Harrison financial accounting 10th edition Harrison

Giáo trình Harrison financial accounting 10th edition Harrison Giáo trình Harrison financial accounting 10th edition Harrison Giáo trình Harrison financial accounting 10th edition Harrison Giáo trình Harrison financial accounting 10th edition Harrison Giáo trình Harrison financial accounting 10th edition Harrison Giáo trình Harrison financial accounting 10th edition Harrison Giáo trình Harrison financial accounting 10th edition Harrison Giáo trình Harrison financial accounting 10th edition Harrison

Financial Accounting Tenth Edition Walter T Harrison Jr Baylor University Charles T Horngren Stanford University C William (Bill) Thomas Baylor University Boston  Columbus  Indianapolis  New York  San Francisco  Upper Saddle River Amsterdam  Cape Town  Dubai  London  Madrid  Milan  Munich  Paris  Montréal  Toronto Delhi  Mexico City  São Paulo  Sydney  Hong Kong  Seoul  Singapore  Taipei  Tokyo #149446  Cust: Pearson  Au: Harrison  Pg No i Title: Financial Accounting     Server: C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services Editor in Chief: Donna Battista Acquisitions Editor: Lacey Vitetta Development Editor: Mignon Worman Tucker Editorial Assistant: Christine Donovan Director of Marketing: Maggie Moylan Leen Marketing Manager: Alison Haskins Team Lead, Project Management: Jeff Holcomb Senior Production Project Manager: Elizabeth Gale Napolitano Manager, Rights & Permissions: Michael Joyce Rights & Permissions Coordinator: Samantha Graham Photo Researcher: Rachel Youdelman Senior Manufacturing Buyer: Carol Melville Interior Designer: Liz Harasymcuk Cover Design: PreMediaGlobal Cover Art: Sergign/Shutterstock Media Producer: James Bateman Supplements Project Manager: Jill Kolongowski Full-Service Project Management: Lynn Steines, S4Carlisle Publishing Services Composition: S4Carlisle Publishing Services Printer/Binder: Courier/Kendallville Cover Printer: Lehigh-Phoenix Color/ Hagerstown Typeface: 10/12 Caslon Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose All such documents and related graphics are provided “as is” without warranty of any kind Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with 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trademarks of the Microsoft Corporation in the U.S.A and other countries This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation Copyright © 2015, 2013, 2010 by Pearson Education, Inc All rights reserved Manufactured in the United States of America This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458, or you may fax your request to 201-236-3290 Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps Library of Congress Cataloging-in-Publication Data Harrison, Walter T Financial accounting / Walter T Harrison Jr., Baylor University, Charles T Horngren, Stanford University, C William (Bill) Thomas, Baylor University — Tenth edition pages cm Includes index ISBN-13: 978-0-13-342753-0 ISBN-10: 0-13-342753-6 Accounting I Horngren, Charles T., 1926- II Thomas, C William III Title HF5636.H37 2015 657—dc23 2013042426 10 ISBN 10:  0-13-342753-6 ISBN 13: 978-0-13-342753-0 #149446  Cust: Pearson  Au: Harrison  Pg No ii Title: Financial Accounting     Server: C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services ❯❯ About the Authors Walter T Harrison Jr is professor emeritus of accounting at the Hankamer School of Business, Baylor University He received his BBA from Baylor University, his MS from Oklahoma State University, and his PhD from Michigan State University Professor Harrison, recipient of numerous teaching awards from student groups as well as from university administrators, has also taught at Cleveland State Community College, Michigan State University, the University of Texas, and Stanford University A member of the American Accounting Association and the American Institute of Certified Public Accountants, Professor Harrison has served as chairman of the Financial Accounting Standards Committee of the American Accounting Association, on the Teaching/Curriculum Development Award Committee, on the Program Advisory Committee for Accounting Education and Teaching, and on the Notable Contributions to Accounting Literature Committee Professor Harrison has lectured in several foreign countries and published articles in numerous journals, including Journal of Accounting Research, Journal of Accountancy, Journal of Accounting and Public Policy, Economic Consequences of Financial Accounting Standards, Accounting Horizons, Issues in Accounting Education, and Journal of Law and Commerce He is co-author of Financial & Managerial Accounting, second edition, 2009 and Accounting, eighth edition, 2009 (with Charles T Horngren and M Suzanne Oliver), published by Pearson Prentice Hall Professor Harrison has received scholarships, fellowships, and research grants or awards from PricewaterhouseCoopers, Deloitte & Touche, the Ernst & Young Foundation, and the KPMG Foundation Charles T Horngren (1926–2011) was the Edmund W Littlefield professor of accounting, emeritus, at Stanford University A graduate of Marquette University, he received his MBA from Harvard University and his PhD from the University of ­Chicago He was also the recipient of honorary doctorates from Marquette University and DePaul University A certified public accountant, Horngren served on the Accounting Principles Board for six years, the Financial Accounting Standards Board Advisory Council for five years, and the Council of the American Institute of Certified Public Accountants for three years For six years he served as a trustee of the Financial Accounting Foundation, which oversees the Financial Accounting Standards Board and the Government Accounting Standards Board Horngren is a member of the Accounting Hall of Fame A member of the American Accounting Association, Horngren was its president and its director of research He received its first annual Outstanding Accounting Educator Award The California Certified Public Accountants Foundation gave Horngren its ­Faculty Excellence Award and its Distinguished Professor Award He was the first person to have received both awards The American Institute of Certified Public Accountants presented its first ­O utstanding Educator Award to Horngren Horngren was named Accountant of the Year, in Education, by the national ­professional accounting fraternity, Beta Alpha Psi #149446  Cust: Pearson  Au: Harrison  Pg No iii Title: Financial Accounting     Server: C/M/Y/K Short / Normal iii DESIGN SERVICES OF S4carlisle Publishing Services iv   About the Authors Professor Horngren was also a member of the Institute of Management Accountants, from whom he received its Distinguished Service Award He was a member of the institute’s Board of Regents, which administers the Certified Management Accountant examinations Horngren is the author of these other accounting books published by Pearson: Cost Accounting: A Managerial Emphasis, Fifteenth Edition, 2015 (with Srikant ­Datar and George Foster); Introduction to Financial Accounting, Eleventh Edition, 2014 (with Gary L Sundem, John A Elliott, and Donna Philbrick); Introduction to Management Accounting, Sixteenth Edition, 2014 (with Gary L Sundem, Jeff Schatzberg, and Dave Burgstahler); Financial & Managerial Accounting, Sixteenth Edition, 2014 and Horngren’s Accounting, Tenth Edition, 2014 (revised by Tracie Nobles, Brenda Mattison, and Ella Mae Matsumura) Horngren was the consulting editor for Pearson’s Charles T Horngren Series in Accounting C William (Bill) Thomas is the J E Bush Professor of Accounting and a Master Teacher at Baylor University A Baylor University alumnus, he received both his BBA and MBA there and went on to earn his PhD from The University of Texas at Austin With primary interests in the areas of financial accounting and auditing, Bill Thomas has served as the J E Bush Professor of Accounting since 1995 He has been a member of the faculty of the Accounting and Business Law Department of the Hankamer School of Business since 1971, and served as chair of the department from 1983 until 1995 He was recognized as an Outstanding Faculty Member of Baylor University in 1984 and Distinguished Professor for the Hankamer School of Business in 2002 Dr Thomas has received several awards for outstanding teaching, including the Outstanding Professor in the Executive MBA Programs in 2001, 2002, and 2006 In 2004, he received the designation as Master Teacher Thomas is the author of textbooks in auditing and financial accounting, as well as many articles in auditing, financial accounting and reporting, taxation, ethics and accounting education His scholarly work focuses on the subject of fraud prevention and detection, as well as ethical issues among accountants in public practice His most recent publication of national prominence is “The Rise and Fall of the Enron Empire” which appeared in the April 2002 Journal of Accountancy, and which was selected by Encyclopedia Britannica for inclusion in its Annals of American History He presently serves as both technical and accounting and auditing editor of Today’s CPA, the journal of the Texas Society of Certified Public Accountants, with a circulation of approximately 28,000 Thomas is a certified public accountant in Texas Prior to becoming a professor, Thomas was a practicing accountant with the firms of KPMG, LLP, and BDO Seidman, LLP He is a member of the American Accounting Association, the American Institute of Certified Public Accountants, and the Texas Society of Certified Public Accountants #149446  Cust: Pearson  Au: Harrison  Pg No iv Title: Financial Accounting     Server: C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services In memory of Charles T Horngren 1926–2011 Whose vast contributions to the teaching and learning of accounting impacted and will continue to impact generations of accounting ­students and professionals For our wives, Nancy and Mary Ann #149446  Cust: Pearson  Au: Harrison  Pg No v Title: Financial Accounting     Server: C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services ❯❯ BRIEF CONTENTS Visual Walk-Through  xviii The Financial Statements 1 Transaction Analysis  53 Accrual Accounting & Income 113 Internal Control & Cash 192 Short-Term Investments & Receivables 245 Inventory & Cost of Goods Sold  300 Plant Assets, Natural Resources, & Intangibles  362 Long-Term Investments & the Time Value of Money  428 Liabilities 482 10 Stockholders’ Equity 550 11  Evaluating Performance: Earnings Quality, the Income Statement, & the Statement of Comprehensive Income  617 12 The Statement of Cash Flows  664 13 Financial Statement Analysis 739 Appendix A: Amazon.com 2012 Annual Report  821 Appendix B: Yum! Brands, Inc Annual Report 2012  845 Appendix C: Typical Charts of Accounts for Different Types of Businesses  863 Appendix D: Summary of Generally Accepted Accounting Principles (GAAP)  865 Appendix E: Summary of Differences Between U.S GAAP and IFRS Cross Referenced to Chapter  867 Company Index 871 Glindex 875 vi #149446  Cust: Pearson  Au: Harrison  Pg No vi Title: Financial Accounting     Server: C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services ❯❯ CONTENTS Preface xv Visual Walk-Through xviii Chapter The Financial Statements  Spotlight: The Gap, Inc.  Explain Why Accounting Is the Language of Business 3 Who Uses Accounting Information?  Two Kinds of Accounting: Financial Accounting and Management Accounting  Organizing a Business  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 11 Assets and Liabilities  11 Owners’ Equity  12 Evaluate Business Operations Through the Financial Statements  14 The Income Statement Measures Operating Performance 14 The Statement of Retained Earnings Shows What a Company Did with Its Net Income  16 The Balance Sheet Measures Financial Position 17 The Statement of Cash Flows Measures Cash Receipts and Payments  20 Construct Financial Statements and Analyze the Relationships Among Them  21 Evaluate Business Decisions Ethically  23 End-of-Chapter Summary Problem  26 Chapter Transaction Analysis  53 Spotlight: Whole Foods Market, Inc.  53 Explain What a Transaction Is  55 Define “Account,” and List and Differentiate Between Different Types of Accounts  55 Assets 55 Liabilities 56 Stockholders’ (Owners’) Equity  56 Show the Impact of Business Transactions on the Accounting Equation  57 Example: Freddy’s Auto Service, Inc.  57 Transactions and Financial Statements  63 Mid-Chapter Summary Problem  66 Analyze the Impact of Business Transactions on Accounts  68 The T-Account  68 Increases and Decreases in the Accounts: The Rules of Debit and Credit  68 Additional Stockholders’ Equity Accounts: Revenues and Expenses 70 Record ( Journalize and Post) Transactions in the Books 71 Copying Information (Posting) from the Journal to the Ledger  72 The Flow of Accounting Data  73 Accounts after Posting to the Ledger  77 Construct and Use a Trial Balance  78 Analyzing Accounts  79 Correcting Accounting Errors  80 Chart of Accounts  80 The Normal Balance of an Account  81 Account Formats  81 Analyzing Transactions Using Only T-Accounts  82 End-of-Chapter Summary Problem  84 vii #149446  Cust: Pearson  Au: Harrison  Pg No vii Title: Financial Accounting     Server: C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services viii   Contents Chapter Chapter Accrual Accounting & Income  113 Internal Control & Cash  192 Spotlight: Starbucks Corporation  113 Spotlight: Cooking the Books: Mid-Atlantic Manufacturing Company Takes a Hit  192 Explain How Accrual Accounting Differs from Cash-Basis Accounting 115 Accrual Accounting and Cash Flows  116 The Time-Period Concept  116 Apply the Revenue and Expense Recognition Principles 116 The Revenue Principle  116 The Expense Recognition Principle  118 Ethical Issues in Accrual Accounting  119 Adjust the Accounts  119 Which Accounts Need to Be Updated (Adjusted)? 