Giáo trình FInancial accounting 15e by warrent duchac

Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 Income Statement Accounts Revenue Accounts Expense Accounts Debit for decreases (–) Credit for increases (+) Debit for increases (+) Owner Withdrawals Credit for decreases (–) The Basics The debit and credit rules for recording owner withdrawals are based on the effect of owner withdrawals on owner’s equity Because an owner’s withdrawals decrease owner’s equity, the owner’s drawing account is increased by debits Likewise, the owner’s drawing account is decreased by credits Thus, the rules of debit and credit for the owner’s drawing account are as follows: Accounting Equation: Accounting Cycle: Drawing Account Debit for (+) + Owner’s Credit forEquity decreases (–) Assets = increases Liabilities Transactions are analyzed and recorded in the journal Transactions are posted to the ledger T Account: The sum of the increases in an account is usually equal to or greater than the sum of An unadjusted trial balance is prepared Account Title balance of an account is either a debit Adjustment data are assembled and analyzed the decreases in the account Thus, the normal or credit depending Left on whether increases in Right the account side side are recorded as debits or An optional end-of-period spreadsheet is prepared credits For example, because asset accounts are increased with debits, asset accounts debit Likewise, liability accounts credit normally have credit balances 6. Adjusting entries are journalized and posted to the ledger normally have debit balances The rules of debit and credit and the normal balances of the various types of 7. An adjusted trial balance is prepared accounts are summarized in Exhibit Debits and credits are sometimes abbreviated    8. Financial statements are ­prepared as Dr for debit and Cr for credit    9. Closing entries are journalized and posted to the ledger Rules of Debit and Credit: post-closing Rules of Debit and Credit, Normal Balances of Accounts   10.  EA XH I B I T trial balance is prepared Normal Balances ASSETS = Asset Accounts Debit for Credit for increases (+) decreases (–) LIABILITIES + Liability Accounts Debit for Credit for decreases (–) increases (+) Balance Types of Adjusting Entries: OWNER’S EQUITY Owner’s Capital Account Debit for Credit for decreases (–) increases (+) Balance •  Accrued revenue (accrued asset) •  Accrued expense (accrued liability) Balance •  Unearned revenue (deferred revenue) •  Prepaid expense (deferred expense) Owner’s Drawing Income Statement Accounts Account Revenue Accounts Debit for increases (+) Credit for decreases (–) Debit for decreases (–) Balance Credit for increases (+) Balance •  Depreciation expense Each entry will always affect both a balance sheet account and an income statement account Expense Accounts Note: The side of the account for recording increases, and the normal balance is shown in green Debit for increases (+) Credit for decreases (–) Balance 1. Debit each revenue account for its balance, credit each expense account for its balance, and credit (net income) or debit (net loss) the owner’s capital account 2. Debit the owner’s capital account for the balance of the drawing account and credit the drawing account Analyzing and Journalizing Transactions Carefully read the description of the transaction to determine whether an asset, a liability, an owner’s equity, a revenue, an expense, or a drawing account is affected For each account affected by the transaction, determine whether the account increases or decreases Determine whether each increase or decrease should be r­ ecorded as a debit or a credit, following the rules of debit and credit Record the transaction using a journal entry Periodically post journal entries to the accounts in the ledger Prepare an unadjusted trial balance at the end of the period BK-CHE-WARREN_27E-160241-Chp02.indd 63 Financial Statements: • Income statement: A summary of the revenue and expenses of a business entity for a ­specific period of time, such as a month or a year • Statement of owner’s equity: A summary of the changes in the owner’s equity of a business entity that have occurred during a specific period of time, such as a month or a year • Balance sheet: A list of the assets, liabilities, and owner’s equity of a business entity as of a specific date, usually at the close of the last day of a month or a year Closing Entries: 08/11/16 2:57 PM Special Journals: Providing services on account Receipt of cash from any source Purchase of items on account Payments of cash for any purpose   recorded in   Revenue journal   recorded in   Cash receipts journal   recorded in   Purchases journal   recorded in   Cash payments journal Shipping Terms: FOB Shipping Point Ownership (title) passes to buyer when merchandise is delivered to freight carrier Freight costs are paid by buyer • Statement of Cash Flows: A summary of the cash receipts and cash payments of a business e­ ntity for a specific period of time, such as a month or a year Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 FOB Destination delivered to buyer seller Format for Bank Reconciliation: Cash balance according to bank statement $XXX Add: Additions by company not on bank statement $XXX Bank errors XXX XXX $XXX Deduct: Deductions by company not on bank statement $XXX Bank errors XXX XXX Adjusted balance $XXX Cash balance according to company’s records $XXX Add: Additions by bank not recorded by company $XXX Company errors XXX XXX $XXX Deduct: Deductions by bank not recorded by company $XXX Company errors XXX XXX Adjusted balance $XXX Inventory Costing Methods: Fixed Costs + Target Profit Unit Contribution Margin Margin of Safety = Sales – Sales at Break-Even Point Sales Contribution Margin Income from Operations Operating Leverage = Variances:   Direct Materials Actual Price – = × Actual Quantity Price Variance     Standard Price       Direct Materials = Actual Quantity – × Standard Price   Quantity Variance     Standard Quantity     Direct Labor = Actual Rate per Hour – × Actual Hours Rate Variance Standard Rate per Hour      • Last-in, First-out (LIFO)  Variable