Financial Accounting

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ISBN: 9780324188035 | 032418803X
Cover: Hardcover
Copyright: 1/7/2004

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FINANCIAL ACCOUNTING provides a solid foundation of accounting concepts with unique features to show how professionals can use accounting to understand business. FINANCIAL ACCOUNTING, 9th Edition, uses the preparation of financial statements as the framework for understanding what accounting is all about.

1. Introduction to Accounting and Business

(46)

Nature of a Business

(6)

Types of Businesses

(1)

Types of Business Organizations

(1)

Business Strategies

(2)

Value Chain of a Business

(1)

Business Stakeholders

(2)

The Role of Accounting in Business

(1)

Business Ethics

(2)

Profession of Accounting

(2)

Private Accounting

(1)

Public Accounting

(1)

Specialized Accounting Fields

(1)

Generally Accepted Accounting Principles

(1)

Business Entity Concept

(1)

The Cost Concept

(1)

Assets, Liabilities, and Owner's Equity

(1)

Business Transactions and the Accounting Equation

(5)

Financial statements

(3)

Income Statement

(1)

Statement of Owner's Equity

(2)

Balance Sheet

(1)

Statement of Cash Flows

(1)

Financial Analysis and Interpretation

(25)

2. Analyzing Transactions

(54)

Usefulness of an Account

(1)

Characteristics of an Account

(1)

Analyzing and Summarizing Transactions in Accounts

(5)

Transactions and Balance Sheet Accounts

(2)

Income Statement Accounts

(2)

Withdrawals by the Owner

(1)

Normal Balances of Accounts

(1)

Illustration of Analyzing and Summarizing Transactions

(13)

Trial Balance

(1)

Discovery and Correction of Errors

(2)

Discovery of Errors

(1)

Correction of Errors

(1)

Financial Analysis and Interpretation

(30)

3. The Matching Concept and the Adjusting Process

101

(38)

The Matching Concept

102

(1)

Nature of the Adjusting Process

103

(1)

Recording Adjusting Entries

104

(9)

Deferred Expenses (Prepaid Expenses)

105

(2)

Deferred Revenue (Unearned Revenue)

107

(1)

Accrued Expenses (Accrued Liabilities)

108

(3)

Accrued Revenues (Accrued Assets)

111

(1)

Fixed Assets

112

(1)

Summary of Adjustment Process

113

(4)

Financial Analysis and Interpretation

117

(22)

4. Completing the Accounting Cycle

139

(43)

Accounting Cycle

140

(1)

Work Sheet

140

(3)

Unadjusted Trial Balance Columns

141

(1)

Adjustments Columns

142

(1)

Adjusted Trial Balance Columns

142

(1)

Income Statement and Balance Sheet Columns

143

(1)

Financial Statements

143

(1)

Income Statement

144

(1)

Statement of Owner's Equity

144

(1)

Balance Sheet

144

(1)

Adjusting and Closing Entries

144D

(9)

Journalizing and Posting Closing Entries

145

(7)

Post-Closing Trial Balance

152

(1)

Fiscal Year

153

(1)

Financial Analysis and Interpretation

154

(1)

Appendix: Reversing Entries

155

(22)

Comprehensive Problem 1

177

(5)

Practice set: Tom's Asphalt

This set is a service business operated as a proprietorship. It includes a narrative of transactions and instructions for an optional solution with no debits and credits. This set can be solved manually or with the P.A.S.S. software.

5. Accounting Systems and Internal Controls

182

(48)

Basic Accounting systems

183

(1)

Internal Control

184

(6)

Objectives of Internal Control

184

(1)

Elements of Internal Control

185

(5)

Manual Accounting systems

190

(10)

Subsidiary Ledgers

190

(1)

Special Journals

190

(2)

Manual Accounting System: The Revenue and Collection Cycle

192

(4)

Manual Accounting System: The Purchase and Payment Cycle

196

(4)

Adapting Manual Accounting Systems

200

(2)

Additional Subsidiary Ledgers

200

(1)

Modified Special Journals

201

(1)

Computerized Accounting systems

202

(2)

E-Commerce

204

(26)

6. Accounting for Merchandising Businesses

230

(53)

Nature of Merchandising Businesses

231

(1)

Financial Statements for a Merchandising Business

232

(6)

Multiple-Step Income Statement

232

(4)

Single-Step Income Statement

236

(1)

Statement of Owner's Equity

236

(1)

Balance Sheet

236

(2)

Sales Transactions

238

(4)

Cash Sales

238

(1)

Sales on Account

239

(1)

Sales Discounts

239

(2)

Sales Returns and Allowances

241

(1)

Purchase Transactions

242

(3)

Purchases Discounts

242

(1)

Purchases Returns and Allowances

243

(2)

Transportation Costs, Sales Taxes, and Trade Discounts

245

(3)

