Accounting Tools for Business Decision Making, by Paul D. Kimmel 6th Edition

Cover
Title Page
Copyright Page
Brief Contents
From the Authors
Author Commitment
Table of Contents
Acknowledgments
1 Introduction to Financial Statements
Knowing the Numbers
LO 1: Study the forms of business organization and the uses of accounting information.
Forms of Business Organization
Users and Uses of Financial Information
Ethics in Financial Reporting
LO 2: Explain the three principal types of business activity.
Financing Activities
Investing Activities
Operating Activities
LO 3: Describe the four financial statements and how they are prepared.
Income Statement
Retained Earnings Statement
Balance Sheet
Statement of Cash Flows
Interrelationships of Statements
Other Elements of an Annual Report
A Look at IFRS
2 A Further Look at Financial Statements
Just Fooling Around?
LO 1: Identity the sections of a classified balance sheet.
Current Assets
Long-Term Investments
Property, Plant, and Equipment
Intangible Assets
Current Liabilities
Long-Term Liabilities
Stockholders’ Equity
LO 2: Use ratios to evaluate a company’s profitability, liquidity, and solvency.
Ratio Analysis
Using the Income Statement
Using a Classified Balance Sheet
Using the Statement of Cash Flows
LO 3: Discuss financial reporting concepts.
The Standard-Setting Environment
Qualities of Useful Information
Assumptions in Financial Reporting
Principles in Financial Reporting
Cost Constraint
A Look at IFRS
3 The Accounting Information System
Accidents Happen
LO 1: Analyze the effect of business transactions on the basic accounting equation.
Accounting Transactions
Analyzing Transactions
Summary of Transactions
LO 2: Explain how accounts, debits, and credits are used to record business transactions.
Debits and Credits
Debit and Credit Procedures
Stockholders’ Equity Relationships
Summary of Debit/Credit Rules
LO 3: Indicate how a journal is used in the recording process.
The Recording Process
The Journal
LO 4: Explain how a ledger and posting help in the recording process.
The Ledger
Chart of Accounts
Posting
The Recording Process Illustrated
Summary Illustration of Journalizing and Posting
LO 5: Prepare a trial balance.
Limitations of a Trial Balance
A Look at IFRS
4 Accrual Accounting Concepts
Keeping Track of Groupons
LO 1: Explain the accrual basis of accounting and the reasons for adjusting entries.
The Revenue Recognition Principle
The Expense Recognition Principle
Accrual versus Cash Basis of Accounting
The Need for Adjusting Entries
Types of Adjusting Entries
LO 2: Prepare adjusting entries for deferrals.
Prepaid Expenses
Unearned Revenues
LO 3: Prepare adjusting entries for accruals.
Accrued Revenues
Accrued Expenses
Summary of Basic Relationships
LO 4: Prepare an adjusted trial balance and closing entries.
Preparing the Adjusted Trial Balance
Preparing Financial Statements
Quality of Earnings
Closing the Books
Summary of the Accounting Cycle
LO *5: APPENDIX 4A: Describe the purpose and the basic form of a worksheet.
A Look at IFRS
5 Merchandising Operations and the Multiple-Step Income Statement
Buy Now, Vote Later
LO 1: Describe merchandising operations and inventory systems.
Operating Cycles
Flow of Costs
LO 2: Record purchases under a perpetual inventory system.
Freight Costs
Purchase Returns and Allowances
Purchase Discounts
Summary of Purchasing Transactions
LO 3: Record sales under a perpetual inventory system.
Sales Returns and Allowances
Sales Discounts
LO 4: Prepare a multiple-step income statement and a comprehensive income statement.
Single-Step Income Statement
Multiple-Step Income Statement
Comprehensive Income Statement
LO 5: Determine cost of goods sold under a periodic inventory system.
LO 6: Compute and analyze gross profit rate and profit margin.
Gross Profit Rate
Profit Margin
LO *7: APPENDIX 5A: Record purchases and sales of inventory under a periodic inventory system.
Recording Merchandise Transactions
Recording Purchases of Merchandise
Freight Costs
Recording Sales of Merchandise
Comparison of Entries—Perpetual vs. Periodic
A Look at IFRS
6 “Where Is That Spare Bulldozer Blade?”
LO 1: Discuss how to classify and determine inventory.
Classifying Inventory
Determining Inventory Quantities
LO 2: Apply inventory cost flow methods and discuss their financial effects.
Specific Identification
Cost Flow Assumptions
Financial Statement and Tax Effects of Cost Flow Methods
Using Inventory Cost Flow Methods Consistently
LO 3: Explain the statement presentation and analysis of inventory.
