Cover......Page 1
Title Page......Page 2
Copyright Page......Page 3
About the Authors......Page 4
Brief Contents......Page 6
Contents......Page 8
Changes to This Edition......Page 13
Financial & Managerial Accounting . . . Expanding on Proven Success......Page 15
Instructor and Student Resources......Page 24
Acknowledgments......Page 26
Chapter 1 Accounting and the Business Environment......Page 28
Why Is Accounting Important?......Page 29
Decision Makers: The Users of Accounting Information......Page 30
Accounting Matters......Page 31
The Economic Entity Assumption......Page 33
The Cost Principle......Page 36
Ethics in Accounting and Business......Page 37
What Is the Accounting Equation?......Page 38
Equity......Page 39
Transaction Analysis for Smart Touch Learning......Page 40
How Do You Prepare Financial Statements?......Page 46
Statement of Retained Earnings......Page 47
Balance Sheet......Page 48
Statement of Cash Flows......Page 49
Return on Assets (ROA)......Page 51
Review......Page 53
Assess Your Progress......Page 59
Critical Thinking......Page 79
Chapter 2 Recording Business Transactions......Page 83
Liabilities......Page 84
Chart of Accounts......Page 86
Ledger......Page 87
Increases and Decreases in the Accounts......Page 88
The Normal Balance of an Account......Page 89
Determining the Balance of a T-Account......Page 90
Source Documents—The Origin of the Transactions......Page 91
Journalizing and Posting Transactions......Page 92
The Ledger Accounts After Posting......Page 102
The Four-Column Account: An Alternative to the T-Account......Page 104
Preparing Financial Statements from the Trial Balance......Page 106
Correcting Trial Balance Errors......Page 107
How Do You Use the Debt Ratio to Evaluate Business Performance?......Page 108
Review......Page 110
Assess Your Progress......Page 117
Critical Thinking......Page 140
Chapter 3 The Adjusting Process......Page 146
What Is the Difference Between Cash Basis Accounting and Accrual Basis Accounting?......Page 147
The Revenue Recognition Principle......Page 149
The Matching Principle......Page 150
What Are Adjusting Entries, and How Do We Record Them?......Page 151
Deferred Expenses......Page 152
Accrued Expenses......Page 159
Accrued Revenues......Page 163
What Is the Purpose of the Adjusted Trial Balance, and How Do We Prepare It?......Page 167
What Is the Impact of Adjusting Entries on the Financial Statements?......Page 169
How Could a Worksheet Help in Preparing Adjusting Entries and the Adjusted Trial Balance?......Page 171
Deferred Expenses......Page 173
Deferred Revenues......Page 175
Review......Page 176
Assess Your Progress......Page 183
Critical Thinking......Page 206
Chapter 4 Completing the Accounting Cycle......Page 212
How Do We Prepare Financial Statements?......Page 213
Relationships Among the Financial Statements......Page 214
Classified Balance Sheet......Page 215
Section 6—Balance Sheet......Page 218
Section 7—Determine Net Income or Net Loss......Page 219
What Is the Closing Process, and How Do We Close the Accounts?......Page 220
Closing Temporary Accounts—Net Income for the Period......Page 221
Closing Temporary Accounts—Summary......Page 224
How Do We Prepare a Post-Closing Trial Balance?......Page 227
What Is the Accounting Cycle?......Page 228
How Do We Use the Current Ratio to Evaluate Business Performance?......Page 230
Accounting for Accrued Expenses......Page 232
Accounting With a Reversing Entry......Page 233
Review......Page 235
Assess Your Progress......Page 243
Critical Thinking......Page 269
Comprehensive Problem 1 for Chapters 1–4......Page 271
Comprehensive Problem 2 for Chapters 1–4......Page 272
Chapter 5 Merchandising Operations......Page 276
The Operating Cycle of a Merchandising Business......Page 277
Merchandise Inventory Systems: Perpetual and Periodic Inventory Systems......Page 279
How Are Purchases of Merchandise Inventory Recorded in a Perpetual Inventory System?......Page 280
Purchase of Merchandise Inventory......Page 281
Purchase Discounts......Page 282
Purchase Returns and Allowances......Page 283
Transportation Costs......Page 285
Cost of Inventory Purchased......Page 286
Cash and Credit Card Sales......Page 287
Sales on Account......Page 288
Sales Discounts......Page 289
Sales Returns and Allowances......Page 290
Transportation Costs—Freight Out......Page 291
Adjusting Merchandise Inventory Based on a Physical Count......Page 292
Closing the Accounts of a Merchandiser......Page 293
Income Statement......Page 296
Statement of Retained Earnings and the Balance Sheet......Page 298
How Do We Use the Gross Profit Percentage to Evaluate Business Performance?......Page 299
How Are Multiple Performance Obligations Recorded in a Perpetual Inventory System?......Page 300
Purchases of Merchandise Inventory......Page 302
Sales of Merchandise Inventory......Page 303
Adjusting and Closing Entries......Page 304
Review......Page 308
Assess Your Progress......Page 321
