 20-15

21 Pricing 21-1

They’ve Got Your Size—and Color: Zappos.com 21-1

Target Costing 21-3

Cost-Plus and Variable-Cost Pricing 21-5

Time-and-Material Pricing 21-10

Transfer Prices 21-13

Appendix 21A: Absorption-Cost and Variable-Cost Pricing 21-21

Appendix 21B: Transfers between Divisions in Different Countries 21-24

22 Budgetary Planning 22-1

What’s in Your Cupcake?: Baby Cakes NYC 22-1

Effective Budgeting and the Master Budget 22-3

Sales, Production, and Direct Materials Budgets 22-8

Direct Labor, Manufacturing Overhead, and S&A Expense Budgets 22-13

Cash Budget and Budgeted Balance Sheet 22-17

Budgeting in Nonmanufacturing Companies 22-22

23 Budgetary Control and Responsibility Accounting 23-1

Pumpkin Madeleines and a Movie: Tribeca Grand 23-1

Budgetary Control and Static Budget Reports 23-3

Flexible Budget Reports 23-6

Responsibility Accounting and Responsibility Centers 23-13

Investment Centers 23-22

Appendix 23A: ROI vs. Residual Income 23-28

24 Standard Costs and Balanced Scorecard 24-1

80,000 Different Caffeinated Combinations: Starbucks 24-2

Overview of Standard Costs 24-3

Direct Materials Variances 24-7

Direct Labor and Manufacturing Overhead Variances 24-11

Variance Reports and Balanced Scorecards 24-16

Appendix 24A: Standard Cost Accounting System 24-21

Appendix 24B: Overhead Controllable and Volume Variances 24-24

25 Planning for Capital Investments 25-1

Floating Hotels: Holland America Line 25-2

Capital Budgeting and Cash Payback 25-3

Net Present Value Method 25-6

Capital Budgeting Challenges and Refinements 25-11

Internal Rate of Return 25-16

Annual Rate of Return 25-18

APPENDIX A Specimen Financial Statements: Apple Inc. A-1

APPENDIX B Specimen Financial Statements: Columbia Sportswear Company B-1

APPENDIX C Specimen Financial Statements: VF Corporation C-1

APPENDIX D Specimen Financial Statements: Amazon.com, Inc. D-1

APPENDIX E Specimen Financial Statements: Wal-Mart Stores, 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-1

Nature of Interest G-1

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-7

Present Value of an Annuity G-9

Time Periods and Discounting G-11

Present Value of a Long-Term Note or Bond G-11

Capital Budgeting Situations G-14

Using Financial Calculators G-15

Present Value of a Single Sum G-16

Present Value of an Annuity G-17

Future Value of a Single Sum G-17

Future Value of an Annuity G-17

Internal Rate of Return G-18

Useful Applications of the Financial Calculator G-18

APPENDIX H Reporting and Analyzing Investments H-1

Accounting for Debt Investments H-1

Why Corporations Invest H-1

Accounting for Debt Investments H-3

Accounting for Stock Investments H-4

Holdings of Less Than 20% H-4

Holdings Between 20% and 50% H-5

Holdings of More Than 50% H-6

Reporting Investments in Financial Statements H-7

Debt Securities H-7

Equity Securities H-10

Balance Sheet Presentation H-11

Presentation of Realized and Unrealized Gain or Loss H-12

APPENDIX I Payroll Accounting I-1

Recording the Payroll I-1

Determining the Payroll I-2

Recording the Payroll I-5

Employer Payroll Taxes I-8

FICA Taxes I-8

Federal Unemployment Taxes I-8

State Unemployment Taxes I-8

Recording Employer Payroll Taxes I-9

Filing and Remitting Payroll Taxes I-9

Internal Control for Payroll I-10

APPENDIX J Subsidiary Ledgers and Special Journals J-1

Subsidiary Ledgers J-1

Subsidiary Ledger Example J-2

Advantages of Subsidiary Ledgers J-3

Special Journals J-4

Sales Journal J-4

Cash Receipts Journal J-7

Purchases Journal J-11

Cash Payments Journal J-13

Effects of Special Journals on the General Journal J-16

Cybersecurity: A Final Comment J-17

APPENDIX K Accounting for Partnerships K-1

Forming a Partnership K-1

Characteristics of Partnerships K-1

Organizations with Partnerships Characteristics K-2

Advantages and Disadvantages of Partnerships K-3

The Partnership Agreement K-4

Accounting for a Partnership Formation K-5

Accounting for Partnership Net Income or Net Loss K-6

Dividing Net Income or Net Loss K-6

Partnership Financial Statements K-9

Accounting for Partnership Liquidation K-10

No Capital Deficiency K-11

Capital Deficiency K-12

Admission and Withdrawal of Partners K-14

Admission of a Partner K-14

Withdrawal of a Partner K-18

APPENDIX L Accounting for Sole Proprietorships L-1

Corporation versus Sole Proprietorship Equity Accounts L-1

Accounts that Change Owner’s Equity L-2

Owner’s Equity in a Sole Proprietorship L-2

Recording Transactions of a Proprietorship L-3

Retained Earnings Statement versus Owner’s Equity Statement L-3

Closing the Books for a Sole Proprietorship L-4

Preparing a Post-Closing Trail Balance for a Proprietorship L-7

Company Index I-1

Subject Index I-3

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