Presentation
Lower-of-Cost-or-Market
Analysis
Adjustments for LIFO Reserve
LO *4: APPENDIX 6A: Apply inventory cost flow methods to perpetual inventory records.
First-In, First-Out (FIFO)
Last-In, First-Out (LIFO)
Average-Cost
LO *5: APPENDIX 6B: Indicate the effects of inventory errors on the financial statements.
Income Statement Effects
Balance Sheet Effects
A Look at IFRS
7 Fraud, Internal Control, and Cash
Minding the Money in Madison
LO 1: Define fraud and the principles of internal control.
Fraud
The Sarbanes-Oxley Act
Internal Control
Principles of Internal Control Activities
Limitations of Internal Control
LO 2: Apply internal control principles to cash.
Cash Receipts Controls
Cash Disbursements Controls
LO 3: Identify the control features of a bank account.
Electronic Funds Transfer (EFT) System
Bank Statements
Reconciling the Bank Account
LO 4: Explain the reporting of cash and the basic principles of cash management.
Reporting Cash
Managing and Monitoring Cash
Cash Budgeting
LO *5: APPENDIX 7A: Explain the operation of a petty cash fund.
Establishing the Petty Cash Fund
Making Payments from Petty Cash
Replenishing the Petty Cash Fund
A Look at IFRS
8 Reporting and Analyzing Receivables
What’s Cooking?
LO 1: Explain how companies recognize accounts receivable.
Types of Receivables
Recognizing Accounts Receivable
LO 2: Describe how companies value accounts receivable and record their disposition.
Valuing Accounts Receivable
Disposing of Accounts Receivable
LO 3: Explain how companies recognize, value, and dispose of notes receivable.
Determining the Maturity Date
Computing Interest
Recognizing Notes Receivable
Valuing Notes Receivable
Disposing of Notes Receivable
LO 4: Describe the statement presentation of receivables and the principles of receivables management.
Financial Statement Presentation of Receivables
Managing Receivables
Evaluating Liquidity of Receivables
Accelerating Cash Receipts
A Look at IFRS
9 Reporting and Analyzing Long-Lived Assets
A Tale of Two Airlines
LO 1: Explain the accounting for plant asset expenditures.
Determining the Cost of Plant Assets
Expenditures During Useful Life
To Buy or Lease?
LO 2: Apply depreciation methods to plant assets.
Factors in Computing Depreciation
Depreciation Methods
Revising Periodic Depreciation
Impairments
LO 3: Explain how to account for the disposal of plant assets.
Sale of Plant Assets
Retirement of Plant Assets
LO 4: Identity the basic issues related to reporting intangible assets.
Accounting for Intangible Assets
Types of Intangible Assets
LO 5: Discuss how long-lived assets are reported and analyzed.
Presentation
Analysis
LO *6: APPENDIX 9A: Compute periodic depreciation using the declining-balance method and the units-of-activity method.
Declining-Balance Method
Units-of-Activity Method
A Look at IFRS
10 Reporting and Analyzing Liabilities
And Then There Were Two
LO 1: Explain how to account for current liabilities.
What Is a Current Liability?
Notes Payable
Sales Taxes Payable
Unearned Revenues
Current Maturities of Long-Term Debt
Payroll and Payroll Taxes Payable
LO 2: Describe the major characteristics of bonds.
Types of Bonds
Issuing Procedures
Determining the Market Price of Bonds
LO 3: Explain how to account 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
LO 4: Discuss how liabilities are reported and analyzed.
Presentation
Analysis
LO *5: APPENDIX 10A: Apply the straight-line method of amortizing bond discount and bond premium.
Amortizing Bond Discount
Amortizing Bond Premium
LO *6: APPENDIX 10B: Apply the effective-interest method of amortizing bond discount and bond premium.
Amortizing Bond Discount
Amortizing Bond Premium
LO *7: APPENDIX 10C: Describe the accounting for long-term notes payable.
A Look at IFRS
11 Reporting and Analyzing Stockholders’ Equity
Oh Well, I Guess I’ll Get Rich
LO 1: Discuss the major characteristics of a corporation.
Characteristics of a Corporation
Forming a Corporation
Stockholder Rights
Stock Issue Considerations
Corporate Capital
LO 2: Explain how to account for the issuance of common and preferred stock, and the purchase of treasury stock.
Accounting for Common Stock
Accounting for Preferred Stock
Treasury Stock
LO 3: Explain how to account for cash dividends and describe the effect of stock dividends and stock splits.