119 Categories of Adjusting Entries  120 Prepaid Expenses  120 Depreciation of Plant Assets  123 Accrued Expenses  125 Accrued Revenues  127 Unearned Revenues  128 Summary of the Adjusting Process  129 The Adjusted Trial Balance  132 Construct the Financial Statements 133 Mid-Chapter Summary Problem  135 Close the Books  141 Classifying Assets and Liabilities Based on Their Liquidity  142 Reporting Assets and Liabilities: Starbucks Corporation 143 Formats for the Financial Statements 143 Analyze and Evaluate a Company’s Debt-Paying Ability  145 Net Working Capital  145 Current Ratio  145 Debt Ratio  146 How Do Transactions Affect the Ratios? 146 End-of-Chapter Summary Problem  150 #149446  Cust: Pearson  Au: Harrison  Pg No viii Title: Financial Accounting     Server: Describe Fraud and Its Impact  195 Fraud and Ethics  197 Explain the Objectives and Components of Internal Control  197 The Sarbanes-Oxley Act (SOX)  198 The Components of Internal Control  199 Internal Control Procedures  200 Information Technology  202 Safeguard Controls  203 Internal Controls for E-Commerce  203 Security Measures  203 The Limitations of Internal Control—Costs and Benefits  204 Design and Use a Bank Reconciliation  204 Signature Card  205 Deposit Ticket  205 Check 205 Bank Statement  206 Bank Reconciliation  207 Preparing the Bank Reconciliation  208 Online Banking  211 Mid-Chapter Summary Problem  213 Evaluate Internal Controls Over Cash Receipts and Cash Payments  215 Cash Receipts Over the Counter  215 Cash Receipts by Mail  215 Controls Over Payment by Check  216 Construct and Use a Cash Budget  218 Report Cash on the Balance Sheet  220 Compensating Balance Agreements  220 End-of-Chapter Summary Problem  221 Chapter Short-Term Investments & Receivables  245 Spotlight: Amazing Apple! Short-term investments and accounts receivable are 37 times as large as inventories!  245 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services Contents    ix Account for Short-Term Investments  247 Reasons to Invest in Other Companies  247 Apply and Compare Various Inventory Cost Methods  308 Trading Securities  248 What Goes into Inventory Cost?  308 Ethics and the Current Ratio  252 Compare the Effects of FIFO, LIFO, and Average Cost on Cost of Goods Sold, Gross Profit, and Ending Inventory  311 Reporting on the Balance Sheet and the Income Statement 252 Apply the Various Inventory Costing Methods  309 Mid-Chapter Summary Problem  253 Keeping Track of Perpetual Inventories under LIFO and Weighted-Average Cost Methods  312 Apply GAAP for Proper Revenue Recognition 254 Shipping Terms, Sales Discounts, and Sales Returns 255 Account for and Control Accounts Receivable 256 Types of Receivables  256 Internal Controls Over Cash Collections on Account 257 How Do We Manage the Risk of Not Collecting? 257 Evaluate Collectibility Using the Allowance for Uncollectible Accounts  258 Allowance Method  259 Direct Write-Off Method  265 Computing Cash Collections from Customers  265 Account for Notes Receivable  266 Accounting for Notes Receivable  267 Show How to Speed Up Cash Flow from Receivables 269 Credit Card or Bankcard Sales  269 Selling (Factoring) Receivables  270 Reporting on the Statement of Cash Flows  270 Evaluate Liquidity Using Two New Ratios  271 Quick (Acid-Test) Ratio  271 Days’ Sales in Receivables  271 End-of-Chapter Summary Problem  273 Chapter Inventory & Cost of Goods Sold  300 Spotlight: Family Dollar Stores, Inc.  300 Show How to Account for Inventory  303 Sale Price vs Cost of Inventory  304 Accounting for Inventory in the Perpetual System 306 #149446  Cust: Pearson  Au: Harrison  Pg No ix Title: Financial Accounting     Server: The Tax Advantage of LIFO  313 Mid-Chapter Summary Problem  314 Explain and Apply Underlying GAAP for Inventory 316 Disclosure Principle  316 Lower-of-Cost-or-Market Rule  316 Inventory and the Detailed Income Statement 318 Compute and Evaluate Gross Profit (Margin) Percentage and Inventory Turnover  318 Gross Profit Percentage  318 Inventory Turnover  319 Use the COGS Model to Make Management Decisions 320 Computing Budgeted Purchases  321 Estimating Inventory by the Gross Profit Method 321 Analyze Effects of Inventory Errors  322 End-of-Chapter Summary Problem  325 Chapter Plant Assets, Natural Resources, & Intangibles 362 Spotlight: FedEx Corporation  362 Measure and Account for the Cost of Plant Assets 365 Land 365 Buildings, Machinery, and Equipment  365 Land Improvements and Leasehold Improvements 366 Lump-Sum (or Basket) Purchases of Assets 366 Distinguish a Capital Expenditure from an Immediate Expense  367 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 872   Company Index FedEx Corporation accrued expenses, 127 annual report, 364 asset disposal, 383 asset impairment, 391 assets, 364 assets, depreciation of, 369–374, 377–379, 382, 397 assets, lump-sum purchase of, 366–367 buildings, machinery and equipment, 364, 365–366 capital expenditures, 367–368 cash flows, 394–395 company overview, 362–363 consolidated balance sheets, 363 financial statements, 303, 429 fiscal year, 15 and goodwill, 389–390 intangible assets, 364 land and leasehold improvements, 366 land as asset, 364, 365 plant assets and related expenses, 396 rate of return on sales, 768 selling plant assets, 383–384 FedEx Kinko’s, 298 Fidelity Company, 694 Ford Motor Company, Four-Star Catering, 736 Freddy’s Auto Service, Inc accrued expenses, 125–127 accrued revenues, 127 adjusting entries, 119–132 closing the books, 141–143 financial position and cash flows after one month, 26–27 financial statement, 133–134 record transactions in the books, 71–78 transactions and accounts, 68–71 transactions and financial statement, 63–65 transactions and the accounting equation, 57–62 trial balance, 78–82, 132 unearned revenues, 128–129 G Gap, Inc., The annual report, 3, 619–620 assets of, 11, 12, 18 auditor report, 634–636 cash flow of, 20–21 chairman of the board of, company overview, 1–2, 617–619, 739 consolidated statements of income, corporate income taxes, 625–627 corporate social responsibility, 634 as corporation, cost of goods sold, 621–622 credit sales, 257 decision guidelines, 23 discontinued operations, 628–629 earnings per share, 630 earnings quality, 619 entity assumption, ethics recognition, 25 expenses of, 12, 16 extraordinary items, 629 financial reporting responsibilities, 632–633 financial statements,11, 14–22, 303 fiscal year, 14–15, 116 foreign-currency gains and losses, 623–625 foreign-currency-transaction risk, 625 global business, gross profit, 622 historical cost principal and, 8–9 income statement, 617–618 interest income and expense, 625 investing in, 20 liabilities of, 11, 18–19 management accounting, 4–5 management’s responsibility, 634 net income of, 12 nonfinancial reports, 634 operating expenses, 622 operating income, 622 retained earnings account, 16–17 revenue recognition, 620 revenues of, 12 statement of comprehensive income, 631 statement of operations, 14–15 stockholders’ equity, 19, 631 use of accounting information, value of stock, 627–628 GapKids, Gee-Whiz Computer Solutions, Inc., 561 General Electric Corporation dividend yield, 772 foreign subsidiaries, 446 investments, 428 noncontrolling interest, 442 rate of return on common stockholders’ equity, 770 research and development, 390 segments of, 628 General Motors as corporation, estimated warranty payable, 490 loan of government money to, 615 Gift Horse, 325–327 Gilead Construction, 241–242 Goldman Sachs, 557, 753 Google, Inc annual report, 666 bonds payable, 504 company overview, 664–665, 739 as corporation, issuance of stock, 557 rate of return on common stockholders’ equity, 770 statement of cash flows, 665–669 working capital, 759 Grant Computer Services, Inc., 185 H Hanes Textiles, 216 Hard Rock Products, Inc., 756–757 Health Corporation of America, 253 Hershey Corporation, 10 Herzog Researchers, Inc., 66–67 Hewlett-Packard Company, 434, 435, 436–437, 763 Holiday Inn, 389 Home Depot bonds payable, 494 common stock, 555–556 company overview, 550–551 corporate social responsibility, 618, 634 dividends on preferred stock, 570–571 issuance of stock, 557–558, 564 par value of stock, 557 resale of treasury stock, 566 retained earnings account, 567–570 retirement of stock, 566 return on equity, 575–577 sales tax payable, 487 #149446  Cust: Pearson  Au: Harrison  Pg No 872 Title: Financial Accounting     Server: C/M/Y/K Short / Normal as separate legal entity, 552 statement of cash flows, 577–578 statement of stockholders’ equity, 578–579 stock dividends, 571–572 stock splits, 572–573 stock values, 574 stockholders’ equity, 550–551 treasury stock, 564–566 treasury stock for employee compensation, 566–567 unearned revenues, theoretical transaction, 128–129 Hoovers, Inc., 742 Hunters Unlimited, Inc., 49 I IM Flash Technologies, 437–439 IMS Chocolates, 242 Infografix Corporation, 479 Intel Capital, 431–433, 440–441 Intel Corporation annual report, 430 balance sheet reporting of investments, 430–431 consolidated balance sheet, 429 foreign subsidiaries, 446 international revenues, 446–448 investments, 428–429, 434–439, 444 investments, fair value of, 457 rate of return on sales, 768 relationship with Intel Capital, 440–441 research and development, 390 as separate legal entity, 552 statement of cash flows, 448–449 stock price, 430 trading securities, 248–250 Intel Europe, Inc., 440 Intel-GE Care Innovations, LLC, 437 International Business Machines (IBM), 23, 572, 772 J J Crew, 257 J.C Penney, 116 JP Morgan Chase & Co., 557 K Kahn Corporation, 559–560 Kohl’s Corporation, 360–361, 819–820 Kraft Foods, 199 Krispy Kreme Doughnuts, 557 L La Petite France Bakery, 425 Laurie Gocker, Inc., 547 Lear Corporation, 778–779 Little Italy, Inc., 108–109 Lockheed-Martin, 203 Lowes Companies, Inc., 577 Lucas Corporation, 681–684 M Macy’s, Inc., 202 Magee Service Center, Inc., 84–87 Mark’s Coffee Shop, Inc., 186–187 DESIGN SERVICES OF S4carlisle Publishing Services Company Index    873 Masimo Corporation, 393–394 Maxim, Inc., 637–638 McAfee, Inc., 440–441 McDonald’s, 9, 389 Media One, 480 Merck Pharmaceuticals, 772 Merrill Lynch, 495, 661 Microsoft Corporation copyrights, 389 ethical issues, 546–547 internal control, 200 international business, stock, 557 working capital, 759 Mid-Atlantic Manufacturing Company bank reconciliation, 207–210 bank statement, 206 cash budget, 218–219 compensating balance agreement, 220–221 controls over payment by check, 205, 216–218 embezzlement issue, 192–194 failure to safeguard assets, 197 internal control, 257 internal control limitations, 204 internal control procedures, 200 management’s discussion of financial responsibility, 198 misappropriation of assets, 195–196 reporting cash on the balance sheet, 220 safeguard controls, 203 weak internal controls, 197 Mike Magid Toyota, 661–662 Morgan Stanley, 627–628 Motley fool, 742 N Nathan Morgan Leasing Corporation, 547 NBC television network, 389, 628, 815 Nestlé, 9, 10 Newline Corporation, 581 Nike, Inc., 628 Nokia, Nordstrom, 319–320 O Old Navy, 1, 620, 628, 633 Outward Bound, Inc., 816–817 P Papa John’s, 385 Park ‘N Fly, 546 Pearson, PepsiCo., Inc cash budget, 221–222 ethics recognition, 25 financial statement analysis, 739 foreign subsidiaries, 446 free cash flow, 694 issuance of stock, 557 par value of stock, 557 rate of return on sales, 768 stock splits, 572 Piperlime, 1, 628, 632, 633 Proctor & Gamble, 390, 772 Prudhoe Bay Oil Co., 661 Q Quaker Oats, 773 R RadioShack Corporation, 15 Raytheon, 203 Republica, 623 Roadster Factory, The (TRF) issuance of stock, 677–678 operating cash flows, 689–693 statement of cash flows, direct method, 684–694 statement of cash flows, indirect method, 669–681 Royal Bank of Singapore, 662 S St Genevieve Petroleum Company, 614 Samsung, 9, 771 Scruffy’s Bar & Grill, 109 Shell Oil Company, 694 Snicker Foods, 242 Solas Photography Company, 188 Sony debit memos, 492 no-par stock, 557 patents, 388 Southwest Airlines accounts payable, 484 accrued expenses, 487 air traffic liability, 482–483, 488–489 annual report, 484 bonds payable, 494–495, 496 bonds payable at a discount, 499 bonds payable at a premium, 504–508 bonds payable at par, 497–498 bonds payable, retiring, 509 capital leases, 513–515 company overview, 482–483 consolidated balance sheets, 483 contingent liabilities, 491–492 convertible bonds and notes, 509–510 current maturities, 489 financial statement analysis, 739 interest expense on bonds, 499–500, 501–504 leverage ratio, 512 liabilities, 482–483 operating leases, 513–515 par value of stock, 557 pension and postretirement liabilities, 515–516 reporting long-term debt on the balance sheet, 516–517 risk assessment, 199 as separate legal entity, 552 statement of cash flows, 517 straight-line amortization, 508 times-interest-earned ratio, 513, 766 trading on the equity, 510–511 unearned revenues, 488–489 value of bonds, 456 Starbucks Corporation accrued expenses, 125 annual report, 114–115 assets and liabilities, reporting, 143 balance sheet, 143 categories of adjusting entries, 120 closing the books, 141 company overview, 113–114, 739 corporate social responsibility, 618, 634 as corporation, current ratio, 145–148 debt ratio, 146–148 depreciation of plant assets, 125 ethics recognition, 23, 25 #149446  Cust: Pearson  Au: Harrison  Pg No 873 Title: Financial Accounting     Server: evaluating debt-paying ability, 149–150 expense recognition, 118–119 financial statements, 429 fiscal year, 116 income statement, 143–145 