Transportations Costs

245

(1)

Sales Taxes

246

(1)

Trade Discounts

247

(1)

Illustration of Accounting for Merchandise Transactions

248

(1)

Chart of Accounts for a Merchandising Business

249

(1)

The Accounting Cycle for a Merchandising Business

250

(1)

Merchandise Inventory Shrinkage

250

(1)

Work Sheet

251

(1)

Closing Entries

251

(1)

Financial Analysis and Interpretation

251

(1)

Appendix 1. Accounting Systems for Merchandisers

252

(4)

Manual Accounting System

252

(2)

Computerized Accounting Systems

254

(2)

Appendix 2. Work Sheet and Adjusting and Goring Entries for a Merchandising Business

256

(22)

Comprehensive Problem 2

278

(5)

Practice Set: Specialty Sports

This set is a merchandising business operated as a proprietorship. It includes business documents, and it can be solved manually or with the P.A.S.S. software.

7. Cash

283

(34)

Nature of Cash and the Importance of Controls Over Cash

284

(1)

Control of Cash Receipts

285

(2)

Controlling Cash Received from Cash Sales

285

(1)

Controlling Cash Received in the Mail

286

(1)

Internal Control of Cash Payments

287

(2)

Basic Features of the Voucher System

287

(2)

Electronic Funds Transfer

289

(1)

Bank Accounts: Their Nature and Use as a Control Over Cash

289

(4)

Business Bank Accounts

289

(1)

Bank Statement

290

(2)

Bank Accounts as a Control Over Cash

292

(1)

Bank Reconciliation

293

(2)

Petty Cash

295

(1)

Presentation of Cash on the Balance Sheet

296

(2)

Financial Analysis and Interpretation

298

(19)

8. Receivables

317

(37)

Classification of Receivables

318

(1)

Accounts Receivable

318

(1)

Notes Receivable

318

(1)

Other Receivables

318

(1)

Internal Control of Receivables

319

(1)

Uncollectible Receivables

320

(1)

Allowance Method of Accounting for Uncollectibles

321

(4)

Write-Offs to the Allowance Account

322

(1)

Estimating Uncollectibles

323

(2)

Direct Write-Off Method of Accounting for Uncollectibles

325

(1)

Characteristics of Notes Receivable

326

(2)

Due Date

327

(1)

Interest

328

(1)

Maturity Value

328

(1)

Accounting for Notes Receivable

328

(2)

Receivables on the Balance sheet

330

(1)

Financial Analysis and Interpretation

330

(2)

Appendix: Discounting Notes Receivable

332

(22)

9. Inventories

354

(38)

Internal Control of Inventories

355

(2)

Effect of Inventory Errors on Financial statements

357

(1)

Inventory Cost Flow Assumptions

358

(2)

Inventory Costing Methods Under a Perpetual Inventory System

360

(3)

First-In, First-Out Method

360

(1)

Last-In, First-Out Method

361

(1)

Average Cost Method

362

(1)

Computerized Perpetual Inventory systems

362

(1)

Inventory Costing Methods Under a Periodic Inventory System

363

(2)

First-In, First-Out Method

363

(1)

Last-In, First-Out Method

364

(1)

Average Cost Method

364

(1)

Comparing Inventory Costing Methods

365

(2)

Use of the First-In, First-Out Method

366

(1)

Use of the Last-In, First-Out Method

366

(1)

Use of the Average Cost Method

367

(1)

Valuation of Inventory at Other than Cost

367

(1)

Valuation at Lower of Cost or Market

367

(1)

Valuation at Net Realizable Value

368

(1)

Presenting Merchandise Inventory on the Balance Sheet

368

(1)

Estimating Inventory Cost

369

(2)

Retail Method of Inventory Costing

370

(1)

Gross Profit Method of Estimating Inventories

371

(1)

Financial Analysis and Interpretation

371

(21)

10. Fixed Assets and Intangible Assets

392

(42)

Nature of Fixed Assets

393

(4)

Classifying Costs

394

(1)

The Cost of Fixed Assets

394

(1)

Donated Assets

395

(1)

Nature of Depreciation

395

(2)

Accounting for Depreciation

397

(5)

Straight-Line Method

398

(1)

Units-of-Production Method

399

(1)

Declining-Balance Method

399

(1)

Comparing Depreciation Methods

400

(1)

Depreciation for Federal Income Tax

400

(1)

Revising Depreciation Estimates

401

(1)

Composite-Rate Method

402

(1)

Capital and Revenue Expenditures

402

(2)

Stages of Acquiring Fixed Assets

402

(1)

Fixed Asset Components

403

(1)

Disposal of Fixed Assets

404

(4)

Discarding Fixed Assets

405

(1)

Selling Fixed Assets

405

(1)

Exchanging Similar Fixed Assets

406

(2)