Factory Actual Variable Budgeted Variable – Overhead Controllable  =  Factory Factory Overhead Variance       Overhead • Weighted-Average Interest Computations: Interest = Face Amount (or Principal) × Rate × Time Methods of Determining Annual Depreciation: Cost – Estimated Residual Value Estimated Life Double-Declining-Balance: Rate* × Book Value at Beginning of Period *Rate is commonly twice the straight-line rate (1 ÷ Estimated Life) Adjustments to Net Income (Loss) Using the Indirect Method: Increase (Decrease) Net income (loss) $ XXX Adjustments to reconcile net income to net cash flow from operating activities:    Depreciation of fixed assets XXX    Amortization of intangible assets XXX    Losses on disposal of assets XXX    Gains on disposal of assets (XXX) Changes in current operating assets and liabilities:    Increases in noncash current operating assets (XXX)    Decreases in noncash current operating assets XXX    Increases in current operating liabilities XXX    Decreases in current operating liabilities (XXX) Net cash flow from operating activities $ XXX or $(XXX) Contribution Margin Ratio = Sales (Units) = Fixed Costs Unit Contribution Margin Standard Rate Direct Labor = Actual Direct Labor Hours – × Standard Direct Labor Hours   per Hour Time Variance • First-in, First-out (FIFO) Straight-Line: Break-Even Sales (Units) =   Fixed ­Factory Standard Fixed Factory Standard Hours for Overhead = Hours for × – Overhead 100% of Normal Volume ­ ctual Units A Rate Capacity Variance Produced Rate of Return on = Investment (ROI) Income from Operations Invested Assets Alternative ROI Computation:   ROI = Income from Operations Sales × Sales Invested Assets Capital Investment Analysis Methods: Methods That Ignore Present Values: • Average Rate of Return Method • Cash Payback Method Methods That Use Present Values: • Net Present Value Method • Internal Rate of Return Method Average Rate of Estimated Average Annual Income = Return Average Investment Present Value Index = Total Present Value of Net Cash Flow Amount to Be Invested Present Value Factor for = Amount to Be Invested an Annuity of $1 Equal Annual Net Cash Flows Sales – Variable Costs Sales Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 Make a better grade with CengageNOWv2 Here’s how to make every study moment count Multimedia study tools such as videos, flashcards, and more allow you to review and check your understanding of key concepts to help you prepare for quizzes and exams The MindTap eReader is fully optimized for the iPad, provides note-taking and highlighting capabilities, and features an online text-to-speech application that vocalizes the content - providing a fun reading experience Flashcards — use the MindTap eReader’s pre-made flashcards or make your own Then print the cards and get to work CengageNOW Users Achieve Higher Grades (Student Grades, Scale = 0-100; N=246) 87 Treatment 83 Control 80 81 82 83 84 85 86 87 88 89 90 Final Course Grades “I love the check your work option Really, when you’re having a hard time figuring out an answer, sometimes working backwards is the best way to understand conceptually what you’re doing wrong.” Brad Duncan University of Utah “[I liked]…the read-a-loud option with the ebook… This helped when first starting a chapter and then when studying for tests.” Jennifer Loughren Student, Northeast Iowa Community College Ask your instructor about CengageNOWv2 for this course M16016278 ENGAGED WITH YOU | cengage.com Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 FINANCIAL ACCOUNTING 15e Carl S Warren Professor Emeritus of Accounting University of Georgia, Athens James M Reeve Professor Emeritus of Accounting University of Tennessee, Knoxville Jonathan E Duchac Professor of Accounting Wake Forest University Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 Financial Accounting, 15e â 2018, 2016 Cengage Learningđ Carl S Warren James M Reeve Jonathan E Duchac ALL RIGHTS RESERVED No part of this work covered by the copyright herein may be reproduced or distributed in any form or by any means, except as permitted by U.S copyright law, without the prior written permission of the copyright owner Senior Vice President, General Manager, Social Sciences, Humanities, and Business: Erin Joyner Executive Product Director: Mike Schenk Product Director: Jason Fremder Senior Product Manager: Matthew Filimonov Content Development Manager: Daniel Celenza Senior Content Developer: Diane Bowdler Product Assistant: Aiyana Moore Executive Marketing Manager: Robin LeFevre For product information and technology assistance, contact us at Cengage Learning Customer & Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to permissionrequest@cengage.com Marketing Coordinator: Hillary Johns Senior Digital Production Project Manager: Jessica Robbe Senior Digital Content Specialist: Tim Ross Senior Content Project Manager: Tim Bailey Manufacturing Planner: Doug Wilke Production Service: Cenveo Publisher Services, Inc Senior Art Director: Michelle Kunkler Cover Designer: cmillerdesign Internal Designer: Ke Design Intellectual Property   Analyst: Brittani Morgan   Project Manager: Betsy Hathaway Unless otherwise noted, all items are © Cengage Learning Microsoft Excelđ is a registered trademark of Microsoft Corporation â2016Microsoft Library of Congress Control Number: 2016961919 ISBN: 978-1-337-27212-4 Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cengage Learning is a leading provider of customized learning solutions with employees residing in nearly 40 different countries and sales in more than 125 countries around the world Find your local representative at www.cengage.com Cengage Learning products are represented in Canada by Nelson Education, Ltd To learn more about Cengage Learning Solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in Canada Print Number: 01   Print Year: 2016 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 The Warren/Reeve/Duchac Family The Warren/Reeve/Duchac Family of solutions provides a host of options to fit your exact teaching style—all with an integrated technology solution Sole Proprietorship Approach • 26 Chapters • 