Accounting Principles, 14th edition

Cover
Title Page
Copyright
Brief Contents
From the Authors
Author Commitment
Contents
Chapter 1: Accounting in Action
Knowing the Numbers: Columbia Sportswear
Accounting Activities and Users
Three Activities
Who Uses Accounting Data
Data Analytics Insight: Using Data Science to Create Art
The Building Blocks of Accounting
Ethics in Financial Reporting
Generally Accepted Accounting Principles
Measurement Principles
Assumptions
The Accounting Equation
Assets
Liabilities
Owner’s Equity
Analyzing Business Transactions
Accounting Transactions
Transaction Analysis
Summary of Transactions
The Four Financial Statements
Income Statement
Owner’s Equity Statement
Balance Sheet
Statement of Cash Flows
Financial Statements: Order of Preparation
Appendix 1A: Career Opportunities in Accounting
Public Accounting
Private Accounting
Governmental Accounting
Forensic Accounting
“Show Me the Money"
A Look at IFRS
Chapter 2: The Recording Process
Accidents Happen: MF Global Holdings
Accounts, Debits, and Credits
Debits and Credits
Summary of Debit/Credit Rules
The Journal
The Recording Process
The Journal
The Ledger and Posting
The Ledger
Posting
Chart of Accounts
The Recording Process Illustrated
Summary Illustration of Journalizing and Posting
The Trial Balance
Limitations of a Trial Balance
Locating Errors
Dollar Signs and Underlining
A Look at IFRS
Chapter 3: Adjusting the Accounts
Keeping Track of Groupons: Groupon
Accrual-Basis Accounting and Adjusting Entries
Fiscal and Calendar Years
Accrual- versus Cash-Basis Accounting
Recognizing Revenues and Expenses
The Need for Adjusting Entries
Types of Adjusting Entries
Adjusting Entries for Deferrals
Prepaid Expenses
Unearned Revenues
Adjusting Entries for Accruals
Accrued Revenues
Accrued Expenses
Summary of Basic Relationships
Adjusted Trial Balance and Financial Statements
Preparing the Adjusted Trial Balance
Preparing Financial Statements
Appendix 3A: Adjusting Entries for the Alternative Treatment of Deferrals
Prepaid Expenses
Unearned Revenues
Summary of Additional Adjustment Relationships
Appendix 3B: Financial Reporting Concepts
Qualities of Useful Information
Assumptions in Financial Reporting
Principles in Financial Reporting
Cost Constraint
A Look at IFRS
Chapter 4: Completing the Accounting Cycle
Everyone Likes to Win: Rhino Foods
The Worksheet
Steps in Preparing a Worksheet
Preparing Financial Statements from a Worksheet
Preparing Adjusting Entries from a Worksheet
Closing the Books
Preparing Closing Entries
Posting Closing Entries
Preparing a Post-Closing Trial Balance
The Accounting Cycle and Correcting Entries
Summary of the Accounting Cycle
Reversing Entries—An Optional Step
Correcting Entries—An Avoidable Step
Classified Balance Sheet
Current Assets
Long-Term Investments
Property, Plant, and Equipment
Intangible Assets
Current Liabilities
Long-Term Liabilities
Owner’s Equity
Appendix 4A: Reversing Entries
Reversing Entries Example
A Look at IFRS
Chapter 5: Accounting for Merchandising Operations
Buy Now, Vote Later: REI
Merchandising Operations and Inventory Systems
Operating Cycles
Flow of Costs
Recording Purchases Under a Perpetual System
Freight Costs
Purchase Returns and Allowances
Purchase Discounts
Summary of Purchasing Transactions
Recording Sales Under a Perpetual System
Sales Returns and Allowances
Sales Discounts
Data Analytics and Credit Sales
The Accounting Cycle for a Merchandising Company
Adjusting Entries
Closing Entries
Summary of Merchandising Entries
Multiple-Step Income Statement and Classified Balance Sheet
Multiple-Step Income Statement
Single-Step Income Statement
Classified Balance Sheet