Cash Dividends
Dividend Preferences
Stock Dividends
Stock Splits
LO 4: Discuss how stockholders’ equity is reported and analyzed.
Retained Earnings
Retained Earnings Restrictions
Balance Sheet Presentation of Stockholders’ Equity
Analysis of Stockholders’ Equity
Debt versus Equity Decision
LO *5: APPENDIX 11A: Prepare entries for stock dividends.
A Look at IFRS
12 Statement of Cash Flows
Got Cash?
LO 1: Discuss the 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
LO 2: Prepare a statement of cash flows using the 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
LO 3: Use the statement of cash flows to evaluate a company.
The Corporate Life Cycle
Free Cash Flow
LO *4: APPENDIX 12A: Prepare a statement of cash flows using the direct method.
Step 1: Operating Activities
Step 2: Investing and Financing Activities
Step 3: Net Change in Cash
LO *5: APPENDIX 12B: Use the T-account approach to prepare a statement of cash flows.
A Look at IFRS
13 Financial Analysis: The Big Picture
It Pays to Be Patient
LO 1: Apply the concept of sustainable income and quality of earnings.
Sustainable Income
Quality of Earnings
LO 2: Apply horizontal analysis and vertical analysis.
Horizontal Analysis
Vertical Analysis
LO 3: Analyze a company’s performance using ratio analysis.
Price-Earnings Ratio
Liquidity Ratios
Solvency Ratios
Profitability Ratios
LO *4: APPENDIX 13A: Evaluate a company comprehensively using ratio analysis.
Liquidity Ratios
Solvency Ratios
Profitability Ratios
A Look at IFRS
14 Managerial Accounting
Just Add Water . . . and Paddle
LO 1: Identify the features of managerial accounting and the functions of management.
Comparing Managerial and Financial Accounting
Management Functions
Organizational Structure
LO 2: Describe the classes of manufacturing costs and the differences between product and period costs.
Manufacturing Costs
Product Versus Period Costs
Illustration of Cost Concepts
LO 3: Demonstrate how to compute cost of goods manufactured and prepare financial statements for a manufacturer.
Income Statement
Cost of Goods Manufactured
Cost of Goods Manufactured Schedule
Balance Sheet
LO 4: Discuss trends in managerial accounting.
Service Industries
Focus on the Value Chain
Balanced Scorecard
Business Ethics
Corporate Social Responsibility
15 Job Order Costing
Profiting from the Silver Screen
LO 1: Describe cost systems and the flow of costs in a job order system.
Process Cost System
Job Order Cost System
Job Order Cost Flow
Accumulating Manufacturing Costs
LO 2: Use a job cost sheet to assign costs to work in process.
Raw Materials Costs
Factory Labor Costs
LO 3: Demonstrate how to determine and use the predetermined overhead rate.
LO 4: Prepare entries for manufacturing and service 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
LO 5: Distinguish between under- and overapplied manufacturing overhead.
Under- or Overapplied Manufacturing Overhead
16 Process Costing
The Little Guy Who Could
LO 1: Discuss the uses of a process cost system and how it compares to a job order system.
Uses of Process Cost Systems
Process Costing for Service Companies
Similarities and Differences Between Job Order Cost and Process Cost Systems
LO 2: Explain the flow of costs in a process cost system and the journal entries to assign manufacturing costs.
Process Cost Flow
Assigning Manufacturing Costs—Journal Entries
LO 3: Compute equivalent units.
Weighted-Average Method
Refinements on the Weighted-Average Method
LO 4: Complete the four steps to prepare a 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
LO *5: APPENDIX 16A: Compute equivalent units using the FIFO method.
Equivalent Units Under FIFO
Comprehensive Example
FIFO and Weighted-Average
17 Activity-Based Costing
Precor Is on Your Side
LO 1: Discuss the difference between traditional costing and activity-based costing.
Traditional Costing Systems
Illustration of a Traditional Costing System
The Need for a New Approach
Activity-Based Costing
LO 2: Apply activity-based costing to a manufacturer.
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
LO 3: Explain the benefits and limitations of activity-based costing.
The Advantage of Multiple Cost Pools
The Advantage of Enhanced Cost Control
The Advantage of Better Management Decisions
Some Limitations and Knowing When to Use ABC
LO 4: Apply activity-based costing to service industries.
Traditional Costing Example
Activity-Based Costing Example
LO *5: APPENDIX 17A: Explain just-in-time (JIT) processing.
Objective of JIT Processing
Elements of JIT Processing
Benefits of JIT Processing
18 Cost-Volume-Profit
Don’t Worry—Just Get Big
LO 1: Explain variable, fixed, and mixed costs and the relevant range.