65% Financial Accounting/ 35% Managerial Accounting Corporate Approach • 26 Chapters • 50% Financial Accounting/ 50% Managerial Accounting • Chapters 1–14 • Financial Chapters 1–17 from Accounting, 27e from Financial & Managerial Accounting, 14e • Chapters 13–26 from Financial & Managerial Accounting, 14e Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 Brief Contents Chapter Introduction to Accounting and Business Chapter Analyzing Transactions 56 Chapter The Adjusting Process 110 Chapter Completing the Accounting Cycle 160 Chapter Accounting Systems 230 Chapter Accounting for Merchandising Businesses 280 Chapter Inventories 344 Chapter Internal Control and Cash 394 Chapter Receivables 440 Chapter 10 Long-Term Assets: Fixed and Intangible 486 Chapter 11 Current Liabilities and Payroll 536 Chapter 12 Accounting for Partnerships and Limited Liability Companies 584 Chapter 13 Corporations: Organization, Stock Transactions, and Dividends 628 Chapter 14 Long-Term Liabilities: Bonds and Notes 675 Chapter 15 Investments and Fair Value Accounting 719 Chapter 16 Statement of Cash Flows 765 Chapter 17 FInancial Statement Analysis 823 Mornin’ Joe MJ-1 Appendix A Interest Tables A-1 Appendix B International Financial Reporting Standards (IFRS) B-1 Appendix C Revenue Recognition C-1 Appendix D Nike Inc., Form 10-K for the Fiscal Year Ended May 31, 2016 D-1 Glossary G-1 Index I-1 v Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net I-9 Index investing cash in long-term, 722 investing cash in temporary, 722 more cash means more, 730 shareholders’, 633 stock, illus., 725 valuing and reporting, 730–736, ­illus., 735 Investor bond price risk, 681 Investor, def., 725 Invoice def., 235, 286 illus., 286 vendor’s, 346 Issuance date, 455 Issuing stock, 636–637, illus., 634 J Jack in the Box Inc., 512 JCPenney, 203, 393, 443 JDA, 278 JetBlue Airways Corp., 821–822 JHT Holdings, Inc., 425 Jobs, Steve, 167 Johnson & Johnson, 468, 821–822 Journal, 234 analyzing and recording transactions in, 177–179 cash payments, 243–245 def., 64 general, 234 purchases, 240–243 revenue, 235–237, illus., 236 special, 233–235 two-column, 64 Journal entries illus., 178–179 to record customer refunds, allowances, and returns, illus., 294 Journal entry, def., 65 Journalizing, 64–68 adjusting entries, 180–182 and fraud, 67 and posting to accounts, 68–77 closing entries, 170–174, 184 def., 65 Junk bonds, 687 K Kellogg Company, 632, 847 Keurig Green Mountain, Inc., 38, 441, 442, 443, 451, 458, 459 Keying, 191 KFC, 512 Kohl’s Corporation, 806 KPMG LLP, 588, 627 Kraft Foods, 556 Kroger Co., 328, 382–383, 485, 858, MJ-12 L L.L Bean, Inc., 267 LaCroix, 766 Land, 780–781 gain on sale of, 785 Last-in, first-out (LIFO) inventory cost flow method, def., 348 Last-in, first-out flow of costs, illus., 357 Last-in, first-out method, 351–353, 356–357 and FIFO cost methods, effect of changing costs, illus., 359 Lease, 491 Leasing fixed assets, 491 Ledger accounts payable subsidiary, 233 accounts receivable subsidiary, 233 creditors, 233 customers, 233 def., 61 diagram of the recording and ­posting of a debit and a credit, illus., 69 general, 233, illus., 234 illus., 172–173, 185–187 posting transactions to, 179 stockholders, 637fn subsidiary, 233, illus., 234 subsidiary inventory, 347 with adjusting entries, illus., 128–130 Legal capital, 634 Legal liability LLCs, 588 partnerships, 587 proprietorships, 586 Legal restrictions, 648 Lender, 538 Lessee, 491 Lessor, 491 Leverage, 678fn def., 842 effect of, illus., 843 Liabilities, 168 contingent, 555–557 current, 168, 538–541 def., 13, 61 long-term, 168, 538, 691 ratio of fixed assets to long-term, 838, 848 Liabilities to stockholders’ equity, ratio of, 838–839, 848 Liability for employee earnings, 541 Liability for employer’s payroll taxes, 545 Liability, limited, 630 LIFO See Last-in, first-out method Limitations of internal control, 403 Limited Brands, Inc., 203 Limited liability, 630 Limited liability company (LLC), 12, 586 characteristics of, illus., 588 def., 11, 588 proprietorships, and partnerships, comparing, 588 Limited life partnerships, 587 proprietorships, 587 Line of credit, 415 Liquidating dividend, 639fn Liquidating partnerships, 599–606 steps in, illus., 599 Liquidation def., 599 statement of partnership, 600 Liquidity analyzing, 831–837 crunch, 840 def., 188, 825 measures, 848 ratios and measures, illus., 831 Long-term debt, current portion of, 538–539 Long-term investments, investing cash in, 722 Long-term liabilities, 538 def., 168 ratio of fixed assets to, 838, 848 reporting, 691 Loss, 687 net, 20 unrealized, 730 Loss on exchange, 515–516 Loss on realization, 601–603 capital deficiency, 603–606 statement of partnership liquidation, illus., 602 Lowe’s Companies Inc., 44, 284 Lower of cost or market determining inventory at, illus., 360 valuation at, 359–361 Lower-of-cost-or-market (LCM) method, def., 359 LVMH, MJ-11–MJ-12 M M Block & Sons, 458 Macy’s, 443 Madison Square Garden Company (MSG), 120 Madoff, Bernie, Maintenance, ordinary, 503 Maker, 454 Management accounting, def., Management’s annual report on internal control over financial reporting, Nike Inc., D-2 Management’s Discussion and Analysis (MD&A), def., 849 Managerial accounting, def., Manager-managed company, 588 Mandatory vacations, 400–401 ManpowerGroup, 513 Manual accounting systems, 233–246 Manufacturing businesses, def., Market rate of interest def., 680 of 11%, 697 of 12%, 696 of 13%, 696 Marriott International, Inc., 881–882 Marshalls, 294 MasterCard, 290, 444 Matching concept, def., 20 Matching principle, def., 114 Mattel Inc., 382, 429, 867–868 Maturity date, 455 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net Index Maturity value, def., 456 McDonald’s Corporation, 13, 27, 487, 489, 491, 492, 509, 512, 512, 513, 607, 754, C-1–C-2 Medicare, 543 Member-managed company, 588 Members’ equity, statement of, 606 Merchandise, cash payments for, 783–784 illus., 784 Merchandise inventory def., 283 in financial statements, reporting of, 359–365 on balance sheet, 361–362 Merchandise inventory transactions illustration of for seller and buyer, illus., 298 recording of, 