Financial Accounting

Cover
Title Page
Copyright Page
About the Authors
Brief Contents
Contents
Preface
Acknowledgments
Chapter 1: The Financial Statements
Spotlight: The Walt Disney Company
Explain Why Accounting Is Critical to Businesses
Describe the Decision Makers Who Use Accounting
Describe the Two Types of Accounting and Who Uses Each Type
Explain How Businesses Are Organized
Explain and Apply Underlying Accounting Concepts, Assumptions, and Principles
The Entity Assumption
The Continuity (Going-Concern) Assumption
The Historical Cost Principle
The Stable-Monetary-Unit Assumption
Apply the Accounting Equation to Business Organizations
Assets and Liabilities
Equity
Construct Financial Statements and Analyze the Relationships Among Them
The Income Statement
The Statement of Retained Earnings
The Balance Sheet
The Statement of Cash Flows
Evaluate Business Decisions Ethically
American Institute of Certified Public Accountants Code of Professional Conduct
End-of-Chapter: Summary Problem
Chapter 2: Transaction Analysis
Spotlight: The Walt Disney Company Records Millions of Transactions a Year!
Recognize a Business Transaction and the Various Types of Accounts in Which It Can Be Recorded
Assets
Liabilities
Stockholders’ Equity
Analyze the Impact of Business Transactions on the Accounting Equation
Example: Alladin Travel, Inc.
Transactions and Financial Statements
Mid-Chapter: Summary Problem
Analyze the Impact of Business Transactions on Accounts
The T-Account
Increases and Decreases in the Accounts: The Rules of Debit and Credit
Additional Stockholders’ Equity Accounts: Revenues and Expenses
Journalize Transactions and Post Journal Entries to the Ledger
Posting from the Journal to the Ledger
The Flow of Accounting Data
Accounts After Posting to the Ledger
Construct a Trial Balance
Analyzing Accounts
Correcting Accounting Errors
Chart of Accounts
The Normal Balance of an Account
End-of-Chapter: Summary Problem
Chapter 3: Accrual Accounting and Income
Spotlight: September Is Busy at Walt Disney World Headquarters
Explain How Accrual Accounting Differs from Cash-Basis Accounting
Accrual Accounting and Cash Flows
The Time-Period Concept
Apply the Revenue and Expense Recognition Principles
The Revenue Principle
The Expense Recognition Principle
Adjust the Accounts
Which Accounts Need to Be Updated (Adjusted)?
Categories of Adjusting Entries
Prepaid Expenses
Depreciation of Plant Assets
Accrued Expenses
Accrued Revenues
Unearned Revenues
Summary of the Adjusting Process
The Adjusted Trial Balance
Construct the Financial Statements
Mid-Chapter: Summary Problem
Close the Books
Classifying Assets and Liabilities
Reporting Assets and Liabilities: The Walt Disney Company
Formats for the Financial Statements
Analyze and Evaluate a Company’s Debt-Paying Ability
Net Working Capital
Current Ratio
Debt Ratio
How Do Transactions Affect the Ratios?
End-of-Chapter: Summary Problem
Chapter 4: Internal Control and Cash
Spotlight: Cooking the Books at Green Valley Coffee Company: $10 Million Is a Lot of Beans!
