Fundamental Accounting Principles (24th Edition)

Table of contents

Table of contents :
Cover
Title Page
Copyright Page
About the Authors
Preface
Acknowledgments
Brief Contents
Contents
1 Accounting in Business
Importance of Accounting
Users of Accounting Information
Opportunities in Accounting
Fundamentals of Accounting
Ethics—A Key Concept
Generally Accepted Accounting Principles
Conceptual Framework
Business Transactions and Accounting
Accounting Equation
Transaction Analysis
Summary of Transactions
Communicating with Users
Income Statement
Statement of Owner’s Equity
Balance Sheet
Statement of Cash Flows
Decision Analysis—Return on Assets
Appendix 1A Return and Risk
Appendix 1B Business Activities
2 Analyzing and Recording Transactions
Basis of Financial Statements
Source Documents
The “Account” Underlying Financial Statements
Ledger and Chart of Accounts
Double-Entry Accounting
Debits and Credits
Double-Entry System
Analyzing and Processing Transactions
Journalizing and Posting Transactions
Processing Transactions—An Example
Summarizing Transactions in a Ledger
Trial Balance
Preparing a Trial Balance
Financial Statements Prepared from Trial Balance
Decision Analysis—Debt Ratio
3 Adjusting Accounts for Financial Statements
Timing and Reporting
The Accounting Period
Accrual Basis versus Cash Basis
Recognizing Revenues and Expenses
Framework for Adjustments
Deferral of Expense
Prepaid Insurance
Supplies
Other Prepaid Expenses
Depreciation
Deferral of Revenue
Unearned Consulting Revenue
Accrued Expense
Accrued Salaries Expense
Accrued Interest Expense
Future Cash Payment of Accrued Expenses
Accrued Revenue
Accrued Services Revenue
Accrued Interest Revenue
Future Cash Receipt of Accrued Revenues
Links to Financial Statements
Trial Balance and Financial Statements
Adjusted Trial Balance
Preparing Financial Statements
Decision Analysis—Profit Margin
Appendix 3A Alternative Accounting for Prepayments
4 Completing the Accounting Cycle
Work Sheet as a Tool
Benefits of a Work Sheet (Spreadsheet)
Use of a Work Sheet
Work Sheet Applications and Analysis
Closing Process
Temporary and Permanent Accounts
Recording Closing Entries
Post-Closing Trial Balance
Accounting Cycle
Classified Balance Sheet
Classification Structure
Classification Categories
Decision Analysis—Current Ratio
Appendix 4A Reversing Entries
5 Accounting for Merchandising Operations
Merchandising Activities
Reporting Income for a Merchandiser
Reporting Inventory for a Merchandiser
Operating Cycle for a Merchandiser
Inventory Systems
Accounting for Merchandise Purchases
Purchases without Cash Discounts
Purchases with Cash Discounts
Purchases with Returns and Allowances
Purchases and Transportation Costs
Accounting for Merchandise Sales
Sales without Cash Discounts
Sales with Cash Discounts
Sales with Returns and Allowances
Adjusting and Closing for Merchandisers
Adjusting Entries for Merchandisers
Preparing Financial Statements
Closing Entries for Merchandisers
Summary of Merchandising Entries
More on Financial Statement Formats
Multiple-Step Income Statement
Single-Step Income Statement
Classified Balance Sheet
Decision Analysis—Acid-Test and Gross Margin Ratios
Appendix 5A Periodic Inventory System
Appendix 5B Adjusting Entries under New Revenue Recognition Rules
Appendix 5C Net Method for Inventory
6 Inventories and Cost of Sales
Inventory Basics
Determining Inventory Items
Determining Inventory Costs
Internal Controls and Taking a Physical Count
Inventory Costing under a Perpetual System
Inventory Cost Flow Assumptions
Inventory Costing Illustration
Specific Identification
First-In, First-Out
Last-In, First-Out
Weighted Average
Financial Statement Effects of Costing Methods
Tax Effects of Costing Methods
Valuing Inventory at LCM and the Effects of Inventory Errors
Lower of Cost or Market
Financial Statement Effects of Inventory Errors
Decision Analysis—Inventory Turnover and Days’ Sales in Inventory
Appendix 6A Inventory Costing under a Periodic System
Appendix 6B Inventory Estimation Methods
7 Accounting Information Systems
System Principles
System Components