Variable Costs
Fixed Costs
Relevant Range
Mixed Costs
LO 2: Apply the high-low method to determine the components of mixed costs.
High-Low Method
Importance of Identifying Variable and Fixed Costs
LO 3: Prepare a CVP income statement to determine contribution margin.
Basic Components
CVP Income Statement
LO 4: Compute the break-even point using three approaches.
Mathematical Equation
Contribution Margin Technique
Graphic Presentation
LO 5: Determine the sales required to earn target net income and determine margin of safety.
Target Net Income
Margin of Safety
19 Cost-Volume-Profit Analysis: Additional Issues
Not Even a Flood Could Stop It
LO 1: Apply basic CVP concepts.
Basic Concepts
Basic Computations
CVP and Changes in the Business Environment
LO 2: Explain the term sales mix and its effects on break-even sales.
Break-Even Sales in Units
Break-Even Sales in Dollars
LO 3: Determine sales mix when a company has limited resources.
LO 4: Indicate how operating leverage affects profitability.
Effect on Contribution Margin Ratio
Effect on Break-Even Point
Effect on Margin of Safety Ratio
Operating Leverage
LO *5: APPENDIX 19A: Explain the differences between absorption costing and variable costing.
Example: Comparing Absorption Costing with Variable Costing
Net Income Effects
Decision-Making Concerns
Potential Advantages of Variable Costing
20 Incremental Analysis
Keeping It Clean
LO 1: Describe management’s decision-making process and incremental analysis.
Incremental Analysis Approach
How Incremental Analysis Works
Qualitative Factors
Untitled
Untitled
Relationship of Incremental Analysis and Activity-Based Costing
Types of Incremental Analysis
LO 2: Analyze the relevant costs in accepting an order at a special price.
LO 3: Analyze the relevant costs in a make-or-buy decision.
Opportunity Cost
LO 4: Analyze the relevant costs in determining whether to sell or process materials further.
Single-Product Case
Multiple-Product Case
LO 5: Analyze the relevant costs to be considered in repairing, retaining, or replacing equipment.
LO 6: Analyze the relevant costs in deciding whether to eliminate an unprofitable segment or product.
21 Budgetary Planning
What’s in Your Cupcake?
LO 1: State the essentials of effective budgeting and the components of the master budget.
Budgeting and Accounting
The Benefits of Budgeting
Essentials of Effective Budgeting
The Master Budget
LO 2: Prepare budgets for sales, production, and direct materials.
Sales Budget
Production Budget
Direct Materials Budget
LO 3: Prepare budgets for direct labor, manufacturing overhead, and selling and administrative expenses, and a budgeted income statement.
Direct Labor Budget
Manufacturing Overhead Budget
Selling and Administrative Expense Budget
Budgeted Income Statement
LO 4: Prepare a cash budget and a budgeted balance sheet.
Cash Budget
Budgeted Balance Sheet
LO 5: Apply budgeting principles to nonmanufacturing companies.
Merchandisers
Service Companies
Not-for-Profit Organizations
22 Budgetary Control and Responsibility Accounting
Pumpkin Madeleines and a Movie
LO 1: Describe budgetary control and static budget reports.
Budgetary Control
Static Budget Reports
LO 2: Prepare flexible budget reports.
Why Flexible Budgets?
Developing the Flexible Budget
Flexible Budget—A Case Study
Flexible Budget Reports
LO 3: Apply responsibility accounting to cost and profit centers.
Controllable Versus Noncontrollable Revenues and Costs
Principles of Performance Evaluation
Responsibility Reporting System
Types of Responsibility Centers
LO 4: Evaluate performance in investment centers.
Return on Investment (ROI)
Responsibility Report
Judgmental Factors in ROI
Improving ROI
LO *5: APPENDIX 22A: Explain the difference between ROI and residual income.
Residual Income Compared to ROI
Residual Income Weakness
23 Standard Costs and Balanced Scorecard
80,000 Different Caffeinated Combinations
LO 1: Describe standard costs.
Distinguishing Between Standards and Budgets
Setting Standard Costs
LO 2: Determine direct materials variances.
Analyzing and Reporting Variances
Direct Materials Variances
LO 3: Determine direct labor and total manufacturing overhead variances.
Direct Labor Variances
Manufacturing Overhead Variances
LO 4: Prepare variance reports and balanced scorecards.
Reporting Variances
Income Statement Presentation of Variances
Balanced Scorecard
LO *5: APPENDIX 23A: Identify the features of a standard cost accounting system.