internal control, 200 international business, net working capital, 145 rate of return on common stockholders’ equity, 770 receivables, 257 recording revenue for, 117–118 short-term notes payable, 486–487 Sunnyvale Loan Company, 297 T Target Corporation accounts payable, 484 accounts payable turnover, 485 cost of goods sold, 15 ethics recognition, 25 gross profit percentage, 319 use of electronic sensors by, 202 T-Bar-M Camp, Inc., 735–736 Texas Instruments, 314–315 Time Warner, Inc., 815 Toyota bonds payable, 494 as corporation, estimated warranty payable, 490 inventory cost, 309 as separate legal entity, 552 U.S business, Turnberry Golf Corporation, 817 Tyco Corporation, 553 U United Airlines, 512, 513, 766 United Continental Holdings, 512, 513, 766 United Jersey Bank of Princeton, 426 United Parcel Service (UPS), Inc., 25, 380, 613 Unix Corporation, 754–755 V Vanguard, Inc., 354 W Walgreen Company, 360–361 Walmart Stores, Inc accounts payable, 484 accounts payable turnover, 485 benchmarking, 753 cost of goods, 15 financial statement analysis, 741 fiscal year, 116 gross profit percentage, 319 inventory turnover, 319–320 perpetual inventory system, 306 purchase of goods, 269 security guards at, 204 as separate legal entity, 552 Walt Disney Company See Disney Enterprises, Inc Waste Management, Inc., 381–382, 443 Waverly Corporation, 253–254 Web Talk, Inc., 480 Whitewing, Inc., 581–582 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 874   Company Index Whole Foods Markets, Inc account list, 55–57 annual report, 54 cash receipts at, 215 cash sales, 257 chart of accounts, 80–81 company overview, 53–54, 739 corporate social responsibility, 634 cost of goods sold, 15 financial statement, 429 fiscal year, 14–15 perpetual inventory system, 306 results of operations and financial position, 83 stockholders’ equity, 56–57 T-accounts, 82 transactions, 55, 67 Williams-Sonoma, Inc., 324–325, 763 WorldCom Corporation fraud scandal, 196, 198, 382, 443, 621 improper capitalization, 368–369 Wrangler Corporation, 457–458 X Xerox Corporation, 298 Y Yum! Brands, Inc accounts receivable, 298 accruals and deferrals, 189 #149446  Cust: Pearson  Au: Harrison  Pg No 874 Title: Financial Accounting     Server: C/M/Y/K Short / Normal analysis of cash flows, 737 cash and cash equivalents, 243 financial statement analysis, 51, 111, 818 financial statements, 51 fiscal year, 116 internal controls, 243 inventory, 355 inventory turnover, 763 investments, 480 liabilities of, 548 plant assets, 426–427 quality of earnings, 663 retained earnings, 615 revenue recognition, 298 treasury stock, 615 DESIGN SERVICES OF S4carlisle Publishing Services Glindex A Combined Glossary and Subject Index A Above par common stock, 557–558 Accelerated depreciation A depreciation method that writes off a relatively larger amount of the asset’s cost nearer the start of its useful life than the straight-line method does, 373–374 Account The record of the changes that have occurred in a particular asset, liability, or stockholders’ equity during a period The basic summary device of accounting, 55–57 See also Adjustments to entries adjusting, 119–133 analyzing, 79 asset accounts, 55 chart of, 80–81 formats for, 81–82 impact of transactions on, 68–70 liabilities accounts, 55 normal balance of, 81 permanent, 141–143 posted to ledger, 77–78 stockholders’ equity accounts, 56–57 temporary, 141 types of, 55 uncollectible, 259–264, 263–264 Account format A balance-sheet format that lists assets on the left and liabilities and stockholders’ equity on the right, 143 Account numbers, list of, 80–81 Accounting The information system that measures business activities, processes that information into reports and financial statements, and communicates the results to decision makers, See also Accounting decisions; Accounting equation; Accounting information; Assumptions Accounting decisions, 23–24 Accounting equation The most basic tool of accounting: Assets = Liabilities + Owners’ equity, 11 Accounting errors, correcting, 80 Accounting estimates, changes in, 629 Accounting information accuracy of, comparability of, completeness of, disclosure of, on economic substance, enhancing qualitative characteristics, flow of, 73–77 freedom from bias, global, 9–11 and internal control, 201 material, relevance, 6, understandability of, users of, verifiability of, Accounting principles, vs bookkeeping, changing methods of, 629 fair value, 9–10 faithful representation, financial, generally accepted accounting principles (GAAP), 6–7, 9–11 historical cost principle, 8–9 management, 4–5 Accounts payable, 56, 484 Accounts payable turnover Measures the number of times per year a company pays off its accounts payable Assuming all purchases are on credit, to compute accounts payable turnover, divide purchases (cost of goods sold + ending inventory – beginning inventory) by average accounts payable When inventories are immaterial, or when there is very little difference between beginning and ending inventories, substitute cost of goods sold for purchases, 485–486, 764–765 Accounts receivable, 55 Accounts receivable turnover Measures a company’s ability to collect cash from credit customers To compute accounts receivable turnover, divide net credit sales by average net accounts receivable, 272, 763–764 Accrual An expense or a revenue that occurs before the business pays or receives cash An accrual is the opposite of a deferral, 120 Accrual accounting Accounting that records the impact of a business event as it occurs, regardless of whether the transaction affected cash and cash flows, 116 cash-basis accounting vs., 115 defined, 115 ethical issues in, 119 Accrued expense An expense incurred but not yet paid in cash Also called accrual liability, 19, 56, 125–127, 487 Accrued liability A liability for an expense that has not yet been paid by the company Also called accrued expense, 56, 125–127, 487 Accrued revenue A revenue that has been earned but not yet received in cash, 127 Accumulated depreciation The cumulative sum of all depreciation expense from the date of acquiring a plant asset, 18, 124 Accumulated depreciation account, 124 Accumulated other comprehensive income The cumulative amount of items reported as other comprehensive income; a separate category in the stockholders’ equity section of the balance sheet, 252, 631 Acid-test ratio Ratio of the sum of cash plus short-term investments plus net current receivables to total current liabilities Tells whether the entity can pay all its current liabilities if they come due immediately Also called the quick ratio, 271, 762 Adjusted trial balance A list of all the ledger accounts with their adjusted balances, 132 Adjustments to entries accruals, 120 accrued expenses, 125–127 accrued revenues, 127 deferrals, 120 depreciation, 120 prepaid expenses, 120–123 summary of, 129–131 trial balance, 132 unearned revenue, 128–129 Aging-of-receivables A way to estimate bad debts by analyzing individual accounts receivable according to the length of time they have been receivable from the customer, 261–263, 264 Allowance for Bad Debts, 259 Allowance for Doubtful Accounts Another name for Allowance for Uncollectible Accounts, 259–264 Allowance for Uncollectible Accounts The estimated amount of collection losses Another name for Allowance for Doubtful Accounts, 259–264 Allowance method A method of recording collection losses based on estimates of how much money the business will not collect from its customers, 259–264 Amortization The systematic reduction of a lump-sum amount Expense that applies to intangible assets in the same way depreciation applies to plant assets and depletion applies to natural resources, 388 for bond premium, 504–508 depreciation on leasehold improvements, 364 on statement of cash flows, 671, 673, 687 straight-line method, 508 Amortized cost method, 432 Approvals, proper, for internal control, 201–202 Asset An economic resource that is expected to be of benefit in the future See also Intangible asset; Plant assets accounts receivable, 18, 55 asset accounts, 55–56 asset transactions, 394–395 assumptions about, 8–9 basket purchases of, 366 buildings, 55 cash/cash equivalents, 18, 55 classifying by liquidity, 142–143 current, 18, 143, 673–674 current, liquidity of, 143 defined, 11, 55 depreciable, useful life of, 380–381 equipment, furniture, fixtures, 56 fixed, 12 fully depreciated, 382, 383 impairment of, 390–392 improper access to, 197 intangible, 18 inventory, 12, 18, 55 kinds of, 12 land, 55 long-term, 18 long-term, liquidity of, 143 notes receivable, 18, 55 prepaid expenses, 18, 55 property and equipment, 12, 18 reporting, 143 return on, 392–394 safeguarding, 197 sale of, 673 short-term investments, 18 wasting, 387 Asset turnover The dollars of sales generated per dollar of assets invested Formula is Net sales ÷ Average total assets, 393, 575, 768 Assumptions continuity (going-concern), entity, historical cost, 8–9 stable monetary unit, Audit A periodic examination of a company’s financial statements and the accounting systems, controls, and records that produce them Audits may be either external or internal External audits are usually performed by certified public accountants (CPAs), 201 875 #149446  Cust: Pearson  Au: Harrison  Pg No 875 Title: Financial Accounting     Server: C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 876   Glindex Auditors external, 201 fraudulent activity of, 443 internal, 201 responsibility of, 634–636 for verifying information, Authorized stock Maximum number of shares a corporation can issue under its charter, 555, 564 Available-for-sale securities All investments not classified as held-to-maturity or trading securities, 433–437 accounting and reporting for, 251–252 balance sheet reporting, 430 characteristics, 247 fair value of, 455–456 selling, 436–437 Average-cost method Inventory costing method based on the average cost of inventory during the period Average cost is determined by dividing the cost of goods available by the number of units available Also called the weighted-average method, 310 effect on cost of goods sold, 312–313 effect on gross profit, 312–313 B Bad debts, allowance for, 259 Bad-debt expense Another name for uncollectible account expense, 259 Balance agreements, compensating, 220–221 Balance sheet List of an entity’s assets, liabilities, and owners’ equity as of a specific date Also called the statement of financial position assets on, 17–19 classified, 143 consolidated, 441–442 elements of, 17–19 format of, 143 relationship with other financial statements, 21 reporting cash on, 220–221 reporting liabilities on, 18–19, 492 short-term investments, 252 and stockholders’ equity, 19, 579–580 Balance-sheet approach, 261–263 Balance-sheet defect, 115 Balance sheet formats, 143 account formats, 143 report formats, 143 Bank collections Collection of money by the bank on behalf of a depositor, 208 Bank debt, cooking the books with, 443 Bank reconciliation A document explaining the reasons for the difference between a depositor’s records and the bank’s records about the depositor’s cash, 207–210 bank side of, 208 book side of, 208 controlling cash with, 212 illustration, 208–209 journalizing, 210 preparing of, 208–210 Bank statement Document showing the beginning and ending balances of a particular bank account listing the month’s transactions that affected the account, 206 Bankcard sales, 269–270 Banking bank errors, 208 bank reconciliation, 207–210 bank statement, 206 check, 205 See also Check deposit ticket, 205 and internal control, 204–212 online banking, 211–212 signature card, 205 Bar codes, 202 Basket purchases of assets, 366 Benchmarking The comparison of a company to a standard set by other companies, with a view toward improvement, 753 Benefit plans, 515–516 Board of directors Group elected by the stockholders to set policy for a corporation and to appoint its officers, 6, 553, 554 Bond prices, 430 Bondholders, 494 Bonds payable Groups of debt securities issued to multiple lenders called bondholders See also Amortization; Callable bond accounting for, 494–510 interest expense on, 499–504 issuing at a discount, 499 issuing at a premium, 504–508 issuing at par, 497–498 proceeds from, 688 retiring, 509 Bonus, payment of, to employees, 487–488 Book errors, 208 Book value (of a plant asset) The asset’s cost minus accumulated depreciation, 124 Book value per share Amount of common stockholders’ equity on the company’s books for each share of its stock, 574 See also Book value per share of common stock Book value per share of common stock Common stockholders’ equity divided by the number of shares of common stock outstanding The recorded amount for each share of common stock outstanding, 772–773 See also Book value per share Bookkeeping, Budget A quantitative expression of a plan that helps managers coordinate the entity’s activities, 201 See also Cash budget; Operating budget Budgeted purchase, 321 Buildings, cost of, 18, 55, 365–366 Burglar alarms, 203 Business activities, types of, 668 Business decisions economic, 24 ethical, 23–25 ethics and, 23–25 legal, 24 Business transactions See Transactions Businesses corporations, limited-liability companies, organizing, 5–6 partnerships, proprietorships, Bylaws Constitution for governing a corporation, 553 C Calendar year, 15 Callable bond Bonds that are paid off early at a specified price at the option of the issuer, 509 Capital Another name for the owners’ equity of a business, 11 See also Owners’ equity; Stockholders’ equity paid-in, 12, 19, 555 working, 145, 759–760 #149446  Cust: Pearson  Au: Harrison  Pg No 876 Title: Financial Accounting     Server: C/M/Y/K Short / Normal Capital charge The amount that