Special Journals and Subsidiary Ledgers
Basics of Special Journals
Subsidiary Ledgers
Sales Journal
Cash Receipts Journal
Purchases Journal
Cash Payments (Disbursements) Journal
General Journal Transactions
Technology-Based Accounting Systems
Technology in Accounting
Data Processing in Accounting
Computer Networks in Accounting
Enterprise Resource Planning Software
Data Analytics and Data Visualization
Cloud Computing
Decision Analysis—Days’ Payable Outstanding
8 Cash, Fraud, and Internal Control
Fraud and Internal Control
Purpose of Internal Control
Principles of Internal Control
Technology, Fraud, and Internal Control
Limitations of Internal Control
Control of Cash
Cash, Cash Equivalents, and Liquidity
Cash Management
Control of Cash Receipts
Control of Cash Payments
Banking Activities as Controls
Basic Bank Services
Bank Statement
Bank Reconciliation
Decision Analysis—Days’ Sales Uncollected
Appendix 8A Documentation and Verification
9 Accounting for Receivables
Valuing Accounts Receivable
Direct Write-Off Method
Allowance Method
Estimating Bad Debts
Percent of Sales Method
Percent of Receivables Method
Aging of Receivables Method
Notes Receivable
Computing Maturity and Interest
Recording Notes Receivable
Valuing and Settling Notes
Disposal of Receivables
Decision Analysis—Accounts Receivable Turnover
10 Plant Assets, Natural Resources, and Intangibles
SECTION 1—PLANT ASSETS
Cost Determination
Machinery and Equipment
Buildings
Land Improvements
Land
Lump-Sum Purchase
Depreciation
Factors in Computing Depreciation
Depreciation Methods
Partial-Year Depreciation
Change in Estimates
Reporting Depreciation
Additional Expenditures
Ordinary Repairs
Betterments and Extraordinary Repairs
Disposals of Plant Assets
Discarding Plant Assets
Selling Plant Assets
SECTION 2—NATURAL RESOURCES
Cost Determination and Depletion
Plant Assets Tied into Extracting
SECTION 3—INTANGIBLE ASSETS
Cost Determination and Amortization
Types of Intangibles
Decision Analysis—Total Asset Turnover
Appendix 10A Exchanging Plant Assets
11 Current Liabilities and Payroll Accounting
Known Liabilities
Characteristics of Liabilities
Examples of Known Liabilities
Accounts Payable
Sales Taxes Payable
Unearned Revenues
Short-Term Notes Payable
Payroll Liabilities
Employee Payroll and Deductions
Employer Payroll Taxes
Internal Control of Payroll
Multi-Period Known Liabilities
Estimated Liabilities
Health and Pension Benefits
Vacation Benefits
Bonus Plans
Warranty Liabilities
Multi-Period Estimated Liabilities
Contingent Liabilities
Accounting for Contingent Liabilities
Applying Rules of Contingent Liabilities
Uncertainties That Are Not Contingencies
Decision Analysis—Times Interest Earned Ratio
Appendix 11A Payroll Reports, Records, and Procedures
Appendix 11B Corporate Income Taxes
12 Accounting for Partnerships
Partnership Formation
Characteristics of Partnerships
Organizations with Partnership Characteristics
Choosing a Business Form
Accounting for Partnership Formation
Dividing Partnership Income or Loss
Partnership Financial Statements
Partner Admission
Purchase of Partnership Interest
Investing Assets in a Partnership
Partner Withdrawal
No Bonus
Bonus to Remaining Partners
Bonus to Withdrawing Partner
Death of a Partner
Liquidation of a Partnership
No Capital Deficiency
Capital Deficiency
Decision Analysis—Partner Return on Equity
13 Accounting for Corporations
Corporate Form of Organization
Corporate Advantages
Corporate Disadvantages
Corporate Organization and Management
Corporate Stockholders
Corporate Stock
Common Stock
Issuing Par Value Stock
Issuing No-Par Value Stock
Issuing Stated Value Stock
Issuing Stock for Noncash Assets
Dividends
Cash Dividends
Stock Dividends
Stock Splits
Financial Statement Effects of Dividends and Splits
Preferred Stock
Issuance of Preferred Stock
Dividend Preference of Preferred Stock
Reasons for Issuing Preferred Stock
Treasury Stock
Purchasing Treasury Stock
Reissuing Treasury Stock
Reporting of Equity
Statement of Retained Earnings
Statement of Stockholders’ Equity
Decision Analysis—Earnings per Share, Price-Earnings Ratio, Dividend Yield, and Book Value per Share
