Financial & Managerial Accounting

Cover......Page 1
Preface......Page 5
Acknowledgements......Page 22
Contents......Page 27
Chapter 1: Introduction to Accounting and Business......Page 36
Types of Businesses......Page 38
Role of Accounting in Business......Page 39
Role of Ethics in Accounting and Business......Page 40
Opportunities for Accountants......Page 41
Assumptions......Page 43
The Accounting Equation......Page 45
Business Transactions and the Accounting Equation......Page 46
Summary......Page 50
Classifications of Stockholders' Equity......Page 51
Financial Statements......Page 52
Balance Sheet......Page 54
Statement of Cash Flows......Page 55
Interrelationships Among Financial Statements......Page 56
Analysis for Decision Making......Page 58
Make a Decision......Page 59
Analysis for Decision Making......Page 84
Take It Further......Page 85
Chapter 2: Analyzing Transactions......Page 86
Using Accounts to Record Transactions......Page 88
Chart of Accounts......Page 89
Income Statement Accounts......Page 91
Balance Sheet Accounts......Page 92
Journalizing......Page 93
Posting Journal Entries to Accounts......Page 97
Trial Balance......Page 106
Errors Affecting the Trial Balance......Page 107
Errors Not Affecting the Trial Balance......Page 108
Analysis for Decision Making......Page 109
Make a Decision......Page 111
Analysis for Decision Making......Page 134
Take It Further......Page 137
Chapter 3: The Adjusting Process......Page 139
Accrual and Cash Basis of Accounting......Page 141
The Adjusting Process......Page 142
Types of Accounts Requiring Adjustment......Page 143
Accrued Revenues......Page 144
Accrued Expenses......Page 145
Unearned Revenues......Page 148
Prepaid Expenses......Page 149
Adjusting Entries for Depreciation......Page 152
Summary of Adjusting Process......Page 154
Adjusted Trial Balance......Page 158
Analysis for Decision Making......Page 159
Make a Decision......Page 161
Analysis for Decision Making......Page 184
Take It Further......Page 186
Chapter 4: Completing the Accounting Cycle......Page 189
Flow of Accounting Information......Page 191
Retained Earnings Statement......Page 193
Balance Sheet......Page 195
Closing Entries......Page 198
Journalizing and Posting Closing Entries......Page 200
Post-Closing Trial Balance......Page 204
Illustration of the Accounting Cycle......Page 205
Step 1. Analyzing and Recording Transactions in the Journal......Page 207
Step 4. Assembling and Analyzing Adjustment Data......Page 209
Step 5. Preparing an Optional End-of-Period Spreadsheet......Page 210
Step 8. Preparing the Financial Statements......Page 211
Step 9. Journalizing and Posting Closing Entries......Page 213
Step 10. Preparing a Post-Closing Trial Balance......Page 214
Fiscal Year......Page 216
Analysis for Decision Making......Page 218
Make a Decision......Page 219
Step 2. Enter the Unadjusted Trial Balance......Page 220
Step 3. Enter the Adjustments......Page 221
Step 4. Enter the Adjusted Trial Balance......Page 222
Step 5. Extend the Accounts to the Income Statement and Balance Sheet Columns......Page 223
Step 6. Total the Income Statement and Balance Sheet Columns, Compute the Net Income or Net Loss, and Complete the Spreadsheet......Page 224
Appendix 2 Reversing Entries......Page 225
Comprehensive Problem 1......Page 256
Analysis for Decision Making......Page 257
Take It Further......Page 258
Chapter 5: Accounting for Merchandising Businesses......Page 260
Operating Cycle......Page 262
Financial Statements......Page 263
Purchases Transactions......Page 264
Sales Transactions......Page 269
Freight......Page 273
Summary: Recording Inventory Transactions......Page 275
Sales Taxes and Trade Discounts......Page 276
Multiple-Step Income Statement......Page 279
Single-Step Income Statement......Page 281
The Adjusting and Closing Process......Page 282
Adjusting Entries for Customer Returns and Allowances......Page 283
Adjusting Entry for Inventory Shrinkage......Page 284
Closing Entries......Page 285
Analysis for Decision Making......Page 286
Make a Decision......Page 287
Recording Merchandise Transactions Under the Periodic Inventory System......Page 288
Closing Entries Under the Periodic Inventory System......Page 290
Comprehensive Problem 2......Page 314