Critical Thinking......Page 346
Chapter 6 Merchandise Inventory......Page 353
Accounting Principles......Page 354
Control Over Merchandise Inventory......Page 355
How Are Merchandise Inventory Costs Determined Under a Perpetual Inventory System?......Page 356
Specific Identification Method......Page 358
First-In, First-Out (FIFO) Method......Page 359
Last-In, First-Out (LIFO) Method......Page 360
Weighted-Average Method......Page 362
Income Statement......Page 365
Balance Sheet......Page 366
Recording the Adjusting Journal Entry to Adjust Merchandise Inventory......Page 368
What Are the Effects of Merchandise Inventory Errors on the Financial Statements?......Page 370
How Do We Use Inventory Turnover and Days’ Sales in Inventory to Evaluate Business Performance?......Page 372
Days’ Sales in Inventory......Page 373
How Are Merchandise Inventory Costs Determined Under a Periodic Inventory System?......Page 374
First-In, First-Out (FIFO) Method......Page 375
Weighted-Average Method......Page 376
Review......Page 377
Assess Your Progress......Page 384
Critical Thinking......Page 399
Comprehensive Problem for Chapters 5 and 6......Page 402
Chapter 7 Internal Control and Cash......Page 407
Internal Control and the Sarbanes-Oxley Act......Page 408
The Components of Internal Control......Page 409
Internal Control Procedures......Page 410
The Limitations of Internal Control—Costs and Benefits......Page 412
Cash Receipts by Mail......Page 413
Controls Over Payment by Check......Page 415
Setting Up the Petty Cash Fund......Page 417
Replenishing the Petty Cash Fund......Page 418
How Are Credit Card Sales Recorded?......Page 420
How Can the Bank Account Be Used as a Control Device?......Page 422
Check......Page 423
Electronic Funds Transfers......Page 424
Bank Reconciliation......Page 425
Examining a Bank Reconciliation......Page 428
Journalizing Transactions from the Bank Reconciliation......Page 429
How Can the Cash Ratio Be Used to Evaluate Business Performance?......Page 430
Review......Page 431
Assess Your Progress......Page 438
Critical Thinking......Page 453
Chapter 8 Receivables......Page 459
Types of Receivables......Page 460
Recording Sales on Credit......Page 461
Decreasing Collection Time and Credit Risk......Page 462
Recovery of Accounts Previously Written Off—DirectWrite-off Method......Page 464
Limitations of the Direct Write-off Method......Page 465
Recording Bad Debts Expense—Allowance Method......Page 466
Writing Off Uncollectible Accounts—Allowance Method......Page 467
Recovery of Accounts Previously Written Off—Allowance Method......Page 468
Estimating and Recording Bad Debts Expense—Allowance Method......Page 469
Comparison of Accounting for Uncollectibles......Page 474
How Are Notes Receivable Accounted For?......Page 476
Identifying Maturity Date......Page 477
Computing Interest on a Note......Page 478
Accruing Interest Revenue and Recording Honored Notes Receivable......Page 479
Recording Dishonored Notes Receivable......Page 481
How Do We Use the Acid-Test Ratio, Accounts Receivable Turnover Ratio, and Days’ Sales in Receivables to Evaluate Business Performance?......Page 482
Acid-Test (or Quick) Ratio......Page 483
Days’ Sales in Receivables......Page 484
Review......Page 485
Assess Your Progress......Page 492
Critical Thinking......Page 510
Chapter 9 Plant Assets, Natural Resources, and Intangibles......Page 515
How Does a Business Measure the Cost of Property, Plant, and Equipment?......Page 516
Land and Land Improvements......Page 517
Machinery and Equipment......Page 518
Lump-Sum Purchase......Page 519
Capital and Revenue Expenditures......Page 520
What Is Depreciation, and How Is It Computed?......Page 521
Depreciation Methods......Page 522
Changing Estimates of a Depreciable Asset......Page 528
Reporting Property, Plant, and Equipment......Page 529
How Are Disposals of Plant Assets Recorded?......Page 530
Discarding Plant Assets......Page 531
Selling Plant Assets......Page 533
How Are Natural Resources Accounted For?......Page 538
Specific Intangibles......Page 539
Reporting of Intangible Assets......Page 542
How Do We Use the Asset Turnover Ratio to Evaluate Business Performance?......Page 543
Exchange of Plant Assets–Gain Situation......Page 544
Exchange of Plant Assets–Loss Situation......Page 545
Review......Page 546
Assess Your Progress......Page 552
Critical Thinking......Page 564
Comprehensive Problem for Chapters 7, 8, and 9......Page 565
Chapter 10 Investments......Page 572
Reasons to Invest......Page 573
Classification and Reporting of Investments......Page 574
Purchase of Debt Securities......Page 576
Disposition at Maturity......Page 577
Equity Securities with No Significant Influence......Page 578
Equity Securities with Significant Influence (Equity Method)......Page 579
Trading Debt Investments......Page 581
Available-for-Sale Debt Investments......Page 583
Equity Investments with No Significant Influence......Page 585