Journal Entries
Ledger Accounts
LO *6: APPENDIX 23B: Compute overhead controllable and volume variances.
Overhead Controllable Variance
Overhead Volume Variance
24 Planning for Capital Investments
Floating Hotels
LO 1: Describe capital budgeting inputs and apply the cash payback technique.
Cash Flow Information
Illustrative Data
Cash Payback
LO 2: Use the net present value method.
Equal Annual Cash Flows
Unequal Annual Cash Flows
Choosing a Discount Rate
Simplifying Assumptions
Comprehensive Example
LO 3: Identify capital budgeting challenges and refinements.
Intangible Benefits
Profitability Index for Mutually Exclusive Projects
Risk Analysis
Post-Audit of Investment Projects
LO 4: Use the internal rate of return method.
Comparing Discounted Cash Flow Methods
LO 5: Use the annual rate of return method.
A Specimen Financial Statements: Apple Inc.
B Specimen Financial Statements: Columbia Sportswear Company
C Specimen Financial Statements: VF Corporation
D Specimen Financial Statements: Amazon.com, Inc.
E Specimen Financial Statements:Wal-Mart Stores, Inc.
F Specimen Financial Statements: Louis Vuitton
G Time Value of Money
LO 1: Compute interest and future values
Nature of Interest
Future Value of a Single Amount
Future Value of an Annuity
LO 2: Compute 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
LO 3: Use a financial calculator to solve time value of money problems.
Present Value of a Single Sum
Present Value of an Annuity
Useful Applications of the Financial Calculator
H Reporting and Analyzing Investments
LO 1: Explain how to account for debt investments
Why Corporations Invest
Accounting for Debt Investments
LO 2: Explain how to account for stock investments.
Holdings of Less than 20%
Holdings Between 20% and 50%
Holdings of More than 50%
LO 3: Discuss how debt and stock investments are reported in the financial statements
Categories of Securities
Balance Sheet Presentation
Presentation of Realized and Unrealized Gain or Loss
Statement of Cash Flows Presentation
*I Payroll Accounting
LO 1: Record the payroll for a pay period.
Determining the Payroll
Recording the Payroll
LO 2: Record employer payroll taxes.
FICA Taxes
Federal Unemployment Taxes
State Unemployment Taxes
Recording Employer Payroll Taxes
Filing and Remitting Payroll Taxes
LO 3: Discuss the objectives of internal control for payrol
*J Subsidiary Ledgers and Special Journals
LO 1: Describe the nature and purpose of asubsidiary ledger
Subsidiary Ledger Example
Advantages of Subsidiary Ledgers
LO 2: Record transactions in special journals.
Sales Journal
Cash Receipts Journal
Purchases Journal
Cash Payments Journal
Effects of Special Journals on the General Journal
Cyber Security: A Final Comment
K Accounting for Partnerships
LO 1: Discuss and account for the formation of a partnerships
Characteristics of Partnerships
Organizations with Partnerships
Advantages and Disadvantages of Partnerships
The Partnership Agreement
Accounting for a Partnership Formation
LO 2: Explain how to account for net income or net loss of a partnership
Dividing Net Income or Net Loss
Partnership Financial Statements
LO 3: Explain how to account for the liquidation of a partnerships
No Capital Deficiency
Capital Deficiency
LO 4: Prepare Journal entries when a partner is either admitted or withdraws
Admission of a Partner
Withdrawal of a Partner
*L Accounting for Sole Proprietorships
LO 1: Identify the differences in equity accounts between a corporation and a sole proprietorship.
LO 2: Understand what accounts increase and decrease owner’s equity.
Owner’s Equity in a Sole Proprietorship
Recording Transactions of a Proprietorship
LO 3: Describe the differences between a retained earnings statement and an owner’s equity statement.
LO 4: Explain the process of closing the books for a sole proprietorship
Preparing a Post-Closing Trail Balance for a Proprietorship
M Pricing
LO 1: Compute a target cost when the market determines a product price.
Target Costing
LO 2: Compute a target selling price using cost-plus pricing.
Cost-Plus Pricing
Variable-Cost Pricing
LO 3: Use time-and-material pricing to determine the cost of services provided.
LO 4: Determine a transfer price using the negotiated, cost-based, and market-based approaches
Negotiated Transfer Prices
Cost-Based Transfer Prices
Market-Based Transfer Prices
Effect of Outsourcing on Transfer Pricing
Transfers Between Divisions in Different Countries
LO 5: Determine prices using absorption-cost pricing and variable-cost pricing.
Absorption-Cost Pricing
Variable-Cost Pricing
Company Index
Subject Index
EULA