Analysis for Decision Making......Page 316
Take It Further......Page 317
Chapter 6: Inventories......Page 320
Safeguarding Inventory......Page 322
Inventory Cost Flow Assumptions......Page 323
First-In, First-Out Method......Page 325
Last-In, First-Out Method......Page 327
Weighted Average Cost Method......Page 329
First-In, First-Out Method......Page 330
Weighted Average Cost Method......Page 331
Comparing Inventory Costing Methods......Page 333
Valuation at Lower of Cost or Market......Page 334
Inventory on the Balance Sheet......Page 336
Effect of Inventory Errors on the Financial Statements......Page 337
Analysis for Decision Making......Page 340
Make a Decision......Page 342
Gross Profit Method of Inventory Costing......Page 343
Analysis for Decision Making......Page 364
Take It Further......Page 366
Chapter 7: Internal Control and Cash......Page 368
Sarbanes-Oxley Act......Page 370
Elements of Internal Control......Page 372
Control Environment......Page 373
Control Procedures......Page 374
Information and Communication......Page 376
Limitations of Internal Control......Page 377
Control of Cash Receipts......Page 378
Control of Cash Payments......Page 380
Bank Statement......Page 381
Using the Bank Statement as a Control over Cash......Page 383
Bank Reconciliation......Page 384
Special-Purpose Cash Funds......Page 389
Financial Statement Reporting of Cash......Page 390
Analysis for Decision Making......Page 391
Make a Decision......Page 392
Analysis for Decision Making......Page 411
Take It Further......Page 413
Chapter 8: Receivables......Page 414
Notes Receivable......Page 416
Uncollectible Receivables......Page 417
Allowance Method for Uncollectible Accounts......Page 418
Write-Offs to the Allowance Account......Page 419
Estimating Uncollectibles......Page 421
Comparing Direct Write-Off and Allowance Methods......Page 427
Characteristics of Notes Receivable......Page 428
Accounting for Notes Receivable......Page 430
Reporting Receivables on the Balance Sheet......Page 432
Analysis for Decision Making......Page 433
Make a Decision......Page 435
Analysis for Decision Making......Page 455
Take It Further......Page 457
Chapter 9: Long-Term Assets: Fixed and Intangible......Page 458
Classifying Costs......Page 460
The Cost of Fixed Assets......Page 462
Leasing Fixed Assets......Page 463
Factors in Computing Depreciation Expense......Page 464
Straight-Line Method......Page 465
Units-of-Activity Method......Page 467
Double-Declining-Balance Method......Page 469
Comparing Depreciation Methods......Page 470
Partial-Year Depreciation......Page 471
Revising Depreciation Estimates......Page 472
Repair and Improvements......Page 473
Discarding Fixed Assets......Page 475
Selling Fixed Assets......Page 476
Natural Resources......Page 479
Patents......Page 480
Goodwill......Page 481
Analysis for Decision Making......Page 484
Make a Decision......Page 486
Gain on Exchange......Page 487
Loss on Exchange......Page 488
Analysis for Decision Making......Page 506
Take It Further......Page 507
Chapter 10: Liabilities: Current, Installment Notes, Contingencies......Page 510
Accounts Payable and Accruals......Page 512
Short-Term Notes Payable......Page 513
Current Portion of Long-Term Debt......Page 514
Liability for Employee Earnings......Page 515
Deductions from Employee Earnings......Page 516
Employer’s Payroll Taxes......Page 517
Recording Payroll......Page 518
Vacation Pay......Page 520
Pensions......Page 521
Postretirement Benefits Other than Pensions......Page 522
Periodic Payments......Page 523
Probable and Not Estimable......Page 526
Remote......Page 527
Reporting Liabilities......Page 528
Analysis for Decision Making......Page 529
Make a Decision......Page 530
Comprehensive Problem 3......Page 550
Analysis for Decision Making......Page 553
Take It Further......Page 555
Chapter 11: Liabilities: Bonds Payable......Page 556
Proceeds from Issuing Bonds......Page 558
Bonds Issued at a Discount......Page 561
Amortizing a Bond Discount......Page 562
Bonds Issued at a Premium......Page 564
Amortizing a Bond Premium......Page 565
Bond Redemption......Page 566
Reporting Bonds Payable......Page 567
Analysis for Decision Making......Page 568
Make a Decision......Page 569
Present Value Concepts......Page 570