Appendix 5A: Merchandising Company Worksheet
Using a Worksheet
Appendix 5B: Periodic Inventory System
Determining Cost of Goods Sold Under a Periodic System
Recording Merchandise Transactions
Recording Purchases of Merchandise
Recording Sales of Merchandise
Journalizing and Posting Closing Entries
Using a Worksheet
A Look at IFRS
Chapter 6: Inventories
“Where Is That Spare Bulldozer Blade?”: Caterpillar
Classifying and Determining Inventory
Classifying Inventory
Determining Inventory Quantities
Inventory Methods and Financial Effects
Specific Identification
Cost Flow Assumptions
Financial Statement and Tax Effects of Cost Flow Methods
Using Inventory Cost Flow Methods Consistently
Effects of Inventory Errors
Income Statement Effects
Balance Sheet Effects
Inventory Presentation and Analysis
Presentation
Lower-of-Cost-or-Net Realizable Value
Analysis
Appendix 6A: Inventory Cost Flow Methods in Perpetual Inventory Systems
First-In, First-Out (FIFO)
Last-In, First-Out (LIFO)
Average-Cost
Appendix 6B: Estimating Inventories
Gross Profit Method
Retail Inventory Method
Data Analytics in Action
A Look at IFRS
Chapter 7: Accounting Information Systems
QuickBooks® Helps This Business Reach More Collegiate Fans: Soul to Sole Footwear
Overview of Accounting Information Systems
Computerized Accounting Systems
Manual Accounting Systems
Subsidiary Ledgers
Subsidiary Ledger Example
Advantages of Subsidiary Ledgers
Special Journals
Sales Journal
Cash Receipts Journal
Purchases Journal
Cash Payments Journal
Effects of Special Journals on the General Journal
Cybersecurity: A Final Comment
A Look at IFRS
Chapter 8: Fraud, Internal Control, and Cash
Minding the Money in Madison: Barriques
Fraud and Internal Control
Fraud
The Sarbanes-Oxley Act
Internal Control
Principles of Internal Control Activities
Data Analytics and Internal Controls
Limitations of Internal Control
Cash Controls
Cash Receipts Controls
Cash Disbursements Controls
Petty Cash Fund
Control Features of a Bank Account
Making Bank Deposits
Writing Checks
Electronic Banking
Bank Statements
Reconciling the Bank Account
Reporting Cash
Cash Equivalents
Restricted Cash
Data Analytics in Action
A Look at IFRS
Chapter 9: Accounting for Receivables
What’s Cooking?: Nike
Recognition of Accounts Receivable
Types of Receivables
Recognizing Accounts Receivable
Valuation and Disposition of Accounts Receivable
Valuing Accounts Receivable
Disposing of Accounts Receivable
Notes Receivable
Determining the Maturity Date
Computing Interest
Recognizing Notes Receivable
Valuing Notes Receivable
Disposing of Notes Receivable
Presentation and Analysis of Receivables
Presentation
Analysis
Data Analytics and Receivables Management
A Look at IFRS
Chapter 10: Plant Assets, Natural Resources, and Intangible Assets
A Tale of Two Airlines: Southwest Airlines and JetBlue Airways
Plant Asset Expenditures
Determining the Cost of Plant Assets
Expenditures During Useful Life
Depreciation Methods
Factors in Computing Depreciation
Depreciation Methods
Depreciation and Income Taxes
Revising Periodic Depreciation
Impairments
Plant Asset Disposals
Sale of Plant Assets
Retirement of Plant Assets
Natural Resources and Intangible Assets
Natural Resources
Depletion
Intangible Assets
Accounting for Intangible Assets
Types of Intangible Assets
Research and Development Costs
Statement Presentation and Analysis
Presentation
Analysis
Appendix 10A: Exchange of Plant Assets
Loss Treatment
Gain Treatment
Data Analytics in Action
A Look at IFRS
Chapter 11: Current Liabilities and Payroll Accounting
Financing His Dreams: Wilbert Murdock
Accounting for Current Liabilities
What Is a Current Liability?