stockholders and lenders charge a company for the use of their money Calculated as (Notes payable + Loans payable + Long-term debt + Stockholders’ equity) X Cost of capital, 774 Capital expenditure Expenditure that increases an asset’s capacity or extends its useful life Capital expenditures are debited to an asset account, 367 distinguishing from immediate expense, 367–369 Capital lease Lease agreement in which the lessee assumes, in substance, the risks and rewards of asset ownership In the United States, a lease is assumed to be a capital lease if it meets any one of four criteria: (1) The lease transfers title of the leased asset to the lessee (2) The lease contains a bargain purchase option (3) The lease term is 75% or more of the estimated useful life of the leased asset (4) The present value of the lease payments is 90% or more of the market value of the leased asset, 514–515 Capital stock, 555 Cash Money and any medium of exchange that a bank accepts at face value as asset, 12, 18 as an asset, 55 on the balance sheet, 18 computing collections of, 265–266, 691 controlling with bank reconciliation, 212 controls for, 204–205 from customers, 215–216, 265–266, 685 defined, 55 as liquid asset, 142–143 Cash adequacy See Free cash flow Cash-basis accounting Accounting that records only transactions in which cash is received or paid, 115 Cash budget A budget that projects the entity’s future cash receipts and cash disbursements compliance monitoring, 201 constructing and using, 218–219 and internal control, 201 Cash collections computing, 265–266, 691 from customers, 215–216, 265–266, 685 Cash conversion cycle The number of days it takes to convert inventory to receivables, and receivables into cash, after paying off payables The formula is Days’ inventory outstanding + Days’ sales outstanding – Days’ payables outstanding, 762, 765 Cash equivalent Highly liquid short-term investments such as time deposits, certificates of deposit, or high-grade government securities that can be converted into cash immediately These investments are considered so similar to cash that they are combined with cash for financial disclosure purposes on the balance sheet, 220, 667 Cash flows Cash receipts and cash payments (disbursements), 666 See also Statement of cash flows and accrual accounting, 116 decreased, 774 in the financial statement, 22 free cash flow, 694 from operations, analysis of, 632 speeding up, 269–270 Cash receipts of interest and dividends, 685 by mail, 215–216 over the counter, 215 DESIGN SERVICES OF S4carlisle Publishing Services Glindex    877 Chairperson Elected by a corporation’s board of directors, usually the most powerful person in the corporation, 554 Channel stuffing A type of financial statement fraud that is accomplished by shipping more to customers (usually around the end of the year) than they ordered, with the expectation that they may return some or all of it The objective is to record more revenue than the company has actually earned with legitimate sales and shipments, 621 Chart of accounts List of a company’s accounts and their account numbers, 80–81 Check Document instructing a bank to pay the designated person or business the specified amount of money cancelled, 206 cost of printing, 208 and internal control, 205 outstanding, 208 payments by, 216–218 Chief executive officers (CEO), Chief financial officer (CFO), Chief operating officers (COO), Classified balance sheet A balance sheet that shows current assets separate from long-term assets and current liabilities separate from long-term liabilities, 143 Clean opinion An unqualified opinion, 636 Closing entries Entries that transfer the revenue, expense, and dividends balances from these respective accounts to the Retained Earnings account, 141 Closing the books The process of preparing the accounts to begin recording the next period’s transactions Closing the accounts consists of journalizing and posting the closing entries to set the balances of the revenue, expense, and dividends accounts to zero Also called closing the accounts, 141–145 Collateral, 257 Collectibility, evaluating, 258–266 Collusion, 204 Commission, 487 Committee of Sponsoring Organizations (COSO) of the Treadway Commission, 634 Common-size statement A financial statement that reports only percentages (no dollar amounts), 752–753 Common stock The most basic form of capital stock The common stockholders own a corporation on a balance sheet, 19 defined, 12 issued for assets other than cash, 559–560 issued for services, 560 outstanding, 555, 564, 630 as paid-in capital, 12 above par, 557–558 at par, 557 no-par, 559 no-par with stated value, 559 Company policy, and internal control, 197 Comparisons, and internal control, 201 Compensating balance agreements, 220–221 Compliance monitoring, 201 Compound interest, 449 Comprehensive income A company’s change in total stockholders’ equity from all sources other than from the owners of the business (including distributions to owners), 631 Computer virus A malicious program that enters a company’s computer system by e-mail or other means and destroys program and data files, 203 Consignment An inventory arrangement where the seller sells inventory that belongs to another party The seller does not include consigned merchandise on hand in its balance sheet, because the seller does not own this inventory, 305 Consolidated balance sheets, 441–442 Consolidated entity, income of, 442 Consolidated financial statements Financial statements of the parent company plus those of more-than-50%-owned subsidiaries as if the combination were a single legal entity, 440 Consolidation accounting, 440–441 Consolidation of foreign subsidiaries, 446 Contingent liabilities, 491–492 Continuity assumption, See also Goingconcern assumption Continuous lives, 552 Contra account An account that always has a companion account and whose normal balance is opposite that of the companion account, 124 Contributed capital The amount of stockholders’ equity that stockholders have contributed to the corporation Also called paid-in-capital, 555 Control environment, 197, 199 Controller The chief accounting officer of a business, 201 Controlling (majority) interest Ownership of more than 50% of an investee company’s voting stock, 440 Controls, internal See Internal control Convertible bonds (or notes) Bonds or notes that may be converted into the issuing company’s common stock at the investor’s option, 509–510 Convertible notes See Convertible bonds Cooking the books See also Fraud; Sarbanes-Oxley Act (SOX) capitalizing plant assets, 368–369 defined, 196 with inventory, 323–324 with investments and debt, 443 with liabilities, 492 with revenue, 621 through depreciation, 381–382 Copyright Exclusive right to reproduce and sell a book, musical composition, film, other work of art, or computer program Issued by the federal government, copyrights extend 70 years beyond the author’s life, 389 Corporate income statement, 619 See also Income statement Corporate income taxes, 625–627 Corporate social responsibility (CSR) A nonfinancial measure of a company’s performance, including its investment in corporate governance, environmental conservation, and other socially responsible programs that benefit society as a whole, 634 Corporate taxation, 553 Corporation A business owned by stockholders A corporation is a legal entity, an “artificial person” in the eyes of the law characteristics, defined, features of, 552–557 organizing, 553–554 Cost of disclosure, Cost of goods sold Cost of the inventory the business has sold to customers, 304, 311–312, 621–622 Cost-of-goods-sold (COGS) model Formula that brings together all the inventory data #149446  Cust: Pearson  Au: Harrison  Pg No 877 Title: Financial Accounting     Server: for the entire accounting period: Beginning inventory + Purchases = Cost of goods available (i.e., cost of goods available for sale) Then, Cost of goods available – Ending inventory = Cost of goods sold, 320–322 Cost of inventory, 308–309 Cost of plant assets, 370 See also Plant assets Cost per unit of inventory, 306 Credit The right side of an account, 68 Credit balance, 496 Credit card numbers, stolen, 203 Credit card sales, 269–270 Credit department, 201–202 Creditor The party to whom money is owed, 4, 11, 266 Cumulative preferred stock Preferred stock whose owners must receive all dividends in arrears before the corporation can pay dividends to the common stockholders, 570–571 Current asset An asset that is expected to be converted to cash, sold, or consumed during the next 12 months, or within the business’s normal operating cycle if longer than a year changes in account, 673–674 defined, 18 reporting of, 143 Current installment See Current portion of long-term debt Current installment of long-term debt, 489 Current liability A debt due to be paid within one year or within the entity’s operating cycle if the cycle is longer than a year, 484–490 ability to pay, 759–762 on the balance sheet, 19 changes in account, 673–674 contingent, 491–492 of known amount, 484–489 liquidity of, 143 that must be estimated, 490 Current maturity See Current portion of long-term debt Current maturity of long-term debt, 489 Current portion of long-term debt The amount of the principal that is payable within one year, 12, 18–19, 489, 516 Current ratio Current assets divided by current liabilities Measure a company’s ability to pay current liabilities with current assets, 145–146, 760–762 analyzing a company using, 149 ethics and, 252–253 and liquidity, 145–146 D Days payable outstanding (DPO) Accounts payable turnover expressed in days (365/turnover), 485 Days’ sales in receivables Ratio of average net accounts receivable to one day’s sales Indicates how many days’ sales remain in Accounts Receivable awaiting collection Also called the collection period and days’ sales outstanding, 271–272, 764 Debentures Unsecured bonds–bonds backed only by the good faith of the borrower, 496 Debit The left side of an account, 68 Debit and credit, rules of, 68–70 Debit balance, 496 Debit cards, 218 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 878   Glindex Debit memorandum A document issued to the seller (vendor) when an item of inventory that is unwanted or damaged is returned This document authorizes a reduction (debit) to accounts payable for the amount of the goods returned, 308 Debt excessive, 774 long-term, 12, 18–19, 489, 517 payment of, 688 proceeds from, 688 Debt ratio Ratio of total liabilities to total assets States the proportion of a company’s assets that is financed with debt, 146 analyzing a company using, 145–150 decision guidelines, 545–546 and liquidity, 146 measuring leverage, 765–766 Debtor The party who owes money, 266, 430 Decision guidelines/cases accounting difference effect on ratios, 816 accounting for inventory, 324–325 accrual accounting and income, 185–187 action to cut losses and establish profitability, 816–817 debt ratios, 545–546 evaluating debt-paying ability, 149–150 financial statements, 48–49 financing with debt or stock, 511 framework for making ethical judgments, 25 internal control and cash, 241–242 inventory and cost of goods sold, 354 inventory methods, 324–325 investing in stock, 580 investment analysis, 636–637 investment decisions, 479 long-term investments, 444 measuring results of operations and financial position, 83 plant assets and related expenses, 396, 425 quality of earnings, 661–662 raising capital, 612–613 receivables, managing and accounting for, 258 transaction analysis, 108–109 transaction effects on a company, 815 uncollectible receivables, 296–297 use of cash flow and related information, 695, 735–736 using ratios, 775–777 Default, 496 Deferral An adjustment for which the business paid or received cash in advance Examples include prepaid rent, prepaid insurance, and supplies, 120 Deferred revenues, 488 See also Unearned revenue Deferred tax liability, 627 Deficit Negative (debit) balance in retained earnings caused by net losses over a period of years, 16, 567 Depletion That portion of a natural resource’s cost that is used up in a particular period Depletion expense is computed in the same way as units-of-production depreciation A depleted asset usually flows into inventory and eventually to cost of goods sold as the resource is sold, 387 on statement of cash flows, 671, 673, 687 Deposit tickets, 205 Deposits in transit A deposit recorded by the company but not yet by its bank, 208 Depreciable cost The cost of a plant asset minus its estimated residual value, 370–372 See also Depreciation Depreciation Allocation of the cost of a plant asset to expense over its useful life accelerated methods, 373–375 accumulated, 18, 124 adjusting entries, 120 change in accounting estimate, 380–381 changing useful life of assets, 380–381 comparing methods of, 375–376 cooking the books through, 381–382 double-declining-balance (DDB) method, 373–375 as an expense, 12, 15 fully depreciated assets, 382, 383 modified accelerated cost recovery system (MACRS), 379–380 for partial years, 380 of plant assets, 123–125, 369–376 on statement of cash flows, 671, 673, 687 straight-line method (SL), 371 for tax purposes, 378–380 units-of-production method (UOP), 372–373 Detailed income statement, and inventory, 318 Diluted earnings per share, 630 Direct method Format of the operating activities section of the statement of cash flows; lists the major categories of operating cash receipts (collections from customers and receipts of interest and dividends) and cash disbursements (payments to suppliers and employees, and for interest and income taxes), 669, 684–694 Direct write-off method A method of accounting for bad debts in which the company