297, illus., 297 Merchandise sold, cost of, 283 Merchandise transactions dual nature of, 297–299 recording under periodic inventory system, 310 Merchandising businesses balance sheet for, illus., 306 chart of accounts for, 284–285 def., financial statements for, 303–307 nature of, 282–284 operating cycle for, illus., 283 statement of owner’s equity for, ­illus., 305 MGM Resorts International, 468 Microsoft Corporation, 13, 33, 70, 128, 144, 163, 231, 417, 489, 643, 738, 754, 763 Modified Accelerated Cost Recovery System, (MACRS), 500 Mondelez International, Inc., 868 Monitoring, 402 Monster Beverage Corporation, 692 Moody’s, 691 Mortgage note, def., 688 Mortgage note payable, 168 Mortgage payable, 168 Moving average, 353 MS, miscellaneous item, 408 Multiple-step income statement, 303–304 def., 303 illus., 304 Mutual agency, partnerships, 587 N Net income, 727, 773 adjustments to, 774–778, illus., 774 completed spreadsheet with, illus., 195 def., 20 dividing of partnership income when allowances exceed, 592 or net loss, compute, 193–194 recording investee, 727–728 Net loss, def., 20 Net pay computing employee, 544 def., 541 Net profit, def., 20 Net realizable value, def., 360, 445 Netflix, Inc., 527 NetSuite, 278 New York Stock Exchange (NYSE), 720, 736 Nike, Inc., 147, 453, 706, 807, 824, 828, 829, 831, 832, 836, 838, 839, 843, 845, 847, 850, 879 Form 10-K for the fiscal year ended May 31, 2016, D-1–D-31 Nokia Corporation, 511 Nominal accounts, def., 169 Noncash investing and financing ­activities, 770 Non-investment grade bonds, 687 Nonpublic corporations, 630 No-par stock, 634, 638 Normal balance of an account, def., 63 Normal balances, 63–64 Note, issuing an installment, 689 Notes amortization of installment, illus., 689 installment, 688–690 mortgage, 688 Notes payable, short-term, 539–541 Notes receivable, 454–457 accounting for, 456–457 characteristics of, 454–456 def., 168, 442–443 dishonored, 456 NSF, not sufficient funds check, 408 Number of days’ sales in inventory, 836–837, 848 def., 836 inventory turnover and, 365–367 Number of days’ sales in receivables, 848 def., 835 O n/30, 287 n/eom, 287 National Basketball Association (NBA), 122 National Beverage Co., 766, 769, 770, 775, 781, 788, 804 National Football League (NFL), 122 National Hockey League (NHL), 122 Natural business year, def., 187 Natural resources, 507–508 Net book value def., 125 of the asset, 494 Objectivity concept, def., 12 Occupancy rates, 847 Ocean Power Technologies, Inc., 416 Office Depot, 284 Office supplies, free issue basis of, 123 On consignment, 362 Online fraud, 250 Operating activities, cash flows from, 24, 767, 768–769 direct method, 786–787 indirect method, illus., 775 I-10 Operating agreement, 588 Operating assets, return on, 842 Operating cycle, 282–283 def., 282 for merchandising business, illus., 283 Operating expenses, cash payments for, 784–785 illus., 785 Operating income, 283 def., 303 Operations cash flow from, direct and indirect methods, illus., 769 income from, 303–304 separating responsibilities for ­related, 401 Oracle, 231, 278 Ordinary maintenance and repairs, 503 Organizational forms in the accounting industry, 588 Organizational structure of corporation, illus., 631 Other comprehensive income, def., 739 Other expense, def., 304 Other receivables, 443 Other revenue, def., 304 Outstanding stock, def., illus., 634 Overbilling clients, 552 Owner withdrawals, 63 Owner’s equity, 168 def., 13, 61 statement of, 20, 21, 167, 305 types of transactions affecting, ­illus., 19 Ownership between 20%–50%, 727–729 less than 20%, 725–727 more than 50%, 729 P Pacific Gas and Electric Company, 664 Paid-in capital def., 633 from issuing stock, 634–638 Pandora Media, Inc., 112, 113, 114, 118, 120, 121, 123, 125, 132 Par value def., 634 method, 644fn Parent company, def., 729 Partial-year depreciation, 499–501 Participating preferred stock, 635fn Partner bonuses, 596 Partnership, 11, 586, 587 admitting a partner, 593–598, illus., 593 characteristics of, illus., 588 contributing assets to, 594, 595 death of a partner, 598–599 def., 12, 587 forming of, 589–590 liquidating, 599–606, illus., 599 partner admission and withdrawal, 593–599 partner bonuses, illus., 596 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net I-11 Index proprietorships, and limited liability companies, comparing, 588 purchasing an interest in, 594 revaluation of assets, 595–596 tyranny of the majority, 592 withdrawal of a partner, 598 Partnership agreement, def., 587 Partnership equity, statement of, 606, illus., 606 Partnership income, dividing of, 590–593 by services and investments of ­partners, 591–592 by services of partners, 590–591 when allowances exceed net ­income, 592 Partnership liquidation, statement of, 600 Patents, 508–509 def., 508 Pay computing employee net, 544 gross, 541 net, 541 take-home, 544 vacation, 552 Payee, 454 Payments and receipts, cash controls over, 403–406 Payments, mobile, 406 PayPal, 406, 754 Payroll, 541–545 accounting, 541 accounting systems for, 545–551 checks, 550–551 def., 541 distribution, 546 statement, illus., 551 Payroll register def., 546 illus., 546–547 Payroll system computerized, 551 internal controls for, 551 Payroll taxes, 541–545 recording and paying, 547–549 Pension, def., 553 PepsiCo, Inc., 33, 443, 567, 676, 680, 681, 683, 692, 865 Percent of sales method, 448–449 Periodic inventory system, 309–313 adjusting process under, 310–311 chart of accounts under, 309, illus., 309 closing entries under, 312–313 def., 285 determining cost of merchandise sold using, illus., 312 financial statements under, 311–312 inventory costing methods under, 355–358 transactions using, illus., 311 Periodic method, closing entries, illus., 313 Permanent accounts, def., 169 Perpetual inventory account (FIFO), entries and, illus., 351 (LIFO), entries and, illus., 352 (weighted average), entries and, ­illus., 354 Perpetual inventory system computerized, 355 def., 285 inventory costing methods under, 350–354 Personnel, competent, 400–401 Petty cash custodian, 413 Petty cash fund, def., 413 Physical depreciation, 492 Physical inventory, def., 347 Pizza Hut, 512 Plant