Leasing Fixed Assets

408

(1)

Internal Control of Fixed Assets

409

(1)

Natural Resources

410

(1)

Intangible Assets

410

(4)

Patents

411

(1)

Copyrights and Trademarks

411

(1)

Goodwill

412

(2)

Financial Reporting for Fixed Assets and Intangible Assets

414

(1)

Financial Analysis and Interpretation

414

(2)

Appendix: Sum-of-the-Years-Digits Depreciation

416

(18)

11. Current Liabilities

434

(47)

The Nature of Current Liabilities

435

(1)

Short-Term Notes Payable and Current Portion of Long-Term Debt

436

(2)

Short-Term Notes Payable

436

(1)

Current Portion of Long-Term Debt

437

(1)

Contingent Liabilities

438

(1)

Payroll and Payroll Taxes

439

(7)

Liability for Employee Earnings

440

(1)

Deductions from Employee Earnings

441

(3)

Computing Employee Net Pay

444

(1)

Liability for Employer's Payroll Taxes

444

(2)

Accounting Systems for Payroll and Payroll Taxes

446

(7)

Payroll Register

446

(2)

Employee's Earnings Record

448

(1)

Payroll Checks

448

(1)

Payroll System Diagram

449

(1)

Internal Controls for Payroll Systems

449

(4)

Employees' Fringe Benefits

453

(2)

Vacation Pay

453

(1)

Pensions

454

(1)

Postretirement Benefits Other Than Pensions

455

(1)

Financial Analysis and Interpretation

455

(19)

Comprehensive Problem 3

474

(7)

Practice set: Groom and Board

This set includes payroll transactions for a merchandising business operated as a proprietorship. It includes business documents, and it can be solved manually or with the P.A.S.S. software.

Practice Set: The Coddled Canine with Peachtree® Accounting Software

This set includes payroll transactions for a merchandising business operated as a proprietorship. It can be solved with the Peachtree software.

12. Corporations: Organization, Capital Stock Transactions, and Dividends

481

(36)

Nature of a Corporation

482

(2)

Characteristics of a Corporation

482

(1)

Forming a Corporation

483

(1)

Stockholders' Equity

484

(2)

Sources of Paid-In Capital

486

(2)

Stock

486

(2)

Issuing Stock

488

(3)

Premium on Stock

489

(1)

No-Par Stock

490

(1)

Treasury Stock Transactions

491

(1)

Stock Splits

492

(1)

Accounting for Dividends

493

(2)

Cash Dividends

403

(91)

Stock Dividends

494

(1)

Reporting Stockholders' Equity

495

(3)

Stockholders' Equity in the Balance Sheet

496

(1)

Reporting Retained Earnings

497

(1)

Financial Analysis and Interpretation

498

(19)

13. Accounting for Partnerships and Limited Liability Corporations

517

(42)

Alternate Forms of Business Entities

518

(13)

Partnerships

519

(1)

Limited Liability Corporations

520

(1)

Comparison of Alternate Entity Characteristics

521

(10)

Equity Reporting for Alternate Entity Forms

531

Equity Reporting for Proprietorships

522

(1)

Equity Reporting for Corporations

522

(1)

Equity Reporting for Partnerships and Limited Liability Corporations

522

(1)

Accounting for Partnerships and Limited Liability Corporations

523

(2)

Forming a Partnership

525

(1)

Dividing Income

525

(3)

Dividing Income-Services of Partners

525

(1)

Dividing Income-Services of Partners and Investments

526

(1)

Dividing Income-Allowances Exceed Net Income

527

(1)

Partnership Dissolution

528

(3)

Admitting a Partner

528

(3)

Withdrawal of a Partner

531

(1)

Death of a Partner

531

(1)

Liquidating Partnerships

531

(5)

Gain on Realization

532

(1)

Loss on Realization

533

(1)

Loss on Realization-Capital Deficiency

534

(2)

Errors in Liquidation

536

(1)

Business Life Cycle

536

(23)

14. Income Taxes, Unusual Income Items, and Investments in Stocks

559

(42)

Corporate Income Taxes

560

(4)

Payment of Income Taxes

560

(1)

Allocating Income Taxes

561

(2)

Reporting and Analyzing Taxes

563

(1)

Unusual Items Affecting the Income Statement

564

(4)

Unusual Items Affecting Income from Continuing Operations

564

(2)

Unusual Items Not Affecting Income from Continuing Operations

566

(2)

Reporting Unusual Below-the-Line Items

568

(1)

Earnings per Common Share

568

(2)

Comprehensive Income

570

(1)

Accounting for Investments in stocks

571

(4)

Short-Term Investments in Stocks

571

(2)

Long-Term Investments in Stocks

573

(2)

Sale of Investments in Stocks

575

(1)

Business Combinations

575

(3)

Mergers and Consolidations

575

(1)

Parent and Subsidiary Corporations

576

(1)

Consolidated Financial Statements

576

(2)

Financial Analysis and Interpretation

578

(23)

Practice Set: Nina's Decorating House

This set is a service and merchandising business operated as a corporation. It includes narrative for six months of transactions, which are to be recorded in a general journal. The set can be solved manually or with the P.A.S.S. software.