Describe Fraud and Its Impact
Fraud and Ethics
Explain the Objectives and Components of Internal Control
The Components of Internal Control
Internal Control Procedures
Information Technology
Safeguard Controls
Internal Controls for E-Commerce
Security Measures
Evaluate Internal Controls over Cash Receipts and Cash Payments
Cash Receipts over the Counter
Cash Receipts by Mail
Controls over Payments Made by Check or EFT
The Limitations of Internal Control—Costs and Benefits
Mid-Chapter: Summary Problem
Prepare a Bank Reconciliation
Signature Card
Deposit Ticket
Check
Bank Statement
Bank Reconciliation
Preparing the Bank Reconciliation
Online Banking
Report Cash on the Balance Sheet
End-of-Chapter: Summary Problem
Chapter 5: Receivables and Revenue
Spotlight: Apple’s Accounts Receivable Are Small Compared to the Company’s Net Sales Revenue and Are Mostly Collectible
Apply Generally Accepted Accounting Principles (GAAP) for Proper Revenue Recognition
Shipping Terms
Collection
Speeding up the Cash Flow from Sales
Account for Sales Returns and Allowances
Account for Sales Discounts
Disclosure of Net Revenues on the Income Statement
Account for Accounts Receivable
Types of Receivables
Managing and Accounting for Receivables
Evaluate Collectibility Using the Allowance for Uncollectible Accounts
Allowance Method
Direct Write-Off Method
Computing Cash Collections from Customers
Account for Notes Receivable and Interest Revenue
Accounting for Notes Receivable
Evaluate Liquidity Using Three New Ratios
Quick (Acid-Test) Ratio
Accounts Receivable Turnover and Days’ Sales Outstanding
End-of-Chapter: Summary Problem
Chapter 6: Inventory and Cost of Goods Sold
Spotlight: Under Armour, Inc.’s Performance Slips
Show How to Account for Inventory
Sale Price versus Cost of Inventory
Periodic versus Perpetual Inventory Systems
Apply and Compare Various Inventory Cost Methods
Apply the Various Inventory Costing Methods
Compare the Effects of FIFO, LIFO, and Average-Cost Methods on Gross Profit and Ending Inventory
The Tax Advantage of LIFO
Mid-Chapter: Summary Problem
Explain and Apply Underlying U.S. GAAP for Inventory
Disclosure Principle
Lower-of-Cost-or-Market Rule
Compute and Evaluate Gross Profit (Margin) Percentage, Inventory Turnover, and Days’ Inventory Outstanding (DIO)
Gross Profit Percentage
Inventory Turnover and Days Inventory Outstanding (DIO)
Use the Cost-of-Goods-Sold (COGS) Model to Make Management Decisions
Computing Budgeted Purchases
Estimating Inventory Using the Gross Profit Method
Analyze Effects of Inventory Errors
End-of-Chapter: Summary Problem
Chapter 7: Plant Assets, Natural Resources, and Intangibles
Spotlight: FedEx Corporation
Explain How to Account for the Cost of Plant Assets
Land
Buildings, Machinery, and Equipment
Land Improvements and Leasehold Improvements
Lump-Sum (or Basket) Purchases of Assets
Distinguish a Capital Expenditure from an Immediate Expense
Explain How to Account for Depreciation on Plant Assets
How to Measure Depreciation
Depreciation Methods
Comparing Depreciation Methods
Mid-Chapter: Summary Problem
Other Issues in Accounting for Plant Assets
Depreciation for Tax Purposes
Depreciation for Partial Years
Changing the Useful Life of a Depreciable Asset
Fully Depreciated Assets
Analyze the Effect of a Plant Asset Disposal
Disposing of a Fully Depreciated Asset for No Proceeds
Selling a Plant Asset
Exchanging a Plant Asset
T-Accounts for Analyzing Plant Asset Transactions
Apply GAAP for Natural Resources and Intangible Assets
Accounting for Natural Resources
Accounting for Intangible Assets
Accounting for Specific Intangibles
Accounting for Research and Development Costs
Explain the Effect of an Asset Impairment on the Financial Statements
Analyze Rate of Return on Assets
DuPont Analysis: A More Detailed View of ROA
Analyze the Cash Flow Impact of Long-Lived Asset Transactions
End-of-Chapter: Summary Problem
Chapter 8: Current and Contingent Liabilities
Spotlight: Amazon.com Moves a Lot of Merchandise and Incurs Many Liabilities
Distinguish Between Current and Long-Term Liabilities
Account for Accounts Payable and Analyze Accounts Payable Turnover
Account for Notes Payable and Accrued Interest
Account for Accrued Liabilities and Unearned Revenue
Account for Contingent Liabilities
End-of-Chapter: Summary Problem
Chapter 9: Long-Term Liabilities
Spotlight: Southwest Airlines Is Flying High
Account for Bonds Payable and Interest Expense with Straight-Line Amortization
Issuing Bonds Payable at Par (Face Value)
Issuing Bonds Payable at a Discount
Issuing Bonds Payable at a Premium
Account for Bonds Payable and Interest Expense with Effective-Interest Amortization
Issuing Bonds Payable at a Discount
Interest Expense on Bonds Issued at a Discount
Issuing Bonds Payable at a Premium
Account for Other Features of Bonds Payable
Accounting for Partial-Period Interest Amounts
Retiring Bonds Payable Before Their Maturity
Accounting for Convertible Bonds and Notes
Describe Other Long-Term Liabilities
Deferred Income Taxes
Commitments
Leases
Analyze the Impact of Leverage on the Financial Statements
The Leverage Ratio
The Times-Interest-Earned Ratio
Report Long-Term Liabilities on the Financial Statements
Reporting on the Balance Sheet
Disclosing the Fair Value of Long-Term Debt
Reporting Financing Activities on the Statement of Cash Flows
End-of-Chapter: Summary Problem
Chapter 10: Stockholders’ Equity
Spotlight: The Home Depot: Building Toward Success
Explain the Features of a Corporation
Organizing a Corporation
Stockholders’ Rights
Stockholders’ Equity
Classes of Stock
Account for the Issuance of Stock
Common Stock
How an “Other Than Cash” Stock Issuance Can Create an Ethical Challenge
Preferred Stock
Mid-Chapter: Summary Problem
Authorized, Issued, and Outstanding Stock
Explain How Treasury Stock Affects a Company
How Is Treasury Stock Recorded?