waits until a customer’s account receivable proves uncollectible and then debits Uncollectible-Account Expense and credits the customer’s Accounts Receivable, 265 Disclosure principle A business’s financial statements must report enough information for outsiders to make knowledgeable decisions about the business The company should report relevant, representationally faithful information about its economic affairs, 316 Discontinued operations, 628–629 Discount (on a bond) Excess of a bond’s face (par) value over its issue price, 496 Dividend Distributions (usually cash) by a corporation to its stockholders, 567 See also Dividend yield cash as, 568–569 computing, 678–679 declaration of cash dividends, 630 defined, 12 as owners’ equity, 12–13 payment of, 17, 688 on preferred stock, 570–571 receiving dividends under the equity method, 438–439 reporting on statement of cash flows, 578 stockholders’ rights, 554 as temporary accounts, 141 Dividend yield Ratio of dividends per share of stock to the stock’s market price per share Tells the percentage of a stock’s market value that the company returns to stockholders as dividends, 771–772 See also Dividend Double taxation Corporations pay income taxes on corporate income Then, the stockholders pay personal income tax on the cash dividends that they receive from corporations, 6, 553 Double-declining-balance (DDB) An accelerated depreciation method that computes annual depreciation by multiplying #149446  Cust: Pearson  Au: Harrison  Pg No 878 Title: Financial Accounting     Server: C/M/Y/K Short / Normal the asset’s decreasing book value at the beginning of the year by a constant percentage, which is two times the straight-line rate, 373–375 Doubtful-account expense Another name for uncollectible-account expense, 259 DuPont Analysis A detailed approach to measuring rate of return on equity (ROE), calculated as follows: Net profit margin (net income minus preferred dividends/net sales) X Total asset turnover (net sales/average total assets) X Leverage ratio (average total assets/average common stockholders’ equity), 392–394, 512, 575, 767 E Earnings, persistent, 619 See also Operating income; Retained earnings Earnings per share (EPS) Amount of a company’s net income earned for each share of its outstanding common stock, 510, 630, 770–771 Earnings problems, 774 Earnings quality The characteristics of an earnings number that make it most useful for decision making; the degree to which earnings are an accurate reflection of underlying economic events for both revenues and expenses, and the extent to which earnings from a company’s core operations are improving over time Assuming that revenues and expenses are measured accurately, high-quality earnings are reflected in steadily improving sales and steadily declining costs over time, so that income from continuing operations follows a high and improving pattern over time, 619 cost of goods sold, 621–622 expense recognition and, 619 gross margin/sales ratio, 619, 622 high operating earnings, 619, 622 low operating expenses, 619, 622 revenue recognition and, 620–621 E-commerce risks of, 203–204 security measures for, 203 Economic value added (EVA®) Used to evaluate a company’s operating performance EVA® combines the concepts of accounting income and corporate finance to measure whether the company’s operations have increased stockholder wealth EVA® = Net income + Interest expense – Capital charge, 773–774 Efficient capital market A capital market in which market prices fully reflect all information available to the public, 775 Electronic funds transfer (EFT) System that transfers cash by electronic communication rather than by paper documents in bank reconciliation, 208 payments by, 216–217 uses for, 206 Electronic sensor on merchandise, 202 Employee compensation See also Salary expense as accrued expense, 125–127, 487 as a company’s major expense, 487 treasury stock for, 566–567 wages, 487, 685, 693 Employee income tax payable, 488 Employer payroll tax, 488 DESIGN SERVICES OF S4carlisle Publishing Services Glindex    879 Encryption Mathematical rearranging of data within an electronic file to prevent unauthorized access to information, 202, 203–204 Entity An organization or a section of an organization that, for accounting purposes, stands apart from other organizations and individuals as a separate economic unit, Entity assumption, Equipment, cost of, 18, 56, 365–366 Equity method The method used to account for investments in which the investor has 20–50% of the investee’s voting stock and can significantly influence the decisions of the investee, 437–439 Equity multiplier Another name for leverage ratio, 512 Equity transactions, reporting, 577–580 Estimated residual value Expected cash value of an asset at the end of its useful life Also called residual value, scrap value, or salvage value, 370 Estimated useful life Length of service that a business expects to get from an asset May be expressed in years, units of output, miles, or other measures, 370 Estimated warranty payable, 490 Ethical issues See also Ethics accounting for inventory, 323–324 in accrual accounting, 119 accrual accounting and income, 187–188 Business Ethics Leadership Alliance (BELA), 25 capitalization of leases, 515 classification of investments, 817 contingent liabilities, 546–547 and the current ratio, 252–253 ethical decision making, 23–25 Ethisphere Institute, 25 financial statements, 50, 662, 736 franchise purchase, 613–614 and fraud, 197, 198 global, 24 and internal control, 242 inventory and cost of goods sold, 354 lease agreements, 547 legal factors, 24 paying dividends, 480 reclassifying investments, 817 reclassifying long-term receivables, 736 reporting results of operations, 662 stock issuance other than case, 560–561 stock value, 613–614 tax deductions, 426 transaction analysis, 109–110 treasury stock purchase, 614 uncollectible-account expense, 297 Ethics Standards of right and wrong that transcend economic and legal boundaries Ethical standards deal with the way we treat others and restrain our own actions because of the desires, expectations, or rights of others, or because of our obligations to them, 24 See also Ethical issues Excel, Microsoft, calculating present value with, 454–455 Excel exercises Amazon com annual report, 741 Apple annual report, 246 bond amortization tables, 501 cash budget, 219 comparative financial statements for horizontal analysis, 744–745 comparative financial statements for vertical analysis, 750 depreciation schedules, 372, 373, 374–375 Family Dollar Stores annual report, 303 FedEx, Inc., annual report, 364 financial statements, 28, 65, 133 The Gap, Inc., annual report, 3, 619–620 Google, Inc., annual report, 666 The Home Depot, Inc., annual report, 552 Intel Corp annual report, 430 Southwest Airlines annual report, 484 Starbucks Corp annual report, 114–115 transaction analysis, 57–62 trial balance, 79, 132–133 Whole Foods Market annual report, 54 Exception reporting Identifying data that is not within “normal limits” so that managers can follow up and take corrective action Exception reporting is used in operating and cash budgets to keep company profits and cash flow in line with management’s plans, 200, 201 Exchange, mediums of, Exchange rates, of foreign currencies, 446–447, 623–624 Expense recognition principle The basis for recording expenses Directs accountants to identify all expenses incurred during the period, to measure the expenses, and to match them against the revenues earned during that same period, 118 Expenses Decrease in retained earnings that results from operations; the cost of doing business; opposite of revenues accrued, 19, 57, 125–127, 487 administrative, 16 as component of retained earnings, 12–13 cost of products sold, 15 current liabilities, 493 defined, 12 distinguishing from capital expenditures, 367–369 general, 16 on income statement, 15–16 income tax expense, 16, 625–627 net interest expense, 16 operating, 16, 622, 692–693 as part of stockholders’ equity, 70–71 prepaid, 120–123 recognition of, 118 salary, 125–127, 488, 685, 693 selling, 16 as temporary accounts, 141 Extraordinary gains and losses Also called extraordinary items, these gains and losses are both unusual for the company and infrequent, 629 Extraordinary items An extraordinary gain or loss, 629 F Face value, of bonds, 494, 497–498 Factoring receivables, 270 Fair value The amount that a business could sell an asset for, or the amount that a business could pay to settle a liability, 9–10 available-for-sale securities, 433 fair value adjustment, 435–436 of investments, 455–456 of long-term debt, 517 FICA tax payable, 488 Fidelity bond An insurance policy taken out on employees who handle cash, 203 Financial accounting The branch of accounting that provides information to people outside the firm, #149446  Cust: Pearson  Au: Harrison  Pg No 879 Title: Financial Accounting     Server: Financial Accounting Standards Board (FASB) The regulatory body in the United States that formulates generally accepted accounting principles (GAAP), 6, convergence of accounting standards, 10 and the direct method, 684 and revenue recognition, 621 Financial statements Business documents that report financial information about a business entity to decision makers, from adjusted trial balance, 132, 133 analysis, red flags in, 774–775 elements of, 11–13, 21–22 evaluating business operations through, 14, 21–22 footnotes, 632–633 formats for, 143–145 fraudulent financial reporting, 196 production of, relationships between, 22 standards for, 9, 10 and transactions, 63–65 Financing activities Activities that obtain from investors and creditors the cash needed to launch and sustain the business; a section of the statement of cash flows, 20, 668 cash flows from, 676–679, 688, 693 noncash, 680, 688 Fireproof vaults for important documents, 203 Firewall An electronic barrier, usually provided by passwords, around computerized data files to protect local area networks of computers from unauthorized access, 204 First-in, first-out Inventory costing method by which the first costs into inventory are the first costs out to cost of goods sold Ending inventory is based on the costs of the most recent purchases, 310–311 converting LIFO company’s net income to FIFO basis, 360–361 effect on cost of goods sold, 311–312 effect on gross profit, 311–312 Fiscal year, 14–15, 116 FOB Acronym for “free on board”; used in quoting shipping terms, 255, 305 See also Shipping terms Footnotes, 632–633 Foreign subsidiaries, consolidation of, 446 Foreign-currency exchange rate The measure of one country’s currency against another country’s currency, 446–447, 623 Foreign-currency gains and losses accounting for, 623–625 reporting, 624–625 Foreign-currency translation adjustment The balancing figure that brings the dollar amount of the total liabilities and stockholders’ equity of the foreign subsidiary into agreement with the dollar amount of its total assets, 447–448 Franchises and licenses Privileges granted by a private business or a government to sell a product or service in accordance with specified conditions, 389 Fraud An intentional misrepresentation of facts, made for the purpose of persuading another party to act in a way that causes injury or damage to that party See also Ethical issues cooking the books, 196 See also Cooking the books and ethics, 197, 198 impact of, 195–197 and inventory, 323–324 types of, 195–196 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 880   Glindex Fraud triangle The three elements that are present in almost all cases of fraud These elements are motive, opportunity, and rationalization on the part of the perpetrator, 196–197 Fraudulent financial reporting Fraud perpetrated by management by preparing misleading financial statements, 196 Free cash flow The amount of cash available from operations after paying for planned investments in plant assets, 694 Fully depreciated assets, 382, 383 Future benefits, 18 Future profits, predicting, 627–628 Future value Measures the future sum of money that a given current investment is “worth” at a specified time in the future assuming a certain interest rate, 449 Futures contracts, 625 G Generally accepted accounting principles (GAAP) Accounting guidelines, formulated by the Financial Accounting Standards Board, that govern how accounting is practiced, 6, accounting for research and development, 391–392 and accrual accounting, 115 capitalization of leases, 515 defined, and depreciation, 376 differences with IFRS, 386–387 and extraordinary items, 629 and fair value adjustment, 435 vs International Financial Reporting Standards, 9, 10 and inventory, 316–318 reported carrying values of plant assets, 386–387 reporting standards, 9, 10 and revenue recognition, 117, 254–256 and stock dividends, 571–572 Global markets, See also International Financial Reporting Standards capitalization of leases, 515 carrying values of property, plant and equipment, 386–387 consolidation of foreign subsidiaries, 446 extraordinary items, 629 impairments, 391–392 LIFO vs FIFO, 314 loss contingencies, 492 market, defined, 317 revenue recognition in, 117, 621 Going out of business, Going-concern assumption Holds that the entity will remain in operation for the foreseeable future, Goodwill Excess of the cost of an acquired company over the sum of the market values of its net assets (assets minus liabilities), 389–390, 442 Government regulations, 553 Gross margin Another name for gross profit, 304, 766–767 Gross margin method Another name for the gross profit method, 321 Gross margin percentage Another name for the gross profit percentage, 318 Gross profit Sales revenue minus cost of goods sold