14 Long-Term Liabilities
Basics of Bonds
Bond Financing
Bond Issuing
Bond Trading
Par Bonds
Discount Bonds
Bond Discount or Premium
Issuing Bonds at a Discount
Premium Bonds
Issuing Bonds at a Premium
Bond Retirement
Long-Term Notes Payable
Installment Notes
Mortgage Notes and Bonds
Decision Analysis—Debt Features and the Debt-to-Equity Ratio
Appendix 14A Bond Pricing
Appendix 14B Effective Interest Amortization
Appendix 14C Leases and Pensions
15 Investments
Basics of Investments
Purposes and Types of Investments
Classification and Reporting
Debt Investments
Debt Investments—Basics
Debt Investments—Trading
Debt Investments—Held-to-Maturity
Debt Investments—Available-for-Sale
Equity Investments
Equity Investments—Insignificant Influence, Under 20%
Equity Investments—Significant Influence, 20% to 50%
Equity Investments—Controlling Influence, More Than 50%
Accounting Summary for Debt and Equity Investments
Decision Analysis—Components of Return on Total Assets
16 Reporting the Statement of Cash Flows
Basics of Cash Flow Reporting
Purpose of the Statement of Cash Flows
Importance of Cash Flows
Measurement of Cash Flows
Classification of Cash Flows
Noncash Investing and Financing
Format of the Statement of Cash Flows
Preparing the Statement of Cash Flows
Cash Flows from Operating
Indirect and Direct Methods of Reporting
Applying the Indirect Method
Summary of Adjustments for Indirect Method
Cash Flows from Investing
Three-Step Analysis
Analyzing Noncurrent Assets
Cash Flows from Financing
Three-Step Analysis
Analyzing Noncurrent Liabilities
Analyzing Equity
Proving Cash Balances
Summary Using T-Accounts
Decision Analysis—Cash Flow Analysis
Appendix 16A Spreadsheet Preparation of the Statement of Cash Flows
Appendix 16B Direct Method of Reporting Operating Cash Flows
17 Analysis of Financial Statements
Basics of Analysis
Purpose of Analysis
Building Blocks of Analysis
Information for Analysis
Standards for Comparisons
Tools of Analysis
Horizontal Analysis
Comparative Statements
Trend Analysis
Vertical Analysis
Common-Size Statements
Common-Size Graphics
Ratio Analysis
Liquidity and Efficiency
Solvency
Profitability
Market Prospects
Summary of Ratios
Decision Analysis—Analysis Reporting
Appendix 17A Sustainable Income
18 Managerial Accounting Concepts and Principles
Managerial Accounting Basics
Purpose of Managerial Accounting
Nature of Managerial Accounting
Fraud and Ethics in Managerial Accounting
Career Paths
Managerial Cost Concepts
Types of Cost Classifications
Identification of Cost Classifications
Cost Concepts for Service Companies
Managerial Reporting
Manufacturing Costs
Nonmanufacturing Costs
Prime and Conversion Costs
Costs and the Balance Sheet
Costs and the Income Statement
Cost Flows and Cost of Goods Manufactured
Flow of Manufacturing Activities
Schedule of Cost of Goods Manufactured
Trends in Managerial Accounting
Decision Analysis—Raw Materials Inventory Turnover and Days’ Sales in Raw Materials Inventory
19 Job Order Costing
Job Order Costing
Cost Accounting System
Job Order Production
Job Order vs. Process Operations
Production Activities in Job Order Costing
Cost Flows
Job Cost Sheet
Materials and Labor Cost
Materials Cost Flows and Documents
Labor Cost Flows and Documents
Overhead Cost
Set Predetermined Overhead Rate
Apply Estimated Overhead
Record Actual Overhead
Summary of Cost Flows
Using Job Cost Sheets for Managerial Decisions
Schedule of Cost of Goods Manufactured
Adjusting Overhead
Factory Overhead Account
Adjust Underapplied or Overapplied Overhead
Job Order Costing of Services
Decision Analysis—Pricing for Services
20 Process Costing
Process Operations
Organization of Process Operations
Comparing Process and Job Order Costing Systems
Equivalent Units of Production
Process Costing Illustration
Overview of GenX Company’s Process Operation
Pre-Step: Collect Production and Cost Data
Step 1: Determine Physical Flow of Units
Step 2: Compute Equivalent Units of Production
Step 3: Compute Cost per Equivalent Unit
Step 4: Assign and Reconcile Costs
Process Cost Summary