Notes Payable
Sales Taxes Payable
Unearned Revenues
Current Maturities of Long-Term Debt
Reporting and Analyzing Current Liabilities
Reporting Uncertainty
Reporting of Current Liabilities
Analysis of Current Liabilities
Accounting for Payroll
Determining the Payroll
Recording the Payroll
Employer Payroll Taxes
Filing and Remitting Payroll Taxes
Internal Control for Payroll
Appendix 11A: Additional Fringe Benefits
Paid Absences
Postretirement Benefits
A Look at IFRS
Chapter 12: Accounting for Partnerships
From Trials to the Top Ten: Razor & Tie Music
Forming a Partnership
Characteristics of Partnerships
Organizations with Partnership Characteristics
Advantages and Disadvantages of Partnerships
The Partnership Agreement
Accounting for a Partnership Formation
Accounting for Net Income or Net Loss
Dividing Net Income or Net Loss
Partnership Financial Statements
Liquidation of a Partnership
No Capital Deficiency
Capital Deficiency
Appendix 12A: Admissions and Withdrawals of Partners
Admission of a Partner
Withdrawal of a Partner
Data Analytics in Action
Chapter 13: Corporations: Organization and Capital Stock Transactions
Oh Well, I Guess I’ll Get Rich: Facebook
Corporate Form of Organization
Characteristics of a Corporation
Forming a Corporation
Stockholder Rights
Stock Issue Considerations
Corporate Capital
Accounting for Stock Issuances
Accounting for Common Stock
Accounting for Preferred Stock
Accounting for Treasury Stock
Statement Presentation of Stockholders’ Equity
A Look at IFRS
Chapter 14: Corporations: Dividends, Retained Earnings, and Income Reporting
Owning a Piece of the Action: Van Meter Inc
Accounting for Dividends and Stock Splits
Cash Dividends
Dividend Preferences
Stock Dividends
Stock Splits
Reporting and Analyzing Stockholders’ Equity
Retained Earnings
Statement Presentation and Analysis
Corporate Income Statements
Income Statement Presentation
Income Statement Analysis
Appendix 14A: Stockholders’ Equity Statement
Appendix 14B: Book Value per Share
Book Value per Share Example
Book Value versus Market Price
Data Analytics in Action
A Look at IFRS
Chapter 15: Long-Term Liabilities
And Then There Were Two: Chrysler
Major Characteristics of Bonds
Types of Bonds
Issuing Procedures
Bond Trading
Determining the Market Price of a Bond
Accounting for Bond Transactions
Issuing Bonds at Face Value
Discount or Premium on Bonds
Issuing Bonds at a Discount
Issuing Bonds at a Premium
Redeeming Bonds at Maturity
Redeeming Bonds Before Maturity
Accounting for Long-Term Notes Payable
Mortgage Notes Payable
Reporting and Analyzing Long-Term Liabilities
Presentation
Use of Ratios
Debt and Equity Financing
Lease Liabilities
Appendix 15A: Straight-Line Amortization
Amortizing Bond Discount
Amortizing Bond Premium
Appendix 15B: Effective-Interest Amortization
Amortizing Bond Discount
Amortizing Bond Premium
A Look at IFRS
Chapter 16: Investments
“Is There Anything Else We Can Buy?”: WarnerMedia
Accounting for Debt Investments
Why Corporations Invest
Accounting for Debt Investments
Accounting for Stock Investments
Holdings of Less Than 20%
Holdings Between 20% and 50%
Holdings of More Than 50%
Reporting Investments in Financial Statements
Debt Securities
Equity Securities
Balance Sheet Presentation
Presentation of Realized and Unrealized Gain or Loss
A Look at IFRS
Chapter 17: Statement of Cash Flows
Got Cash?: Microsoft
Usefulness and Format of the Statement of Cash Flows
Usefulness of the Statement of Cash Flows
Classification of Cash Flows
Significant Noncash Activities
Format of the Statement of Cash Flows
Preparing the Statement of Cash Flows— Indirect Method
Indirect and Direct Methods
Indirect Method—Computer Services Company
Step 1: Operating Activities
Summary of Conversion to Net Cash Provided by Operating Activities—Indirect Method
Step 2: Investing and Financing Activities
Step 3: Net Change in Cash
Analyzing the Statement of Cash Flows
Free Cash Flow
Appendix 17A: Statement of Cash Flows—Direct Method
Step 1: Operating Activities
Step 2: Investing and Financing Activities
Step 3: Net Change in Cash
Appendix 17B: Worksheet for the Indirect Method
Preparing the Worksheet
Appendix 17C: Statement of Cash Flows—T-Account Approach
Data Analytics in Action
A Look at IFRS
Chapter 18: Financial Analysis: The Big Picture
It Pays to Be Patient: Warren Buffett
Sustainable Income and Quality of Earnings
Sustainable Income
Quality of Earnings