Pricing Bonds......Page 573
Amortization of Discount by the Interest Method......Page 574
Amortization of Premium by the Interest Method......Page 575
Analysis for Decision Making......Page 591
Take It Further......Page 592
Chapter 12: Corporations: Organization, Stock Transactions, and Dividends......Page 594
Characteristics of a Corporation......Page 596
Forming a Corporation......Page 597
Characteristics of Stock......Page 599
Types of Stock......Page 600
Premium on Stock......Page 602
No-Par Stock......Page 603
Cash Dividends......Page 605
Stock Dividends......Page 606
Stock Splits......Page 608
Treasury Stock Transactions......Page 609
Stockholders’ Equity on the Balance Sheet......Page 611
Reporting Retained Earnings......Page 612
Statement of Stockholders’ Equity......Page 613
Reporting Stockholders’ Equity for Mornin’ Joe......Page 614
Analysis for Decision Making......Page 615
Make a Decision......Page 616
Comprehensive Problem 4......Page 634
Analysis for Decision Making......Page 636
Take It Further......Page 637
Chapter 13: Statement of Cash Flows......Page 640
Reporting Cash Flows......Page 642
Cash Flows from Operating Activities......Page 643
Cash Flows from Financing Activities......Page 645
Format of the Statement of Cash Flows......Page 646
Cash Flows from Operating Activities— The Indirect Method......Page 647
Adjustments to Net Income......Page 649
Land......Page 652
Building and Accumulated Depreciation—Building......Page 653
Common Stock......Page 654
Dividends and Dividends Payable......Page 655
Preparing the Statement of Cash Flows......Page 656
Analysis for Decision Making......Page 657
Make a Decision......Page 658
Appendix 1 Spreadsheet (Work Sheet) for Statement of Cash Flows—The Indirect Method......Page 659
Analyzing Accounts......Page 660
Other Accounts......Page 661
Appendix 2 Preparing the Statement of Cash Flows—The Direct Method......Page 662
Cash Payments for Merchandise......Page 663
Interest Expense......Page 664
Reporting Cash Flows from Operating Activities—Direct Method......Page 665
Analysis for Decision Making......Page 694
Take It Further......Page 696
Chapter 14: Financial Statement Analysis......Page 698
The Value of Financial Statement Information......Page 700
Horizontal Analysis......Page 701
Vertical Analysis......Page 703
Common-Sized Statements......Page 705
Analyzing Liquidity......Page 706
Current Position Analysis......Page 707
Accounts Receivable Analysis......Page 708
Inventory Analysis......Page 709
Ratio of Liabilities to Stockholders’ Equity......Page 712
Times Interest Earned......Page 713
Analyzing Profitability......Page 714
Return on Total Assets......Page 715
Return on Stockholders’ Equity......Page 716
Return on Common Stockholders’ Equity......Page 717
Earnings per Share on Common Stock......Page 718
Dividends per Share......Page 719
Dividend Yield......Page 720
Summary of Analytical Measures......Page 721
Report on Internal Control......Page 723
Make a Decision......Page 724
Unusual Items Affecting the Current Period’s Income Statement......Page 725
Appendix 2 Fair Value and Comprehensive Income......Page 726
Comprehensive Income......Page 727
Analysis for Decision Making......Page 757
Take It Further......Page 759
Mornin’ Joe......Page 761
Financial Statements for Mornin’ Joe......Page 762
Financial Statements for Mornin’ Joe International......Page 765
Chapter 15: Introduction to Managerial Accounting......Page 774
Managerial Accounting......Page 776
Differences Between Managerial and Financial Accounting......Page 777
Managerial Accounting in the Organization......Page 778
The Management Process......Page 779
Uses of Managerial Accounting Information......Page 781
Nature of Manufacturing......Page 782
Direct and Indirect Costs......Page 783
Manufacturing Costs......Page 784
Sustainability......Page 788
Eco-Efficiency Measures in Managerial Accounting......Page 789
Balance Sheet......Page 790
Income Statement......Page 791
Analysis for Decision Making......Page 794
Make a Decision......Page 796
Analysis for Decision Making......Page 815
Take It Further......Page 816
Chapter 16: Job Order Costing......Page 818
Process Cost Systems......Page 820
Job Order Cost Systems for Manufacturing Businesses......Page 821