Also called gross margin, 304, 622 effects of inventory cost method, 311–312 and inventory turnover, 319–320 sale price vs cost of inventory, 304 Gross profit method A way to estimate inventory based on a rearrangement of the cost-of-goods-sold model: Beginning inventory + Net purchases = Cost of goods available – Cost of goods sold = Ending inventory Also called the gross margin method, 321–322 Gross profit percentage Gross profit divided by net sale revenue Also called the gross margin percentage, 318–319 H Hedging To protect oneself from losing money in one transaction by engaging in a counterbalancing transaction, 625 Held-to-maturity investments Bonds and notes that an investor intends to hold until maturity, 430, 431–433 Held-to-maturity securities Securities in which the investor has the intent and ability to hold until a maturity date stated on the face of the security balance sheet reporting, 430 characteristics, 247 defined, 248 Hiring practices, smart, 200 Historical cost principle Principle that states that assets should be recorded at their actual cost, 8–9 Horizontal analysis Study of percentage changes in line items on comparative financial statements, 743–749 Human resources (HR) department, 202 I Impairment The condition that exists when the carrying amount of a long-lived asset exceeds the amount of the future cash flows from the asset Whenever long-term assets have been impaired, they have to be written down to fair market values using a two-step process Under U.S GAAP, once impaired, the carrying value of a long-lived asset may never again be increased Under IFRS, if the fair value of impaired assets recovers in the future, the values may be increased, 390–392 Import/Export ratio, 447 Imprest system A way to account for petty cash by maintaining a constant balance in the petty cash account, supported by the fund (cash plus payment tickets) totaling the same amount, 218 Income of a consolidated entity, 442 Income statement A financial statement listing an entity’s revenues, expenses, and net income or net loss for a specific period Also called the statement of operations corporate, 619 defined, 2, 14 documents, 21 formats, 143–145 and inventory, 318 as a measure of operating performance, 14–16 multi-step, 143, 145 short-term investments, 252 single-step, 143 Income statement defect, 115 Income taxes computing payments of, 693 corporate, 625–627 #149446  Cust: Pearson  Au: Harrison  Pg No 880 Title: Financial Accounting     Server: C/M/Y/K Short / Normal expense of, 625, 687 income tax payable, 625 payable, 19 Income-statement approach, 261 Incorporators, 553 Indirect method Format of the operating activities section of the statement to cash flows; starts with net income and reconciles to cash flow from operating activities, 669–680 Individuals, as users of accounting information, Inflation, Information technology for internal control, 200 and internal control, 202–203 Initial public offering (IPO) The first time a corporation issues stock to the public, which causes the number of issued and outstanding shares of stock to increase, 557 Inside information, 775 Insider claims, 11 Intangible asset An asset with no physical form–a special right to current and expected future benefits, 364 accounting for, 388–390 on the balance sheet, 18 franchises and licenses, 389 and GAAP, 387–390 goodwill, 389–390 patents, 388–389 research and development, 390 trademarks and trade names, 389 Interest The borrower’s cost of renting money from a lender Interest is revenue for the lender and expense for the borrower, 266 See also Interest expense; Market interest rate on bonds, 495 compound, 449 computing payments of, 693 partial-period, 504 stated rate, 496 Interest expense See also Interest accounting for, 494 on bonds, 499–504 income statement reporting, 625 measuring, 508 net interest expense, 16 payments for, 687 Interest income, 625 Interest rate, of bonds, 496–497 Interest revenue, on checking account, 208 Interest-coverage ratio Another name for the times-interest-earned ratio, 513 Internal control Organizational plan and related measures adopted by an entity to safeguard assets, encourage adherence to company policies, promote operational efficiency, and ensure accurate and reliable accounting records and banking, 204–212 control environment, 199 and e-commerce, 203 importance of, 197 information system, 200, 202–203 limitations of, 204 monitoring of controls, 200 objectives of, 197 over cash collections on account, 215–218, 257 over purchase and payment, 216–218 payment of check or EFT, 216–217 procedures, 200–202 risk assessment, 199 safeguard controls, 203 DESIGN SERVICES OF S4carlisle Publishing Services Glindex    881 International Accounting Standards Board (IASB), 6, 10, 621 International Financial Reporting Standards (IFRS) Accounting guidelines, formulated by the International Accounting Standards Board (IASB) U.S GAAP is being harmonized with IFRS At that time, U.S companies are expected to adopt these principles for their financial statements, so that they can be compared with those of companies from other countries accounting for research and development, 391–392 capitalization of leases, 515 compared to GAAP, 9–11, 386–387 disallowance of LIFO, 314 and extraordinary items, 629 and globalization, 11 market, defined, 317 purpose of, 9–11 reported carrying values of plant assets, 386–387 and revenue recognition, 117 Inventory The merchandise that a company sells to customers See also Periodic inventory system; Perpetual inventory system accounting for, 303–308, 324–325 buildup of, 774 cost of, 304–306, 308–309 cost of goods sold vs., 304 defined, 55 and the detailed income statement, 318 effects of errors, 322–324 ending, 311–312 estimating, 321–322 number of units on hand, 305 periodic system, 306, 324, 356–357 trends in, 775 Inventory costing methods See also Average-cost method; First-in, first-out; Last-in, first-out; Specific-unit-cost method comparison of, 308–314 Inventory turnover Ratio of cost of goods sold to average inventory Indicates how rapidly inventory is sold, 319–320 and gross profit, 319–320 measuring, 762–763 Investee, 430 Investing activities Activities that increase or decrease the long-term assets available to the business; a section of the statement of cash flows, 20, 668, 675–676 cash flows from, 687–688, 693 cash receivables, 270 long-term, 20 noncash, 680, 688 reporting, 448–449 short-term, 17 Investment capitalization rate An assumed rate of return used to estimate the value of an investment in stock This rate should approximate the weighted-average cost of capital, 627 Investment decisions based on stock, 771–773 other factors, 773–775 use of horizontal analysis for, 743–749 Investments See also Long-term investments; Short-term investments in affiliated companies, 437–439 in debt securities, 431–433 equity method, 437–439 purchases and sales of, 676 reporting on balance sheet, 430–431 reporting on statement of cash flows, 448–449 selling, 436–437 short-term, 430 Investors defined, 430 global stock trading, growth investors, 772 percentage of investee income, 438 use of accounting information, value investors, 772 Issued stock Number of shares a corporation has issued to its stockholders, 564 J Job rotation, 203 Journal The chronological accounting record of an entity’s transactions, 71 Journalizing process, 71, 210 L Land cost of, 55, 365 improvements to, 366 as not depreciable, 364 Lapping A fraudulent scheme to steal cash through misappropriating certain customer payments and posting payments from other customers to the affected accounts to cover it up Lapping is caused by weak internal controls (i.e., not segregating the duties of cash handling and accounts receivable bookkeeping, allowing the bookkeeper improper access to cash, and not appropriately monitoring the activities of those who handle cash), 193 Last-in, first-out Inventory costing method by which the last costs into inventory are the first costs out to cost of goods sold This method leaves the oldest costs–those of beginning inventory and the earliest purchases of the period–in ending inventory, 10, 311, 360–361 converting to FIFO, 325 disallowance under IFRS, 314 effect on cost of goods sold, 312–313 effect on gross profit, 312–313 LIFO liquidation, 313 and managing reported income, 313 tax advantage of, 313 Lease Rental agreement in which the tenant (lessee) agrees to make rent payments to the property owner (lessor) in exchange for the use of the asset, 513–514 Leasehold improvements, 366 Ledger The book of accounts and their balances, 72 Legal capital Minimum amount of stockholders’ equity that a corporation must maintain for the protection of creditors For corporations with par-value stock, legal capital is the par value of the stock issued, 556 Legal requirements, and internal control, 197 Lessee Tenant in a lease agreement, 513 Lessor Property owner in a lease agreement, 513 Leverage Earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business Also called trading on the equity, 765–766, 770 financing with debt vs equity, 510 #149446  Cust: Pearson  Au: Harrison  Pg No 881 Title: Financial Accounting     Server: Leverage ratio The ratio of total assets ÷ total stockholders’ equity, showing the proportion of total assets to stockholders’ equity This ratio, like the debt ratio introduced in Chapter 3, tells the mixture of a company’s debt and equity financing and is useful in calculating rate of return on stockholders’ equity (ROE) through the DuPont Model, 512, 769 Liability An economic obligation (a debt) payable to an individual or an organization outside the business, 11 accounting for, 484–493 accounts payable, 19, 56 accrued expenses, 19, 56, 125–127, 487 accrued liabilities, 56, 125–127, 487 classifying by liquidity, 143 contingent, 491–492 current, 19, 143, 484–490 current, liquidity of, 143 current accounts, 673–674 defined, 11 income taxes payable, 19, 625 liabilities accounts, 56 long-term, 513–516, 668 long-term debt, 18–19 long-term liquidity of, 143 notes payable, 56 postretirement, 515–516 reporting, 143, 492, 516–517 summary of current, 493 understating, 492 unearned revenue, 128–129 Licenses See Franchises and licenses Limited access, and internal control, 201 Limited liability No personal obligation of a stockholder for corporation debts A stockholder can lose no more on an investment in a corporation’s stock than the cost of the investment, 552–553 Limited-liability company (LLC) A business organization in which the business (not the owner) is liable for the company’s debts, Liquidation, 116, 554 Liquidation value The amount a corporation must pay a preferred stockholder in the event the company liquidates and goes out of business, 574 Liquidity Measure of how quickly an item can be converted to cash classifying by, 142–143 defined, 142 evaluating, 271–272 Loans, to other companies, 687 Lock-box system A system of handling cash receipts by mail whereby customers remit payment directly to the bank, rather than through the entity’s mail system, 194, 208 Long-lived asset transactions, 394–395 Long-term asset An asset that is not a current asset and investing activities, 668 liquidity of, 143 Long-term debt A liability that falls due beyond one year from the date of the financial statements, 12, 18, 489 Long-term investments Any investment that does not meet the criteria of a short-term investment; any investment that the investor expects to hold longer than a year or that is not readily marketable accounting methods for, 433–434, 444 balance sheet reporting, 431 from investor perspective, 430 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 882   Glindex Long-term liability A liability that is not a current liability, 143, 513–516, 668 See also Financing activities Long-term tangible fixed assets See Plant assets Loss contingencies, international accounting standard, 492 Losses, 249–250 Loss-prevention specialists, 203 Lower-of-cost-or-market (LCM) rule Requires that an asset be reported in the financial statements at whichever is lower–its historical cost or its market value (current replacement cost for inventory), 316–317 Lowest taxable income, 313 Lump-sum purchases of assets, 366 M Majority interest See Controlling (majority) interest Management, responsibility of, 634 Management accounting The branch of accounting that generates information for the internal decision makers of a business, such as top executives, Management decisions, using COGS model, 320–322 Managing reported income, 313 Market capitalization The market price of one share of common stock X the total number of common shares outstanding at a particular date, 573 Market interest rate Interest rate that investors demand for loaning their money Also called effective interest rate, 496 Market price See Market value Market value (of a stock) Price for which a person could buy or sell a share of stock, 573 Marketable securities Another name for shortterm investments, 220 Maturity The date on which a debt instrument must be paid, 257 Maturity date The date on which the debtor must pay the note, 266, 494 Maturity value The sum of principal and interest on the note, 266, 494 Merchandise inventory See Inventory Microsoft Excel, calculating present value with, 454–455 Minority interest, 442 Misappropriation of assets Fraud committed by employees by stealing assets from the company, 195–196 Modified Accelerated Cost Recovery System (MACRS) A special depreciation method used only for income tax purposes Assets are grouped into classes, and for a given class depreciation is computed by the double-declining-balance method, the 150%-declining-balance method, or, for most real estate, the