Horizontal Analysis and Vertical Analysis
Horizontal Analysis
Vertical Analysis
Ratio Analysis
Liquidity Ratios
Solvency Ratios
Profitability Ratios
Financial Analysis and Data Analytics
Comprehensive Example of Ratio Analysis
A Look at IFRS
Chapter 19: Managerial Accounting
Just Add Water . . . and Paddle: Current Designs
Managerial Accounting Basics
Comparing Managerial and Financial Accounting
Management Functions
Organizational Structure
Managerial Cost Concepts
Manufacturing Costs
Product versus Period Costs
Illustration of Cost Concepts
Manufacturing Costs in Financial Statements
Balance Sheet
Income Statement
Cost of Goods Manufactured
Cost of Goods Manufactured Schedule
Managerial Accounting Today
Service Industries
Focus on the Value Chain
Balanced Scorecard
Business Ethics
Corporate Social Responsibility
The Value of Data Analytics
Data Analytics Insight: Using Data in Its Own World
Data Analytics in Action
Chapter 20: Job Order Costing
Profiting from the Silver Screen: Disney
Cost Accounting Systems
Process Cost System
Job Order Cost System
Data Analytics Insight: Providing Service Through the Cloud
Job Order Cost Flow
Accumulating Manufacturing Costs
Assigning Manufacturing Costs
Raw Materials Costs
Factory Labor Costs
Predetermined Overhead Rates
Entries for Jobs Completed and Sold
Assigning Costs to Finished Goods
Assigning Costs to Cost of Goods Sold
Summary of Job Order Cost Flows
Job Order Costing for Service Companies
Advantages and Disadvantages of Job Order Costing
Applied Manufacturing Overhead
Under- or Overapplied Manufacturing Overhead
Data Analytics in Action
Chapter 21: Process Costing
The Little Guy Who Could: Jones Soda
Overview of Process Cost Systems
Uses of Process Cost Systems
Process Costing for Service Companies
Similarities and Differences Between Job Order Cost and Process Cost Systems
Process Cost Flow and Assigning Costs
Process Cost Flow
Assigning Manufacturing Costs—Journal Entries
Equivalent Units
Weighted-Average Method
Refinements on the Weighted-Average Method
The Production Cost Report
Compute the Physical Unit Flow (Step 1)
Compute the Equivalent Units of Production (Step 2)
Compute Unit Production Costs (Step 3)
Prepare a Cost Reconciliation Schedule (Step 4)
Preparing the Production Cost Report
Costing Systems—Final Comments
Appendix 21A: FIFO Method for Equivalent Units
Equivalent Units Under FIFO
Comprehensive Example
FIFO and Weighted-Average
Chapter 22: Cost-Volume-Profit
Don’t Worry—Just Get Big: Amazon.com
Cost Behavior Analysis
Variable Costs
Fixed Costs
Relevant Range
Mixed Costs
Mixed Costs Analysis
High-Low Method
Importance of Identifying Variable and Fixed Costs
Cost-Volume-Profit Analysis
Basic Components
CVP Income Statement
Break-Even Analysis
Mathematical Equation
Contribution Margin Techniques
Graphic Presentation
Target Net Income and Margin of Safety
Target Net Income
Margin of Safety
CVP and Data Analytics
Appendix 22A: Regression Analysis
Data Analytics in Action
Chapter 23: Incremental Analysis
Keeping It Clean: Method Products
Decision-Making and Incremental Analysis
Incremental Analysis Approach
How Incremental Analysis Works
Qualitative Factors
Relationship of Incremental Analysis and Activity-Based Costing
Types of Incremental Analysis
Special Orders
Make or Buy
Opportunity Cost
Sell or Process Further
Single-Product Case
Multiple-Product Case
Repair, Retain, or Replace Equipment
Eliminate Unprofitable Segment or Product
Chapter 24: Budgetary Planning
What's in Your Cupcake?: Erin McKenna's Bakery NYC
Effective Budgeting and the Master Budget
Budgeting and Accounting
The Benefits of Budgeting
Essentials of Effective Budgeting
The Master Budget
Sales, Production, and Direct Materials Budgets
Sales Budget
Production Budget
Direct Materials Budget
Direct Labor, Manufacturing Overhead, and S&A Expense Budgets
Direct Labor Budget
Manufacturing Overhead Budget
Selling and Administrative Expense Budget
Budgeted Income Statement
Data Analytics Insight: That's Some Tasty Data
Cash Budget and Budgeted Balance Sheet
Cash Budget
Budgeted Balance Sheet
Budgeting in Nonmanufacturing Companies
Merchandisers
Service Companies
Not-for-Profit Organizations
Data Analytics in Action
Chapter 25: Budgetary Control and Responsibility Accounting
Pumpkin Madeleines and a Movie: The Roxy Hotel Tribeca
Budgetary Control and Static Budget Reports
Budgetary Control
Static Budget Reports
Flexible Budget Reports
Why Flexible Budgets?