Practice Set: First Designs, Inc.

This set is a departmentalized merchandising business operated as a corporation. It includes a narrative of transactions, which are to be recorded in special journals. The set can be solved manually or with the P.A.S.S. software.

15. Bonds Payable and Investments in Bonds

601

(39)

Financing Corporations

602

(1)

Characteristics of Bonds Payable

603

(1)

The Present-Value Concept and Bonds Payable

604

(4)

Present Value of the Face Amount of Bonds

605

(1)

Present Value of the Periodic Bond Interest Payments

606

(2)

Accounting for Bonds Payable

608

(4)

Bonds Issued at Face Amount

608

(2)

Bonds Issued at a Discount

610

(1)

Amortizing a Bond Discount

610

(1)

Bonds Issued at a Premium

611

(1)

Amortizing a Bond Premium

611

(1)

Zero-Coupon Bonds

611

(1)

Bond Sinking Funds

612

(1)

Bond Redemption

613

(1)

Investments in Bonds

614

(2)

Accounting for Bond Investments-Purchase, Interest, and Amortization

614

(1)

Accounting for Bond Investments-Sale

615

(1)

Corporation Balance Sheet

616

(2)

Balance Sheet Presentation of Bonds Payable

616

(2)

Balance Sheet Presentation of Bond Investments

618

(1)

Financial Analysis and interpretation

618

(1)

Appendix: Effective Interest Rate Method of Amortization

619

(16)

Amortization of Discount by the Interest Method

619

(1)

Amortization of Premium by the Interest Method

620

(15)

Comprehensive Problem 4

635

(5)

16. Statement of Cash Flows

640

(51)

Reporting Cash Flows

641

(4)

Cash Flows from Operating Activities

642

(1)

Cash Flows from Investing Activities

643

(1)

Cash Flows from Financing Activities

643

(1)

Noncash Investing and Financing Activities

644

(1)

No Cash Flow per Share

644

(1)

Statement of Cash Flows-The Indirect Method

645

(9)

Retained Earnings

645

(6)

Common Stock

651

(1)

Bonds Payable

651

(1)

Building

652

(1)

Land

652

(1)

Preparing the Statement of Cash Flows

653

(1)

Statement of Cash Flows-The Direct Method

654

(4)

Cash Received from Customers

654

(1)

Cash Payments for Merchandise

655

(1)

Cash Payments for Operating Expenses

656

(1)

Gain on Sale of Land

657

(1)

Interest Expense

657

(1)

Cash Payments for Income Taxes

657

(1)

Reporting Cash Flows from Operating Activities Direct Method

657

(1)

Financial Analysis and Interpretation

658

(2)

Appendix: Work Sheet for Statement of Cash Flows

660

(31)

Work Sheet-Indirect Method

660

(3)

Work Sheet-Direct Method

663

(28)

17. Financial Statement Analysis

691

Basic Analytical Procedures

692

(5)

Horizontal Analysis

692

(2)

Vertical Analysis

694

(2)

Common-Size Statements

696

(1)

Other Analytical Measures

697

(1)

Solvency Analysis

697

(7)

Current Position Analysis

698

(1)

Accounts Receivable Analysis

699

(1)

Inventory Analysis

700

(1)

Ratio of Fixed Assets to Long-Term Liabilities

701

(1)

Ratio of Liabilities to stockholders' Equity

702

(1)

Number of Times Interest Charges Earned

702

(2)

Profitability Analysis

704

(4)

Ratio of Net Sales to Assets

704

(1)

Rate Earned on Total Assets

704

(1)

Rate Earned on Stockholders' Equity

705

(1)

Rate Earned on Common Stockholders' Equity

706

(1)

Earnings per Share on Common Stock

706

(1)

Price-Earnings Ratio

707

(1)

Dividends per share and Dividend Yield

707

(1)

Summary of Analytical Measures

708

(1)

Corporate Annual Reports

708

Management Discussion and Analysis

710

(1)

Independent Auditors' Report

710

Appendix A: Interest Tables A-

Appendix B: Alternative Methods of Recording Deferrals B-

(1)

Appendix C: Periodic Inventory systems for Merchandising Businesses C-

(1)

Appendix D: Foreign Currency Transactions D-

(1)

Appendix E: The Home Depot Annual Report E-

(1)

Glossary G-

(1)

Subject Index 1-

(10)

Company Index 1-

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Financial Accounting

Summary

Table of Contents

Supplemental Materials