Accounting for Process Costing
Accounting for Materials Costs
Accounting for Labor Costs
Accounting for Factory Overhead
Accounting for Transfers
Trends in Process Operations
Decision Analysis—Hybrid Costing System
Appendix 20A FIFO Method of Process Costing
21 Cost-Volume-Profit Analysis
Identifying Cost Behavior
Fixed Costs
Variable Costs
Graphing Fixed and Variable Costs against Volume
Mixed Costs
Step-wise Costs
Curvilinear Costs
Measuring Cost Behavior
Scatter Diagram
High-Low Method
Regression
Comparing Cost Estimation Methods
Contribution Margin and Break-Even Analysis
Contribution Margin and Its Measures
Break-Even Point
Cost-Volume-Profit Chart
Changes in Estimates
Applying Cost-Volume-Profit Analysis
Margin of Safety
Computing Income from Sales and Costs
Computing Sales for a Target Income
Evaluating Strategies
Sales Mix and Break-Even
Assumptions in Cost-Volume-Profit Analysis
Decision Analysis—Degree of Operating Leverage
Appendix 21A Using Excel for Cost Estimation
Appendix 21B Variable Costing and Performance Reporting
Appendix 21C Preparing a CVP Chart
22 Master Budgets and Planning
Budget Process and Administration
Budgeting Process
Benefits of Budgeting
Budgeting and Human Behavior
Budget Reporting and Timing
Master Budget Components
Operating Budgets
Sales Budget
Production Budget
Direct Materials Budget
Direct Labor Budget
Factory Overhead Budget
Selling Expense Budget
General and Administrative Expense Budget
Investing and Financing Budgets
Capital Expenditures Budget
Cash Budget
Budgeted Financial Statements
Budgeted Income Statement
Budgeted Balance Sheet
Using the Master Budget
Budgeting for Service Companies
Decision Analysis—Activity-Based Budgeting
Appendix 22A Merchandise Purchases Budget
23 Flexible Budgets and Standard Costs
Fixed and Flexible Budgets
Fixed Budget Reports
Budget Reports for Evaluation
Flexible Budget Reports
Standard Costing
Standard Costs
Setting Standard Costs
Cost Variance Analysis
Materials and Labor Variances
Materials Variances
Labor Variances
Overhead Standards and Variances
Flexible Overhead Budgets
Standard Overhead Rate
Computing Overhead Cost Variances
Standard Costing—Management Considerations
Decision Analysis—Sales Variances
Appendix 23A Expanded Overhead Variances and Standard Cost Accounting System
24 Performance Measurement and Responsibility Accounting
Responsibility Accounting
Performance Evaluation
Controllable versus Uncontrollable Costs
Responsibility Accounting for Cost Centers
Profit Centers
Direct and Indirect Expenses
Expense Allocations
Departmental Income Statements
Departmental Contribution to Overhead
Investment Centers
Return-on-Investment and Residual Income
Investment Center Profit Margin and Investment Turnover
Nonfinancial Performance Evaluation Measures
Balanced Scorecard
Transfer Pricing
Decision Analysis—Cash Conversion Cycle
Appendix 24A Cost Allocations
Appendix 24B Transfer Pricing
Appendix 24C Joint Costs and Their Allocation
25 Relevant Costing for Managerial Decisions
Decisions and Information
Decision Making
Relevant Costs and Benefits
Production Decisions
Make or Buy
Sell or Process Further
Sales Mix Selection When Resources Are Constrained
Capacity Decisions
Segment Elimination
Keep or Replace Equipment
Pricing Decisions
Normal Pricing
Special Offers
Decision Analysis—Time and Materials Pricing
26 Capital Budgeting and Investment Analysis
Capital Budgeting
Capital Budgeting Process
Capital Investment Cash Flows
Methods Not Using Time Value of Money
Payback Period
Accounting Rate of Return
Methods Using Time Value of Money
Net Present Value
Internal Rate of Return
Comparison of Capital Budgeting Methods
Postaudit
Decision Analysis—Break-Even Time
Appendix 26A Using Excel to Compute Net Present Value and Internal Rate of Return
Appendix A Financial Statement Information
Apple
Google
Samsung
Appendix B Time Value of Money
Appendix C Activity-Based Costing
Appendix D Lean Principles and Accounting
Index
Chart of Accounts
Brief Review Managerial Analyses and Reports
Financial Reports and Tables
Selected Transactions and Relations
Fundamentals and Analyses