Developing the Flexible Budget
Flexible Budget—A Case Study
Flexible Budget Reports
Data Analytics Insight: These Forecasts Move with the Times
Responsibility Accounting and Responsibility Centers
Controllable versus Noncontrollable Revenues and Costs
Principles of Performance Evaluation
Data Analytics Insight: Hitting the Road with Zero-Based Budgeting
Responsibility Reporting System
Types of Responsibility Centers
Investment Centers
Return on Investment (ROI)
Responsibility Report
Alternative Measures of ROI Inputs
Improving ROI
Appendix 25A: ROI versus Residual Income
Residual Income Compared to ROI
Residual Income Weakness
Data Analytics in Action
Chapter 26: Standard Costs and Balanced Scorecard
80,000 Different Caffeinated Combinations: Starbucks
Overview of Standard Costs
Distinguishing Between Standards and Budgets
Setting Standard Costs
Direct Materials Variances
Analyzing and Reporting Variances
Calculating Direct Materials Variances
Direct Labor and Manufacturing Overhead Variances
Direct Labor Variances
Data Analytics Insight: Speedy Data to the Rescue
Manufacturing Overhead Variances
Variance Reports and Balanced Scorecards
Reporting Variances
Income Statement Presentation of Variances
Balanced Scorecard
Appendix 26A: Standard Cost Accounting System
Journal Entries
Ledger Accounts
Appendix 26B: Overhead Controllable and Volume Variances
Overhead Controllable Variance
Overhead Volume Variance
Data Analytics in Action
Chapter 27: Planning for Capital Investments
Floating Hotels: Holland America Line
Capital Budgeting and Cash Payback
Cash Flow Information
Illustrative Data
Cash Payback
Net Present Value Method
Equal Annual Cash Flows
Unequal Annual Cash Flows
Choosing a Discount Rate
Simplifying Assumptions
Comprehensive Example
Capital Budgeting Challenges and Refinements
Intangible Benefits
Profitability Index for Mutually Exclusive Projects
Risk Analysis
Post-Audit of Investment Projects
Internal Rate of Return
Comparing Discounted Cash Flow Methods
Annual Rate of Return
Data Analytics Insight: Increasing the Chances of Gaming Wins
Data Analytics in Action
Appendix A: Specimen Financial Statements: Apple Inc
Appendix B: Specimen Financial Statements: PepsiCo, Inc
Appendix C: Specimen Financial Statements: The Coca-Cola Company
Appendix D: Specimen Financial Statements: Amazon.com, Inc
Appendix E: Specimen Financial Statements: Walmart Inc.
Appendix F: Specimen Financial Statements: Louis Vuitton
Appendix G: Time Value of Money
Interest and Future Values
Nature of Interest
Future Value of a Single Amount
Future Value of an Annuity
Present Values
Present Value Variables
Present Value of a Single Amount
Present Value of an Annuity
Time Periods and Discounting
Present Value of a Long-Term Note or Bond
Capital Budgeting Situations
Using Financial Calculators
Present Value of a Single Sum
Present Value of an Annuity
Future Value of a Single Sum
Future Value of an Annuity
Internal Rate of Return
Useful Applications of the Financial Calculator
Appendix H: Just-in-Time Processing and Activity-Based Costing
Just-in-Time Processing and Activity-Based Costing
Just-in-Time Processing
Activity-Based Costing
Applying Activity-Based Costing
Identify and Classify Activities and Assign Overhead to Cost Pools (Step 1)
Identify Cost Drivers (Step 2)
Compute Activity-Based Overhead Rates (Step 3)
Allocate Overhead Costs to Products (Step 4)
Comparing Unit Costs
Benefits of ABC
Limitations of ABC
COMPANY INDEX
SUBJECT INDEX
RAPID REVIEW: CHAPTER CONTENT
EULA