straight-line method, 379–380 Monitoring of controls, 200 Mortgage bonds, 496 Motive for fraud, 196–197 Multi-step income statement An income statement that contains subtotals to highlight important relationships between revenues and expenses, 143, 145 N Natural resources Assets such as oil and gas reserves, coal mines, or stands of timber–accounted for as long-term assets when purchased or developed, their cost is transferred to expense through a process called depletion, 364 accounting for, 387–390 and GAAP, 387–390 Net earnings Another name for net income, 12 See also Net income; Net profit Net income Excess of total revenues over total expenses Also called net earnings or net profit defined, 12 and dividends, 12 on an income statement, 14–16 need for profit, 667 from operations, 619 reporting, 631 and retained earnings, 16–17 Net loss Excess of total expenses over total revenues defined, 12 on an income statement, 14–16 and retained earnings, 16 Net profit Another name for net income, 12, 575 See also Net earnings; Net income Net profit margin Computed by the formula Net income/net sales This ratio measures the portion of each net sales dollar generated in net profit, 393 Net profit margin on sales See Rate of return on net sales Net profit margin ratio, 575 Net sales, 15, 619 See also Revenue recognition Net working capital A measure of liquidity; Current assets – Current liabilities, 145 analyzing a company using, 149 measuring ability to pay current liabilities, 759–760 Noncash investing and financing activities, 680, 688 Noncontrolling (minority) interest A subsidiary company’s equity that is held by stockholders other than the parent company (i.e., less than 50%), 442 Noncumulative preferred stock, 570–571 Nonprofit organizations, Nonsufficient funds (NSF) check A “hot” check, one for which the payer’s bank account has insufficient money to pay the check NSF checks are cash receipts that turn out to be worthless, 208 Notes payable, 486–487, 494, 688 Notes receivable accounting for, 266–269 defined, 55, 257 proceeds from collections of, 687–688 Number of units of inventory, 305 O Obsolescence, 369 Online banking, 211 Operating activities Activities that create revenue or expense in the entity’s major line of business; a section of the statement of cash flows Operating activities affect the income statement cash flows from, 671–674, 685, 687 direct method, 669, 684–694 indirect method, 669–680 Operating budget A budget of future net income The operating budget projects a company’s future revenue and expenses It is usually prepared by line item of the company’s income statement, 201 See also Budget #149446  Cust: Pearson  Au: Harrison  Pg No 882 Title: Financial Accounting     Server: C/M/Y/K Short / Normal Operating cycle Time span during which cash is paid for goods and services that are sold to customers who pay the business in cash, 143 Operating expenses, 622, 692–693 Operating income, 622, 767 Operating lease A lease in which the lessee does not assume the risks or rewards of asset ownership, 513–515 Operational efficiency, and internal control, 197 Opportunity for fraud, 197 Other comprehensive income Certain types of revenue, expenses, gains, and losses that are allowed to bypass the income statement These items are reported either in a separate statement or in a combined statement of net income and comprehensive income At the end of a period, items of comprehensive income for that period are reported as accumulated other comprehensive income, a separate category of stockholders’ equity, 252, 436 Other receivables, 257 Outsider claims, 11 Outstanding check A check issued by the company and recorded on its books but not yet paid by its bank, 208 Outstanding stock Stock in the hands of stockholders, 555, 564, 630 Overfunded benefit plan, 516 Owner’s equity The claim of the owners of a business to the assets of the business Also called capital, stockholders’ equity, or net assets, 12–13 of corporations, 13 and financing activities, 668 paid-in capital, 11 retained earnings, 11 Ownership, transferability of, 552 P Paid-in capital The amount of stockholders’ equity that stockholders have contributed to the corporation Also called contributed capital, 12, 19, 555 Par value Arbitrary amount assigned by a company to a share of its stock, 494, 556 issuing bonds at, 497–498 Parent company An investor company that owns more than 50% of the voting stock of a subsidiary company, 440 Partial-period interest amounts, 504 Partial years, depreciation for, 380 Partnership An association of two or more persons who co-own a business for profit characteristics, owners’ equity in, 13 Password A special set of characters that must be provided by the user of a computerized program or data files to prevent unauthorized access to those files, 202 Patent A federal government grant giving the holder the exclusive right for 20 years to produce and sell an invention, 388–389 Payments, to suppliers, 685, 692 Payroll Employee compensation, a major expense of many businesses, 487–488 Payroll liabilities, 125–127, 487–488 Pension Employee compensation that will be received during retirement, 515–516 Percent-of-sales method Computes uncollectible-account expense as a percentage of net sales Also called the income-statement approach because it focuses on the amount of expense to be reported on the income statement, 261, 264 DESIGN SERVICES OF S4carlisle Publishing Services Glindex    883 Periodic inventory system An inventory system in which the business does not keep a continuous record of the inventory on hand Instead, at the end of the period, the business makes a physical count of the inventory on hand and applies the appropriate unit costs to determine the cost of the ending inventory, 306, 324, 356–357 Permanent accounts Asset, liability, and stockholders’ equity accounts that are not closed at the end of the period, 141 Perpetual inventory system An inventory system in which the business keeps a continuous record for each inventory item to show the inventory on hand at all times, 306–308, 324 Petty cash Fund containing a small amount of cash that is used to pay minor amounts, 218 Phish Creating bogus websites for the purpose of stealing unauthorized data, such as names, addresses, Social Security numbers, bank account, and credit card numbers, 203 Physical wear and tear, 369 Plant assets Long-lived assets, such as land, buildings, and equipment, used in the operation of the business Also called fixed assets or property and equipment, 364 accounting for, 378 analyzing transactions, 385–386 buildings, machinery, and equipment, 365–366 cash flow impact, 394–395 depreciable cost of, 370 depreciation for tax purposes, 378–380 depreciation of, 369–376 disposing of for no proceeds, 383 effects of disposal of, 382–387 exchanging, 384–385 land, 364, 365 land improvements and leasehold improvements, 366 lump-sum purchases of assets, 366 purchases and sales of, 675, 687–688 selling, 383–384 Plant assets Long-lived assets, such as land, buildings, and equipment, used in the operation of the business Also called fixed assets book value of, 124 buildings, machinery, and equipment, 18, 56 defined, 123 depreciation of, 123–125 land, 55 Posting Copying amounts from the journal to the ledger, 72 Postretirement liabilities, 515–516 Preemption, 554 Preferred dividends, effect on earnings per share, 630 Preferred stock Stock that gives its owners certain advantages, such as the priority to receive dividends before the common stockholders and the priority to receive assets before the common stockholders if the corporation liquidates, 556, 561–562 dividends on, 570–571, 630 redeemable, 574 Premium (on a bond) Excess of bond’s issue price over its face (par) value, 496 Prepaid expense A category of miscellaneous assets that typically expire or get used up in the near future Examples include prepaid rent, prepaid insurance, and supplies adjusting entries, 120–123 on the balance sheet, 18 prepaid rent, 121–122 supplies, 122 Present value The value on a given date of a future payment or series of future payments, discounted to reflect the time value of money, 450 of an annuity, 452–453 of available-for-sale investments, 455–456 calculating with Microsoft Excel, 454–455 of investments in bonds, 456–457 of money, 450–451 Present-value tables, 451–452 President Chief operating officer in charge of managing the day-to-day operations of a corporation, 554 Pre-tax accounting income Income before tax on the income statement, 625 Price-earnings (P/E) ratio The ratio of the market price of a share of common stock to the company’s earnings per share, 573–574 Price-earnings ratio Ratio of the market price of a share of common stock to the company’s earnings per share Measures the value that the stock market places on $1 of a company’s earnings, 771 Principal The amount borrowed by a debtor and lent by a creditor, 266, 267, 494 Prior-period adjustment A correction to the beginning balance of retained earnings for an error of an earlier period, 629 Profit margin See Gross margin Profitability, and stockholder investment, 575–577 Projected benefit obligation, 515 Promissory note, 257 Proper approvals, and internal control, 201–202 Property and equipment See Plant assets Proprietorship A business with a single owner, 5, 13 Public Company Accounting Oversight Board, 198 Purchase, budgeted, 321 Purchase allowance A decrease in the cost of purchases because the seller has granted the buyer a subtraction (an allowance) from the amount owed, 307 Purchase discount A decrease in the cost of purchases earned by making an early payment to the vendor, 308 Purchase return A decrease in the cost of purchases because the buyer returned the goods to the seller, 307 Purchasing department, 202 Q Quality of earnings See Earnings quality Quick ratio Another name for the acid-test ratio, 271, 762 Quitting concern, R Rate of return, foreign currencies and exchange rates, 447 Rate of return on assets (ROA) Net income – preferred dividends divided by average total assets This ratio measures a company’s success in using its assets to earn income for the persons who finance the business Also called return on total assets Can also be computed using the first two elements of DuPont Analysis (Rate of return on net sales X Asset turnover), 768–769 #149446  Cust: Pearson  Au: Harrison  Pg No 883 Title: Financial Accounting     Server: Rate of return on common stockholders’ equity Net income minus preferred dividends, divided by average common stockholders’ equity A measure of profitability Also called return on equity, 575, 769–770 Rate of return on net sales Ratio of net income – preferred dividends to net sales A measure of profitability Also called return on sales, 767–768 Rate of return on total assets Net income minus preferred dividends divided by average total assets This ratio measures a company’s success in using its assets to earn income for the persons who finance the business Also called return on assets, 392–394, 575, 768–769 Ratio analysis, limitations of, 773 Rationalization for fraud, 197 Ratios See also Current ratio analysis, limitations of, 773 for business decisions, 757–773 days’ sales in receivables, 271–272, 764 debt ratio, 145–150, 545–546, 765–766 decision guidelines, 545–546, 775–777 dividend yield, 771–772 gross margin/sales, 619, 622 Import/Export, 447 inventory turnover, 319–320, 762–763 leverage ratio, 512, 769 net profit margin, 393, 575 price-earnings ratio, 573–574, 771 quick (acid-test), 271, 762 rate of return on assets, 768–769 rate of return on net sales, 767–768 rate of return on total assets, 392–394, 575, 768–769 times-interest-earned ratio, 513, 766 total asset turnover, 393, 575, 768 Realized gain or loss, 250, 436 Receivables Monetary claims against a business or an individual, acquired mainly by selling goods or services and by lending money, 256 accounting for, 258 cash flow from, 269–270 factoring, 270 inability to collect, 774 managing, 258 other receivables, 257 selling, 270 trends in, 775 types of, 256–257 Records, adequate, and internal control, 201 Redeemable preferred stock A corporation reserves the right to buy an issue of stock back from its shareholders, with the intent to retire the stock, 574 Redemption value The price a corporation agrees to eventually pay for its redeemable preferred stock, set when the stock is issued, 574 Regulatory bodies, Remittance advice An optional attachment to a check (sometimes a perforated tear-off document and sometimes capable of being electronically scanned) that indicates the payer, date, and purpose of the cash payment The remittance advice is often used as the source document for posting cash receipts or payments, 205 Rent, prepaid, 121–122 Report format A balance-sheet format that lists assets at the top, followed by liabilities and stockholders’ equity below, 143 Research and development, costs of, 390 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services 884   Glindex Retained earnings The amount of stockholders’ equity that the corporation has earned through profitable operation of the business and has not given back to stockholders, 567 and net income, 16–17 as a part of stockholders’ equity, 12–13, 19 stockholders’ equity, 555 Retirement of stock, 566 Return on assets (ROA) Also known as rate of return on assets Measures how profitably management has used the assets that stockholders and creditors have provided the company, 392–394, 575, 768–769 Return on equity (ROE) Another name for rate of return on common stockholders’ equity, 575 Revenue principle The basis for recording revenues; tells accountants when to record revenue and the amount of revenue to