assets, 488 def., 124, 168 Point-to-point or hub-and-spoke, 513 Polo Ralph Lauren Corporation, 474–475 Ponzi scheme, Post-closing trial balance, 174 illus., 175, 185 preparing, 184–187 Posting adjusting entries, 180–182 and journalizing to accounts, 68–77 cash payments journal and, illus., 244 cash receipts journal and, illus., 238 closing entries, 170–174, 184 def., 68 purchases journal and, illus., 241 revenue journal and, illus., 237 transactions to ledger, 179 Postretirement benefits other than ­pensions, 554 Preferred stock cumulative, 635 def., 635 participating, 635fn Premium amortization of by interest method, 698–699 bonds issued at, 685–686, illus., 680 def., 637, 681 on bonds payable, amortization of, illus., 699 on stock, 637–638 Prepaid expenses, 122–124 def., 15, 115 Prepaid insurance, 123–124 Present value def., illus., 693 of $1 table, 694 of ordinary annuity of $1 per ­period (table), A-4–A-5 of the periodic receipts, 695 Present value concepts, 693–697 Present value of $1 at compound ­interest (table), A-2–A-3 illus., 695 Present value of an amount, 694 to be received, illus., 694 Present value of an annuity def., illus., 695 of $1 at compound interest, illus., 696 of $1 table, 695 Price-earnings (P/E) ratio, 845–846, 848 def., 845 Priceline.com Incorporated, 249 PricewaterhouseCoopers, 588 Principal, 680, 688 Principles vs rules-based approach to standard setting, B-3 Prior period adjustments, def., 648 Private accounting, def., Private corporations, 630 Probable and estimable, contingent ­liabilities, 555–556 Probable and not estimable, contingent liabilities, 556 Proceeds, 540 from issuing bonds, 680–681 Processing methods, 233 Procter & Gamble, 37, 485, 570, 736, 847 Product life-cycle management (PLM), 249 Profit def., gearing for, 843 gross, 283, 303 illusory, 358 inventory, 358 net, 20 Profit measurement, accounting systems and, 246 Profitability analyzing, 840–849 def., 826 measures, 848 ratios, illus., 840 Promissory note determining due date of, illus., 456 illus., 455 Proofs and security measures, 401–402 Property, plant, and equipment, 168, 488 Proprietorship, 11, 586–587 characteristics of, illus., 588 def., 12 partnerships, and limited liability companies, comparing, 588 Public accounting, def., 10 Public companies, def., B-1 Public Company Accounting Oversight Board (PCAOB), def., Public corporations, 630 Publicly held companies, 396 Purchase order, def., 346 Purchases, 310 and payments cycle, 234 on account, 240 transactions, 285–290 Purchases discounts, 287–288, 310 def., 287 Purchases journal, 240–243 and postings, illus., 241 def., 240 Purchases returns and allowances, 288–290, 310 def., 288 PwC, 627 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net Index Q Quick assets, def., 558, 833 Quick ratio, 557–559, 832–834, 848 def., 558, 833 Qwest Communications International, Inc., R R.J Reynolds Tobacco Company, 632 RadioShack Corporation, 840 Ralph Lauren Corp., 869 Ratings game, 691 Ratio of cash to monthly cash expenses, 415–417 def., 416 Ratio of fixed assets to long-term ­liabilities, 848 def., 838 Ratio of liabilities to owner’s equity, def., 26 Ratio of liabilities to stockholders’ ­equity, 838–839, 848 def., 838 Ratios acid-test, 833 coverage, 839 current, 557, 832, 848 def., 826 fixed asset turnover, 512 price-earnings, 845–846, 848 quick, 557–559, 832–834, 848 working capital, 832 Real accounts, def., 169 Realization capital deficiency—loss on, 603–606 def., 599 gain on, 600–601 loss on, 601–603 Reasonably possible, contingent liabilities, 556 Receipts and payments, cash controls over, 403–406 Receivable(s) accounts, 442 aging the, 450 classification of, 442–443 days’ sales in, 459–460 def., 442 notes, 442–443, 454–457 number of days’ sales in, 835, 848 other, 443 reporting on the balance sheet, 458 trade, 443 uncollectible, 443 Receivables method, analysis of, 449–452 Receivables schedule, aging of, illus., 450 Receiving report, def., 346 Records and bank statement, illus., 409 Registrar, 637 Related operations, separating responsibilities for, 401 Remittance advice, 405 Remote, contingent liabilities, 557 Rent revenue, def., 16 Repairs and improvements, 502–504 extraordinary, 503 ordinary, 503 Report form def., 23 of balance sheet, illus., 23 Report of compliance with SarbanesOxley, illus., 397 Report of Independent Registered Public Accounting Firm, 850 Research and development costs, 509 Residual value, def., 492 Restrictions, def., 648 Retail inventory method, 368–369 def., illus., 368 Retained earnings, 789–791 def., 633 reporting, 647–648 Retained earnings statement comparative, horizontal analysis, ­illus., 828 def., illus., 647 for Mornin’ Joe, illus., MJ-4 Return on common stockholders’ equity, 843–844, 848 def., 843 Return on operating assets, 842 Return on stockholders’ equity, 842–843, 848 def., 842 Return on total assets, 841–842, 848 def., 841 Revenue expenditures, 503 def., 502 illus., 504 Revenue journal, 235–237 and postings, illus., 237 def., 235 illus., 236 Revenue per employee, def., 606 Revenue per passenger mile, 847 Revenue recognition, C-1–C-3 def., 114 principle, def., 114 Revenue(s) accrued, 117–118 and cash receipts in QuickBooks, illus., 248 collection cycle and, 234 def., 16, 61 deferred, 128 expense recognition and, 114 interest, 16 other, 304 recording over two-year contract, C-3 rent, 16 unearned, 70, 115, 121 Reversing entries, 119fn, 175fn, 196–198 def., 196 Reynolds American, Inc., 583 Risk assessment, 400 Risk, investor bond price, 681 Ruby Tuesday, 506 I-12 Rules of debit and credit def., 62 illus., 63 Rules-based vs principles approach to standard setting, B-3 S Sage Software, Inc., 231 Salary, 541 Sale of bonds, 724–725 Sale of land, gain on, 785 Sale of stock, 726, 728–729 Sales, 303 cash, 290–291 def., 16, 283 on account, 291 taxes, 299, 300 transactions, 290–294 Sales discounts, def., 291 Sales method, percent of, 448–449 Salesforce.com, 278 Salvage value, 492 SAP, 231, 278 Sarbanes-Oxley Act (SOX), 396–397, 849 def., 8, 396 effect of, illus., 397 SC, service charge, 408 Scrap value, 492 Sears, 203 Securities available-for-sale, 732–734 debt, 722 equity, 