Retirement of Treasury Stock
Resale of Treasury Stock
Issuing Stock for Employee Compensation
Summary of Treasury-Stock Transactions
Account for Retained Earnings, Dividends, and Stock Splits
Should the Company Declare and Pay Cash Dividends?
Cash Dividends
Analyzing the Stockholders’ Equity Accounts
Dividends on Preferred Stock
Stock Dividends
Stock Splits
Summary of the Effects on Assets, Liabilities, and Stockholders’ Equity
Evaluate a Company’s Performance Using New Ratios
ROE: Relating Profitability to Stockholder Investment
Earnings Per Share (EPS)
Effect of Equity Financing on EPS
Market Capitalization and the Price-Earning Ratio
Report Stockholders’ Equity Transactions in the Financial Statements
Statement of Cash Flows
Statement of Stockholders’ Equity
A Detailed Stockholders’ Equity Section of the Balance Sheet
End-of-Chapter: Summary Problems
Chapter 11: The Statement of Cash Flows
Spotlight: Google: The Ultimate Answer (and Cash) Machine
Identify the Purposes of the Statement of Cash Flows
How’s Your Cash Flow? Telltale Signs of Financial Difficulty
Distinguish Among Operating, Investing, and Financing Activities
Two Formats for Operating Activities
Prepare a Statement of Cash Flows by the Indirect Method
Cash Flows from Operating Activities
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Noncash Investing and Financing Activities
Mid-Chapter: Summary Problem
Prepare a Statement of Cash Flows Using the Direct Method
Cash Flows from Operating Activities
Depreciation, Depletion, and Amortization Expense
Cash Flows from Investing Activities
Cash Flows from Financing Activities
Noncash Investing and Financing Activities
Computing Operating Cash Flows Using the Direct Method
Computing Investing and Financing Cash Flows
Measuring Cash Adequacy: Free Cash Flow
End-of-Chapter: Summary Problems
Chapter 12: Financial Statement Analysis
Spotlight: Evaluating Under Armour, Inc., and Apple Inc., Using Different Financial Analysis Tools
Perform an Industry and Company Analysis
Perform a Horizontal Analysis
Trend Percentages
Perform a Vertical Analysis
Prepare Common-Size Financial Statements
Benchmarking
Benchmarking Against a Key Competitor
Mid-Chapter: Summary Problem
Use Ratios to Make Business Decisions
Remember to Start at the Beginning: Company and Industry Information
Now Let’s Do the Numbers
Measuring Ability to Pay Current Liabilities
Measuring Turnover and the Cash Conversion Cycle
Measuring Leverage: The Overall Ability to Pay Debts
Measuring Profitability
Analyzing Stock as an Investment
The Limitations of Ratio Analysis
Evaluate the Quality of Earnings
An Audit Adds Credibility to Financial Statements
Red Flags in Financial Statement Analysis
Efficient Markets
End-of-Chapter: Summary Problems
Appendix A: Apple Inc. Annual Report 2016
Appendix B: Typical Charts of Accounts for Different Types of Businesses
Appendix C: Summary of U.S. Generally Accepted Accounting Principles (GAAP)
Appendix D: Summary of Differences Between U.S. GAAP and IFRS Cross Referenced to Chapter
Appendix E: Investments
Explain Why Companies Invest in Other Companies
Investments in Equity Securities
Account for Investments in Equity Securities When the Investor Has Insignificant Influence
Recording the Purchase of Equity Securities
Recording Cash Dividends
Adjusting Equity Investments to Their Fair Value
Recording the Sale of an Equity Investment
Account for Investments in Equity Securities When the Investor Has Significant Influence
Purchase of Equity-Method Investments
Account for Investments in Equity Securities When the Investor Has Controlling Influence
Consolidation Accounting
Account for Investments in Debt Securities
Appendix F: Time Value of Money
Explain the Impact the Time Value of Money Has on Certain Types of Investments
Present Value
Present-Value Tables
Present Value of an Ordinary Annuity
Using Microsoft Excel to Calculate Present Value
Using the PV Model to Compute Fair Value of Available-for- Sale Investments
Present Value of an Investment in Bonds
Company Index
GlIndex
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