record, 116–118, 619 Revenue recognition, 620–621 See also Net sales Revenues Increase in retained earnings from delivering goods or services to customers or clients See also Unearned revenue accrued, 127 collected in advance, 488 defined, 12 on the income statement, 15 as part of owners’ equity, 12–14 as part of stockholders’ equity, 70–71 as temporary accounts, 141 Revenues collected in advance, 488 See also Unearned revenues Risk assessment, 199 Rules of debit and credit, 68–70 S Safeguard controls, 203 Salary expense accrued, 125–127 cash flows from operating activities, 685 computing, 693 gross pay as, 488 Salary payable, 488 Sale price vs cost of inventory, 304–306 Sales, trends in, 775 Sales discount Percentage reduction of sales price by the seller as an incentive for early payment before the due date A typical way to express sales discount is “2/10, n/30.” This means the seller will grant a 2% discount if the invoice is paid within 10 days, and the entire amount is due within 30 days, 255 Sales return and allowance Merchandise returned for credit or refunds for services provided, 255–256 Sales tax payable, 487 Salgado, Carlos, Jr., 203 Sarbanes-Oxley Act (SOX), 198, 369, 634 SCALP acronym, 202 Secured bonds, 496 Securities Exchange Act of 1934, 634 Security cameras, 203 Security for a loan, 257 Security measures, 203–204 Segment A division or subset of a business’s operations, especially in large corporations For a division to be considered a segment, it must directly earn revenue for the company Segments may be created by product line, by type of business, by geographic areas, or other logical divisions for the corporation Internally, each segment’s revenues and expenses are accounted for separately, 632 Segregation of duties, 197 Separation of duties, 200 Serial bonds Bonds that mature in installments over a period of time, 495 Service charges, on bank reconciliation, 208 Shareholders Persons or other entities that own stock in a corporation Also called stockholders, 6, 552 Shares, of stock, 555 See also Stock Shipping terms Terms provided by the seller of merchandise that dictate the date on which title transfers to the buyer A typical way to express shipping terms is through FOB terms For example, “FOB destination” means title to the goods passes to the buyer when the goods are delivered and the buyer assumes control over them “FOB shipping point” means title passes on the date the goods are shipped from the seller’s warehouse, 255 Short-term investments Investments that a company plans to hold for one year or less and the investment is liquid (readily convertible to cash) Also called marketable securities accounting for, 247–253 balance sheet reporting, 430 liquidity of, 246 reporting as assets, 252 Short-term notes payable Notes payable that are due within one year, 486–487 Signature card, 205 Single-step income statement An income statement that lists all the revenues together under a heading such as Revenues or Revenues and Gains Expenses appear in a separate category called Expenses or perhaps Expenses and Losses, 143 Smart hiring practices, 200 Specific intangibles, 388–390 Specific-unit-cost method Inventory cost method based on the specific cost of particular units of inventory, 309–310, 324 Stable-monetary-unit assumption The reason for ignoring the effect of inflation in the accounting records, based on the assumption that the dollar’s purchasing power is relatively stable, Stated interest rate Interest rate that determines the amount of cash interest the borrower pays and the investor receives each year, 496 Stated value An arbitrary amount assigned to no-par stock; similar to par value, 557 Statement of cash flows Reports cash receipts and cash payments classified according to the entity’s major activities: operating, investing, and financing, 2, 20 analyzing, 753–755 direct method, 669, 684–694 and equity transactions, 577–578 financing activities, 20–21 indirect method, 669–680 investing activities, 20–21 operating activities, 20–21 preparation and use, 666 purpose of, 666–667 relationship with other financial statements, 22 reporting financing activities, 517 reporting investments on, 448–449 reporting receivables on, 270 Statement of comprehensive income A statement showing all of the changes in stockholders’ equity during a period other than transactions with owners The statement of #149446  Cust: Pearson  Au: Harrison  Pg No 884 Title: Financial Accounting     Server: C/M/Y/K Short / Normal comprehensive income includes net income as well as other comprehensive income, such as unrealized gains/losses on available-for-sale securities and foreign-currency translation gains/losses, 631 Statement of financial position Another name for the balance sheet, 2, 17 Statement of income, 14–16 Statement of operations Another name for the income statement, 14 Statement of retained earnings Summary of the changes in the retained earnings of a corporation during a specific period, 2, 16–17, 21 Statement of stockholders’ equity Reports the changes in all categories of stockholders’ equity during the period, 631 Stock Shares into which the owners’ equity of a corporation is divided, accounting for issuance of, 557–562 analyzing as investment, 771–773 authorized shares of, 555, 564 book value of, 574, 772–773 capital, 555 classes of, 555–557 common See Common stock dividends on, 567–572, 578 explanation of, 555 issuance of, 577, 677–678, 688 issued, 564 market value of, 573 no-par, 556–557 outstanding, 555, 564 par, 556–557 preferred See Preferred stock prices of, 430 retirement of, 566 shares of, 555 splits, 572–573 stockholders’ equity, 555 treasury See Treasury stock Stock and bond prices, 430 Stock certificates, 555 Stock dividend A proportional distribution by a corporation of its own stock to its stockholders, 571–572 See also Dividend Stock split An increase in the number of issued and outstanding shares of stock coupled with a proportionate reduction in the stock’s par value, 572–573 Stock values, use in decision making, 573–577 Stock-based compensation, 632 Stockholder A person who owns stock in a corporation Also called a shareholder, features of, 552 rights of, 554 Stockholders’ equity The stockholders’ ownership interest in the assets of a corporation, 56–57, 555 See also Capital; Owner’s equity accounts, 56–57, 70–71 accounts, analyzing of, 569–570, 573 on the balance sheet, 19 common stock, 19, 56 components, 19 defined, 11 dividends, 12–13, 17, 56, 567–572 expenses, 57 paid-in capital, 19, 555 reporting, 578–579, 631 retained earnings, 56, 555 revenues, 56–57 Stockholders’ equity accounts common stock, 56 DESIGN SERVICES OF S4carlisle Publishing Services Glindex    885 dividends, 56 expenses, 57, 70–71 retained earnings, 56 revenues, 56–57, 70–71 Stockholders’ rights dividends, 554 liquidation, 554 preemption, 554 voting, 554 Straight-line (SL) method Depreciation method in which an equal amount of depreciation expense is assigned to each year of asset use, 371 See also Depreciation Straight-line amortization method, 508 Strong currency A currency whose exchange rate is rising relative to other nations’ currencies, 447 Subsidiary An investee company in which a parent company owns more than 50% of the voting stock, 440 Suppliers, payments to, 685, 692 Supplies, as prepaid expense, 122 T T-accounts analyzing business transactions with, 68, 82 analyzing plant asset transactions with, 385–386 Taxable income The basis for computing the amount of tax to pay the government, 626 Taxation corporate, 553 double taxation, 6, 553 employee income tax payable, 488 FICA tax payable, 488 income taxes, 16, 625–627 sales tax payable, 487 tax advantage of LIFO, 313 taxable income, 626 Temporary accounts The revenue and expense accounts that relate to a limited period and are closed at the end of the period are temporary accounts For a corporation, the Dividends accounts is also temporary, 141 Term The length of time from inception to maturity, 266 Term bonds Bonds that all mature at the same time for a particular issue, 495 Time-period concept Ensures that accounting information is reported at regular intervals, 116 Time value of money, 449–457, 496 Times-interest-earned ratio Ratio of income from operations to interest expense Measures the number of times that operating income can cover interest expense Also called the interest-coverage ratio, 513, 766 Total asset turnover A measure of efficiency in usage of total assets The ratio calculates how many times per year average total assets are covered by net sales: Formula: Net sales/ Average total assets Also known as asset turnover, 393, 575, 768 Trademark, trade name A distinctive identification of a product or service Also called a brand name, 389 Trading on the equity Earning more income on borrowed money than the related interest expense, thereby increasing the earnings for the owners of the business Also called leverage–the power of which is illustrated through the leverage ratio, 510, 770 Trading securities Stock investments that are to be sold in the near future with the intent of generating profits on the sale, 247, 248–252, 430 Transaction Any event that has a financial impact on the business and can be measured reliably and the accounting equation, 57–65 analyzing with t-accounts, 82 asset transactions, 394–395 defined, 55 equity transactions, 577–580 and financial statements, 63–65 impact on accounts, 68–71 journalizing and posting, 71 and ratios, 146–148 treasury stock transactions, 630 Translation of currency, 447 Treasurer In a large company, the individual in charge of the department that has final responsibility for cash handling and cash management Duties of the treasurer’s department include cash budgeting, cash collections, writing checks, investing excess funds, and making proposals for raising additional cash when needed, 200 Treasury stock A corporation’s own stock that it has issued and later reacquired, 564–567 on the balance sheet, 19 for employee compensation, 566–567 purchase of, 677–678 recording of, 564–566 reporting on statement of cash flows, 577 resale of, 566 treasury stock transactions, 630 Trend percentages A form of horizontal analysis that indicates the direction a business is taking, 748–749 Trial balance A list of all the ledger accounts with their balances adjusted, 132 constructing and using, 78–79 purpose of, 78–79 Trojan Horse A malicious program that hides within legitimate programs and acts like a computer virus, 203 Turnover, measuring, 762–765 See also Accounts payable turnover; Accounts receivable turnover U Uncollectible accounts, writing off, 263–264 Uncollectible-account expense Cost to the seller of extending credit Arises from the failure to collect from credit customers Also called doubtful-account expense or bad-debt expense, 259 Underfunded benefit plan, 516 Underwriter Organization that purchases the bonds from an issuing company and resells them to its clients or sells the bonds for a #149446  Cust: Pearson  Au: Harrison  Pg No 885 Title: Financial Accounting     Server: commission, agreeing to buy all unsold bonds, 495, 557 Unearned revenue A liability created when a business collects cash from customers in advance of earning the revenue The obligation is to provide a product or a service in the future, 128–129, 488–489 on the balance sheet, 493 Unit of output, of plant assets, 372 U.S Securities and Exchange Commission (SEC), 4, 10 Units-of-production (UOP) method Depreciation method by which a fixed amount of depreciation is assigned to each unit of output produced by the plant asset, 372–373 Unqualified (clean) opinion An audit opinion stating that the financial statements are presented fairly in accordance with generally accepted accounting principles, 636 Unrealized gain/loss Gains and losses that occur on investments through fluctuations in market values, rather than through sales, 249–250, 436 Unsecured bonds, 496 Useful life of a depreciable asset, 380–381 V Vacations, mandatory, 203 Vertical analysis Analysis of a financial statement that reveals the relationship of each statement item to a specified base, which is the 100% figure, 749–752 Vote, 554 W Wages, 487, 685, 693 Warranty estimated warranty payable, 490 expense of, 490 Wasting assets, 387 Weak currency A currency whose exchange rate is falling relative to that of other nations, 447 Weighted average cost of capital (WACC) The combined average rate of returns demanded by a company’s creditors and investors In general, the higher the risk associated with the company, the greater the expected returns by creditors and investors, 627, 773–774 Weighted-average-method Another name for the average-cost method, 310 effect on cost of goods sold, 312–313 effect on gross profit, 312–313 Wireless network (Wi-Fi), 203 Working capital Current assets minus current liabilities; measures a business’s ability to meet its short-term obligations with its current assets Also called net working capital, 145, 759–760 Writing off uncollectible accounts, 263–264 C/M/Y/K Short / Normal DESIGN SERVICES OF S4carlisle Publishing Services ... Accounting: Financial Accounting and Management Accounting Both external and internal users of accounting information exist We can therefore classify accounting into two branches Financial accounting. .. of Financial & Managerial Accounting, second edition, 2009 and Accounting, eighth edition, 2009 (with Charles T Horngren and M Suzanne Oliver), published by Pearson Prentice Hall Professor Harrison. .. trustee of the Financial Accounting Foundation, which oversees the Financial Accounting Standards Board and the Government Accounting Standards Board Horngren is a member of the Accounting Hall