722 held-to-maturity, 734 trading, 730–731, 732 Securities and Exchange Commission (SEC), 397, 649, B-2 def., 11 Security measures and proofs, 401–402 Segment analysis, 250–251 Selling expenses, def., 303 Serial bonds, 680 Service businesses, def., Services of partners, dividing income, 590–591 Shareholders, 630 equity, 633 investment, 633 Shasta, 766 Short-term notes payable, 539–541 Single-step income statement, def., ­illus., 305 Sinking fund, 687fn Slide, def., 79 Small- and medium-sized enterprises (SMEs), 649 Social security, 543 Social Security Board, 545 Societe Generale, 425 Solvency analyzing, 837–839 def., 188, 826 measures, 848 ratios, illus., 837 Sonic Corp., 512 Sources and uses of cash, illus., 768 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net I-13 Index Southern Airways, 61 Southern Company, 847 Southwest Airlines Co., 13, 232, 513, 708 Special journals, 233–235 def., 233 Special-purpose funds cash funds, 413–414 def., 414 Specific identification inventory cost flow method, def., 347 pawn stars and, 349 Speedway Motorsports, Inc., 863 Sports signing bonus, 122 Spreadsheet complete, 193–194, illus., 195 end-of-period, 180, 189–195, illus., 181 enter the adjusted trial balance, 192–193 enter the adjustments, 191–192 enter the title, 190 enter the unadjusted trial balance, 190, illus., 190, 191, 192 extend the accounts to the income statement columns and the ­balance sheet columns, 193 for statement of cash flows, indirect method, 789–791, illus., 790 preparing financial statements from, 194–195 total income statement and balance sheet columns, 193–194 with amounts extended to income statement and balance sheet columns, illus., 194 Sprouts Farmers Market, Inc., 382–383 Staff Accounting Bulletins, 11 Standard & Poor’s, 687, 691 Standard setting, rules-based vs ­principles approach to, B-3 Staples, Inc., 718 Starbucks Corporation, 5, 38, 212, 268, 537, 538, 541, 552, 554, 556, 557, 558, 607, 632 State pension obligations, 555 State unemployment compensation tax See SUTA tax Stated value, 634 per share, 638 Statement of cash flows, 24–25 def., 20, 767 direct method, 782–787, illus., 787 format of, 771, illus., 771 indirect method, 772–781, illus., 781 preparing, 24–25, 781, 791 spreadsheet for, indirect method, 789–791, illus., 790 Statement of changes in equity for Mornin’ Joe International, illus., MJ-9 vs statements of stockholders’ ­equity, MJ-9 Statement of comprehensive income for Mornin’ Joe International, illus., MJ-6 vs income statements, MJ-6–MJ-7 Statement of financial position for LVMH, illus., MJ-11 for Mornin’ Joe International, illus., MJ-8 vs balance sheets, MJ-8 Statement of members’ equity, def., 606 Statement of owner’s equity, 21, 167, 305 def., 20 for merchandising business, illus., 305 Statement of partnership equity, def., ­illus., 606 Statement of partnership liquidation capital deficiency, illus., 604 def., 600 gain on realization, illus., 600 loss on realization, illus., 602 Statement of stockholders’ equity, 648–649 def., 649 for Mornin’ Joe, illus., MJ-4 illus., 649 vs statements of changes in equity, MJ-9 Statements of Financial Accounting Standards, 11 Stock characteristics of, 634 classes of, 635–636 common, 635, 779 cumulative preferred, 635 def., 630 issuing, 636–637 no-par, 634, 638 outstanding, 634 paid-in capital from issuing, 634–638 participating preferred, 635fn preferred, 635 premium on, 637–638 purchase of, 726, 727 sale of, 726, 728–729 treasury, 644 Stock dividends, 641–642 def., 641 Stock investments, illus., 725 Stock splits, 642–643 before and after, illus., 643 def., 642 Stockholders def., 630 ledger, 637fn Stockholders’ equity, 633–634 def., 13, 633 in balance sheet, 645–647 ratio of liabilities to, 838–839, 848 reporting, 645–650 return on, 842–843, 848 return on common, 843–844, 848 section of balance sheet, illus., 646 sources of, illus., 633 statement of, 648–649, illus., 649 Stone Energy Corporation, 706 Straight-line method, 493–495, 500–501, 684 def., 493 depreciation expense and book value, illus., 495 illus., 494 Subsidiary company, def., 729 Subsidiary inventory ledger, def., 347 Subsidiary ledger accounts payable, 233 accounts payable control account and, 245–246 accounts receivable, 233 accounts receivable control account and, 240 and general ledger, illus., 34 def., 233 Suburban Propane, 858 Sum-of-the-years-digits method, 493fn SunTrust, 37 Supplies, 122 Supply chain management (SCM), 249 SUTA tax, 545 T T account, def., 59 Taco Bell, 512 Take-home pay, 544 Take-Two Interactive Software, Inc., 189 Tangible assets, 488 Target Corporation, 38, 96, 187, 203, 393, 489 Tax payments, responsibility for, illus., 545 Taxation, double, 631 Taxes FICA, 543–544, 545 FUTA, 545 income, 542, 785–786, illus., 786 payroll, 541–545, 545–551, 547–549 sales, 299 SUTA, 545 TearLab Corp., 439 Technical differences between IRFS and U.S GAAP, B-3 Temporary accounts, def., 169 Temporary investments, 722 investing cash in, 722 Term, 455 Term bonds, 680 Terms, freight, illus., 296 The Wall Street Journal, 738 The Wet Seal, Inc., 770 Theft, cost of employee, 301 3M Company, 632 Tiffany & Co., 203, 328, 367 Time value of money concept, 693 Times interest earned, 848 def., 692, 839 ratio, 691–693 Title, enter on the spreadsheet, 190 Total assets, return on, 841–842, 848 Trade discounts, 299 def., 300 Trade receivables, 443 Trade-in allowance, def., 514 Trade-in value, 492 Trademark, def., 509 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net Index Trading securities, 730–731, 732 def., 730 Transaction terminology and related journal entry accounts, illus., 65 Transactions analyzing and recording in the journal, 177–179 dual nature of merchandise, 297–299 illus., 60 merchandising, 284–300 posting to ledger, 179 recording merchandise under the periodic inventory system, 310 sales, 290–294 summary of, illus., 18 treasury stock, 644–645 types of affecting owner’s equity, illus., 19 using accounts to record, 59–62 using periodic inventory systems, illus., 311 Transfer agent, 637 Transposition, def., 79 Treasury stock def., 644 or dividends, 645 transactions, 644–645 Trial balance, 77–80 adjusted, 