How Do We Use the Rate of Return on Total Assets to Evaluate Business Performance?......Page 587
Review......Page 588
Assess Your Progress......Page 593
Critical Thinking......Page 601
Chapter 11 Current Liabilities and Payroll......Page 605
Accounts Payable......Page 606
Income Tax Payable......Page 607
Short-term Notes Payable......Page 608
How Do Companies Account For and Record Payroll?......Page 610
Employee Payroll Withholding Deductions......Page 611
Payroll Register......Page 614
Employer Payroll Taxes......Page 615
Internal Control Over Payroll......Page 617
Bonus Plans......Page 618
Warranties......Page 619
How Are Contingent Liabilities Accounted For?......Page 621
Probable Contingent Liability......Page 622
How Do We Use the Times-Interest-Earned Ratio to Evaluate Business Performance?......Page 623
Review......Page 624
Assess Your Progress......Page 630
Critical Thinking......Page 643
Chapter12 Long-Term Liabilities......Page 646
Long-term Notes Payable......Page 647
Mortgages Payable......Page 648
What Are Bonds?......Page 650
Bond Prices......Page 652
Bond Interest Rates......Page 653
Issuing Bonds Versus Issuing Stock......Page 654
Issuing Bonds Payable at a Discount......Page 656
Issuing Bonds Payable at a Premium......Page 659
Retirement of Bonds at Maturity......Page 661
Retirement of Bonds Before Maturity......Page 662
How Are Liabilities Reported On the Balance Sheet?......Page 663
How Do We Use the Debt to Equity Ratio to Evaluate Business Performance?......Page 665
What Is the Time Value of Money, and How Is Present Value and Future Value Calculated?......Page 666
Time Value of Money Concepts......Page 667
Present Value of an Annuity......Page 669
Present Value of Bonds Payable......Page 670
Future Value of a Lump Sum......Page 671
Future Value of an Annuity......Page 672
Effective-Interest Amortization for a Bond Discount......Page 673
Effective-Interest Amortization of a Bond Premium......Page 674
Review......Page 676
Assess Your Progress......Page 681
Critical Thinking......Page 695
Chapter 13 Stockholders’ Equity......Page 698
Characteristics of Corporations......Page 699
Stockholders’ Equity Basics......Page 700
How Is the Issuance of Stock Accounted For?......Page 703
Issuing Common Stock at a Premium......Page 704
Issuing No-Par Common Stock......Page 705
Issuing Common Stock for Assets Other Than Cash......Page 706
Issuing Preferred Stock......Page 707
Sale of Treasury Stock......Page 708
Cash Dividends......Page 712
Stock Dividends......Page 715
Cash Dividends, Stock Dividends, and Stock Splits Compared......Page 719
Continuing Operations......Page 720
Earnings per Share......Page 721
Statement of Retained Earnings......Page 722
Statement of Stockholders’ Equity......Page 723
Earnings per Share......Page 724
Rate of Return on Common Stockholders’ Equity......Page 725
Review......Page 726
Assess Your Progress......Page 734
Critical Thinking......Page 752
Comprehensive Problem for Chapters 11, 12, and 13......Page 753
Chapter 14 The Statement of Cash Flows......Page 759
Purpose of the Statement of Cash Flows......Page 760
Classification of Cash Flows......Page 761
How Is the Statement of Cash Flows Prepared Using the Indirect Method?......Page 763
Cash Flows from Operating Activities......Page 766
Cash Flows from Investing Activities......Page 770
Cash Flows from Financing Activities......Page 772
Non-cash Investing and Financing Activities......Page 776
How Do We Use Free Cash Flow to Evaluate Business Performance?......Page 778
Cash Flows from Operating Activities......Page 779
How Is the Statement of Cash Flows Prepared Using the Indirect Method And a Spreadsheet?......Page 785
Review......Page 789
Assess Your Progress......Page 795
Critical Thinking......Page 822
Chapter 15 Financial Statement Analysis......Page 827
Corporate Financial Reports......Page 828
How Do We Use Horizontal Analysis to Analyze a Business?......Page 830
Horizontal Analysis of the Income Statement......Page 831
Horizontal Analysis of the Balance Sheet......Page 832
Trend Analysis......Page 833
How Do We Use Vertical Analysis to Analyze a Business?......Page 834
Vertical Analysis of the Income Statement......Page 835
Vertical Analysis of the Balance Sheet......Page 836
Common-Size Statements......Page 837
Benchmarking......Page 838
How Do We Use Ratios to Analyze a Business?......Page 839
Evaluating the Ability to Pay Current Liabilities......Page 840
Evaluating the Ability to Sell Merchandise Inventory and Collect Receivables......Page 843
Evaluating the Ability to Pay Long-term Debt......Page 845
Evaluating Profitability......Page 847
Evaluating Stock as an Investment......Page 850
Red Flags in Financial Statement Analyses......Page 852
Review......Page 854
Assess Your Progress......Page 862
Critical Thinking......Page 881
Appendix A— Present Value Tables and Future Value Tables......Page 886
Appendix B— Accounting Information Systems......Page 890
Glossary......Page 944
Index......Page 956
Photo Credits......Page 974