Materials......Page 822
Factory Labor......Page 824
Factory Overhead......Page 826
Work in Process......Page 831
Finished Goods......Page 832
Period Costs......Page 833
Types of Service Businesses......Page 835
Flow of Costs in a Service Job Order Cost System......Page 836
Analysis for Decision Making......Page 837
Make a Decision......Page 838
Analysis for Decision Making......Page 860
Take It Further......Page 862
Chapter 17: Process Cost Systems......Page 864
Accounting for Process Manufacturers......Page 866
Comparing Job Order and Process Cost Systems......Page 867
Cost Flows for a Process Manufacturer......Page 868
Cost of Production Report......Page 871
Step 2: Compute Equivalent Units of Production......Page 872
Step 3: Determine the Cost per Equivalent Unit......Page 876
Step 4: Allocate Costs to Units Transferred Out and Partially Completed Units......Page 877
Preparing the Cost of Production Report......Page 879
Journal Entries for a Process Cost System......Page 882
Using the Cost of Production Report......Page 885
Traditional Production Process......Page 886
Lean Manufacturing......Page 887
Analysis for Decision Making......Page 888
Make a Decision......Page 889
Determining Costs Using the Average Cost Method......Page 890
The Cost of Production Report......Page 892
Analysis for Decision Making......Page 916
Take It Further......Page 917
Chapter 18: Activity-Based Costing......Page 920
Product Costing Allocation Methods......Page 922
Single Plantwide Factory Overhead Rate Method......Page 923
Multiple Production Department Factory Overhead Rate Method......Page 925
Department Overhead Rates and Allocation......Page 926
Distortion of Product Costs......Page 927
Activity-Based Costing Method......Page 930
Activity Rates......Page 932
Allocating Costs......Page 933
Dangers of Product Cost Distortion......Page 935
Activity-Based Costing for Selling and Administrative Expenses......Page 937
Activity-Based Costing in Service Businesses......Page 938
Analysis for Decision Making......Page 942
Make a Decision......Page 943
Analysis for Decision Making......Page 970
Take It Further......Page 971
Chapter 19: Cost-Volume-Profit Analysis......Page 974
Cost Behavior......Page 976
Variable Costs......Page 977
Fixed Costs......Page 978
Mixed Costs......Page 980
Summary of Cost Behavior Concepts......Page 982
Contribution Margin Ratio......Page 984
Unit Contribution Margin......Page 985
Break-Even Point......Page 987
Target Profit......Page 991
Cost-Volume-Profit (Break-Even) Chart......Page 992
Profit-Volume Chart......Page 994
Use of Computers in Cost-Volume-Profit Analysis......Page 995
Assumptions of Cost-Volume-Profit Analysis......Page 996
Sales Mix Considerations......Page 998
Operating Leverage......Page 1000
Margin of Safety......Page 1001
Analysis for Decision Making......Page 1003
Make a Decision......Page 1004
Analysis for Decision Making......Page 1025
Take It Further......Page 1027
Chapter 20: Variable Costing for Management Analysis......Page 1028
Absorption Costing......Page 1030
Variable Costing......Page 1031
Effects of Inventory......Page 1033
Analyzing Income Using Absorption and Variable Costing......Page 1036
Using Absorption and Variable Costing......Page 1040
Planning Production......Page 1041
Analyzing Market Segments......Page 1042
Sales Territory Profitability Analysis......Page 1044
Salesperson Profitability Analysis......Page 1045
Contribution Margin Analysis......Page 1047
Variable Costing for Service Businesses......Page 1050
Analyzing Segments......Page 1051
Analyzing Contribution Margin......Page 1053
Analysis for Decision Making......Page 1054
Make a Decision......Page 1055
Analysis for Decision Making......Page 1081
Take It Further......Page 1083
Chapter 21: Budgeting......Page 1086
Objectives of Budgeting......Page 1088
Human Behavior and Budgeting......Page 1089
Budgeting Systems......Page 1090
Static Budget......Page 1091
Flexible Budget......Page 1092
Computerized Budgeting Systems......Page 1093
Master Budget......Page 1094
Sales Budget......Page 1095
Production Budget......Page 1096
Direct Materials Purchases Budget......Page 1097
Direct Labor Cost Budget......Page 1098
Cost of Goods Sold Budget......Page 1100