130–131, 182, illus., 131, 182 def., 77 errors effecting, 78–79 errors not affecting, 79–80 illus., 78 post-closing, 174, 184–187, illus., 175, 185 spreadsheet with unadjusted, illus., 190, 191, 192 unadjusted, 78, 179–180, illus., 180 TurboTax, 249 Turnover accounts receivable, 459–460, 834, 848 inventory, 365, 836, 848 Twenty-First Century Fox, Inc., 268 Twitter, Inc., 4, 6, 8, 12, 13, 20, 24, 782 Two-column journal, def., 64 Tyranny of the majority in partnerships, 592 U U.S GAAP, MJ-5 U.S GAAP and IFRS, B-2–B-3 comparison of accounting under, ­illus., B-4–B-5 convergence of, B-3 differences between, B-3–B-5 key reporting differences between, MJ-5–MJ-9 technical differences between, B-3 U.S government debt, 684 Unadjusted trial balance def., 78 enter on the spreadsheet, 190 illus., 116, 180 preparing, 179–180 spreadsheet with, illus., 190, 191, 192 Uncollectible accounts allowance method for, 445–453 direct write-off method for, 444–445 expense, 443 Uncollectible receivables, 443 Uncollectibles, estimating, 448–453 Under Armour, Inc., 211 Unearned revenue, 61, 121 def., 70, 115 Uniform Partnership Act, 587fn Unilever Group, MJ-10 Union Pacific Corporation, 249, 453, 513, 868 Unit of measure concept, def., 12 United Airlines, Inc., 468, 513 United Parcel Service, Inc., 528 Units-of-activity method, 495–497, 501 def., illus., 495 Units-of-output method, 495 Units-of-production method, 495 Unlimited life, LLCs, 588 Unqualified opinion, 850 Unrealized gain or loss, def., 730 Unusual items affecting the current period’s ­income statement, 850–851 affecting the prior period’s income statement, 852 on income statement, 850–852, ­illus., 851 Uses and sources of cash, illus., 768 V Vacation pay, 552 Vacations, mandatory, 400–401 Valuation at lower of cost or market, 359–361 Valuation method, 125 Value book, 494, 728 fair, 730 fair market, 641fn future, 694, illus., 693 maturity, 456 net book, 125 net realizable, 360, 445 present, 693, illus., 693 residual, scrap, salvage, or trade-in, 492 stated, 634 Variables, 551 Vendor’s invoice, 346 Verizon Communications Inc., 147, 489, 528, 738, C-1-C-2 Vertical analysis, 131–133, 829–830 comparative balance sheet, illus., 829 comparative income statement, ­illus., 830 def., 131, 829 I-14 VISA, 290, 444 Voting control, using multiple classes of stock, 635 Voucher, def., 406 Voucher system, def., 406 W W.W Grainger, Inc., 267 W-4 (Employee’s Withholding Allowance Certificate), 542, illus., 542 Wage bracket withholding table, illus., 542 Wages, 541 accrued, illus., 119 expense, illus., 197, 198 payable, illus., 197, 198 Wal-Mart Stores, Inc., 6, 11, 13, 37, 187, 393, 485, 528, 880–881 Walt Disney Company, The, 5, 489, 513, 632 Warning signs of internal control ­problems, illus., 402 Weighted average cost method, 353–354, 357–358 Weighted average inventory cost flow method, def., 348 Wells Fargo & Company, 404, 405, 651, 736 Wendy’s Co., 512 Whirlpool Corporation, 485, 632 Whole Foods Markets, Inc., 382–383 Wholesalers, def., 300 With-dividends, 640 Withdrawals, owner, 63 Working capital, 557, 848 def., 188, 832 ratio, 832 WorldCom, 503, 672 Write-offs to the allowance account, 446–447 Wynn Resorts, 453 X Xerox Corporation, Y Yahoo, 37 Yahoo! Finance, 738 Yelp!, 635 Yield, investing for, 847 YRC Worldwide, 868 Yum! Brands, Inc., 268, 512 Z Zero-coupon bonds, 696 fn Zynga, Inc., 162, 165, 168, 187, 189, 635 Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 Income Statement Accounts Revenue Accounts Expense Accounts I-15 Debit for Credit for increases (+) decreases (–) Debit for increases (+) Owner Withdrawals www.downloadslide.net Credit for decreases (–) The Basics The debit and credit rules for recording owner withdrawals are based on the effect of owner withdrawals on owner’s equity Because an owner’s withdrawals decrease owner’s equity, the owner’s drawing account is increased by debits Likewise, the owner’s drawing account is decreased by credits Thus, the rules of debit and credit for the owner’s drawing account are as follows: Accounting Equation: Accounting Cycle: Drawing Account Debit for (+) + Owner’s Credit forEquity decreases (–) Assets = increases Liabilities Transactions are analyzed and recorded in the journal Transactions are posted to the ledger T Account: The sum of the increases in an account is usually equal to or greater than the sum of An unadjusted trial balance is prepared Account Title balance of an account is either a debit Adjustment data are assembled and analyzed the decreases in the account Thus, the normal or credit depending on whether increases in the account are recorded as debits or An optional end-of-period spreadsheet is prepared Left side Right side credits For example, because asset accounts are increased with debits, asset accounts normally have debit balances debit Likewise, liability accounts credit normally have credit balances 6. Adjusting entries are journalized and posted to the ledger The rules of debit and credit and the normal balances of the various types of 7. An adjusted trial balance is prepared accounts are summarized in Exhibit Debits and credits are sometimes abbreviated    8. Financial statements are ­prepared as Dr for debit and Cr for credit    9. Closing entries are journalized and posted to the ledger Rules of Debit and Credit: post-closing Rules of Debit and Credit, Normal Balances of Accounts   10.  