Selling and Administrative Expenses Budget......Page 1102
Budgeted Income Statement......Page 1103
Cash Budget......Page 1104
Capital Expenditures Budget......Page 1108
Analysis for Decision Making......Page 1109
Make a Decision......Page 1110
Analysis for Decision Making......Page 1136
Take It Further......Page 1137
Chapter 22: Evaluating Variances from Standard Costs......Page 1140
Setting Standards......Page 1142
Criticisms of Standard Costs......Page 1143
Budget Performance Report......Page 1144
Manufacturing Cost Variances......Page 1145
Direct Materials Variances......Page 1146
Direct Labor Variances......Page 1148
The Factory Overhead Flexible Budget......Page 1152
Variable Factory Overhead Controllable Variance......Page 1153
Fixed Factory Overhead Volume Variance......Page 1154
Reporting Factory Overhead Variances......Page 1156
Factory Overhead Account......Page 1157
Recording and Reporting Variances from Standards......Page 1160
Nonfinancial Performance Measures......Page 1162
Analysis for Decision Making......Page 1164
Make a Decision......Page 1165
Comprehensive Problem 5......Page 1184
Analysis for Decision Making......Page 1186
Take It Further......Page 1188
Chapter 23: Evaluating Decentralized Operations......Page 1190
Advantages of Decentralization......Page 1192
Responsibility Accounting......Page 1193
Responsibility Accounting for Cost Centers......Page 1194
Service Department Charges......Page 1197
Profit Center Reporting......Page 1199
Return on Investment......Page 1201
Residual Income......Page 1205
The Balanced Scorecard......Page 1208
Transfer Pricing......Page 1209
Negotiated Price Approach......Page 1211
Analysis for Decision Making......Page 1214
Make a Decision......Page 1216
Analysis for Decision Making......Page 1238
Take It Further......Page 1240
Chapter 24: Differential Analysis and Product Pricing......Page 1242
Differential Analysis......Page 1244
Lease or Sell......Page 1246
Discontinue a Segment or Product......Page 1247
Make or Buy......Page 1248
Replace Equipment......Page 1249
Process or Sell......Page 1250
Accept Business at a Special Price......Page 1251
Setting Normal Product Selling Prices......Page 1255
Product Cost Method......Page 1256
Illustration......Page 1257
Target Costing Method......Page 1258
Managing Bottlenecks......Page 1260
Pricing Bottleneck Products......Page 1261
Analysis for Decision Making......Page 1262
Make a Decision......Page 1263
Appendix Total and Variable Cost Methods to Setting Normal Price......Page 1264
Total Cost Method......Page 1265
Variable Cost Method......Page 1267
Analysis for Decision Making......Page 1291
Take It Further......Page 1293
Chapter 25: Capital Investment Analysis......Page 1294
Nature of Capital Investment Analysis......Page 1296
Average Rate of Return Method......Page 1297
Cash Payback Method......Page 1298
Methods Using Present Values......Page 1300
Present Value Concepts......Page 1301
Net Present Value Method and Index......Page 1303
Internal Rate of Return Method......Page 1305
Unequal Proposal Lives......Page 1309
Uncertainty......Page 1311
Changes in Price Levels......Page 1312
Capital Rationing......Page 1313
Analysis for Decision Making......Page 1315
Make a Decision......Page 1316
Analysis for Decision Making......Page 1335
Take It Further......Page 1336
Chapter 26: Lean Manufacturing and Activity Analysis......Page 1338
Lean Principles......Page 1340
Reducing Lead Times......Page 1341
Reducing Setup Time......Page 1343
Emphasizing Pull Manufacturing......Page 1345
Emphasizing Supply Chain Management......Page 1346
Combined Accounts......Page 1348
Direct Tracing of Overhead......Page 1350
Costs of Quality......Page 1351
Quality Activity Analysis......Page 1352
Value-Added Activity Analysis......Page 1354
Process Activity Analysis......Page 1355
Make a Decision......Page 1357
Analysis for Decision Making......Page 1375
Take It Further......Page 1376
Appendix A: Interest Tables......Page 1379
Appendix B: Revenue Recognition......Page 1383
Appendix C: International Financial Reporting Standards (IFRS)......Page 1386
Appendix D: Investments......Page 1392
Appendix E: Nike Inc., Form 10-K for the Fiscal Year Ended May 31, 2015......Page 1405
Glossary......Page 1437
Index......Page 1449