EA XH I B I T trial balance is prepared Normal Balances ASSETS = Asset Accounts Debit for Credit for increases (+) decreases (–) LIABILITIES + Liability Accounts Debit for Credit for decreases (–) increases (+) Balance Types of Adjusting Entries: OWNER’S EQUITY Owner’s Capital Account Debit for Credit for decreases (–) increases (+) Balance •  Accrued revenue (accrued asset) •  Accrued expense (accrued liability) Balance •  Unearned revenue (deferred revenue) •  Prepaid expense (deferred expense) Owner’s Drawing Income Statement Accounts Account Revenue Accounts Debit for increases (+) Credit for decreases (–) Debit for decreases (–) Balance Credit for increases (+) Balance •  Depreciation expense Each entry will always affect both a balance sheet account and an income statement account Expense Accounts Note: The side of the account for recording increases, and the normal balance is shown in green Debit for increases (+) Balance Analyzing and Journalizing Transactions Carefully read the description of the transaction to determine whether an asset, a liability, an owner’s equity, a revenue, an expense, or a drawing account is affected For each account affected by the transaction, determine whether the account increases or decreases Determine whether each increase or decrease should be r­ ecorded as a debit or a credit, following the rules of debit and credit Record the transaction using a journal entry Periodically post journal entries to the accounts in the ledger Prepare an unadjusted trial balance at the end of the period Financial Statements: • Income statement: A summary of the revenue and expenses of a business entity for a ­specific period of time, such as a month or a year • Statement of owner’s equity: A summary of the changes in the owner’s equity of a business entity that have occurred during a specific period of time, such as a month or a year • Balance sheet: A list of the assets, liabilities, and owner’s equity of a business entity as of a specific date, usually at the close of the last day of a month or a year • Statement of Cash Flows: A summary of the cash receipts and cash payments of a business ­entity for a specific period of time, such as a month or a year Credit for decreases (–) Closing Entries: 1. Debit each revenue account for its balance, credit each expense account for its balance, and credit (net income) or debit (net loss) the owner’s capital account 2. Debit the owner’s capital account for the balance of the drawing account and credit the08/11/16 drawing account 2:57 PM Special Journals: Providing services on account Receipt of cash from any source Purchase of items on account Payments of cash for any purpose   recorded in   Revenue journal   recorded in   Cash receipts journal   recorded in   Purchases journal   recorded in   Cash payments journal Shipping Terms: FOB Shipping Point Ownership (title) passes to buyer when merchandise is delivered to freight carrier Freight costs are paid by buyer FOB Destination delivered to buyer seller Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net I-16 Format for Bank Reconciliation: Cash balance according to bank statement $XXX Add: Additions by company not on bank statement $XXX Bank errors XXX XXX $XXX Deduct: Deductions by company not on bank statement $XXX Bank errors XXX XXX Adjusted balance $XXX Cash balance according to company’s records $XXX Add: Additions by bank not recorded by company $XXX Company errors XXX XXX $XXX Deduct: Deductions by bank not recorded by company $XXX Company errors XXX XXX Adjusted balance $XXX Inventory Costing Methods: Break-Even Sales (Units) = Sales (Units) = Fixed Costs Unit Contribution Margin Fixed Costs + Target Profit Unit Contribution Margin Margin of Safety = Sales – Sales at Break-Even Point Sales Contribution Margin Income from Operations Operating Leverage = Variances:   Direct Materials Actual Price – = × Actual Quantity Price Variance     Standard Price       Direct Materials = Actual Quantity – × Standard Price   Quantity Variance     Standard Quantity     Direct Labor = Actual Rate per Hour – × Actual Hours Rate Variance Standard Rate per Hour       Standard Rate Direct Labor = Actual Direct Labor Hours – × Standard Direct Labor Hours   per Hour Time Variance ▪▪ First-in, First-out (FIFO) ▪▪ Last-in, First-out (LIFO) Variable Factory Actual Variable Budgeted Variable – Overhead Controllable  =  Factory Factory Overhead Variance       Overhead ▪▪ Weighted-Average Interest Computations: Interest = Face Amount (or Principal) × Rate × Time   Fixed ­Factory Standard Fixed Factory Standard Hours for Overhead = Hours for × – Overhead 100% of Normal Volume ­ ctual Units A Rate Capacity Variance Produced Methods of Determining Annual Depreciation: Straight-Line: Cost – Estimated Residual Value Estimated Life Double-Declining-Balance: Rate* × Book Value at Beginning of Period *Rate is commonly twice the straight-line rate (1 ÷ Estimated Life) Adjustments to Net Income (Loss) Using the Indirect Method: Increase (Decrease) Net income (loss) $ XXX Adjustments to reconcile net income to net cash flow from operating activities:    Depreciation of fixed assets XXX    Amortization of intangible assets XXX    Losses on disposal of assets XXX    Gains on disposal of assets (XXX) Changes in current operating assets and liabilities:    Increases in noncash current operating assets (XXX)    Decreases in noncash current operating assets XXX    Increases in current operating liabilities XXX    Decreases in current operating liabilities (XXX) Net cash flow from operating activities $ XXX or $(XXX) Contribution Margin Ratio = Rate of Return on = Investment (ROI) Income from Operations Invested Assets Alternative ROI Computation:   ROI = Income from Operations Sales × Sales Invested Assets Capital Investment Analysis Methods: Methods That Ignore Present Values: • Average Rate of Return Method • Cash Payback Method Methods That Use Present Values: • Net Present Value Method • Internal Rate of Return Method Average Rate of Estimated Average Annual Income = Return Average Investment Present Value Index = Total Present Value of Net Cash Flow Amount to Be Invested Present Value Factor for = Amount to Be Invested an Annuity of $1 Equal Annual Net Cash Flows Sales – Variable Costs Sales Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net I-17 Abbreviations and Acronyms Commonly Used in Business and ­Accounting AAA American Accounting Association ABC Activity-based costing AICPA American Institute of Certified Public Accountants B2B Business-to-business B2C Business-to-consumer CFO Chief Financial Officer CMA Certified Management Accountant COGM Cost of goods manufactured COGS Cost of goods sold CPA Certified Public Accountant Cr Credit CVP Cost-volume-profit Dr Debit EFT Electronic funds transfer EPS Earnings per share ERP Enterprise resource planning FASB Financial Accounting Standards Board FICA tax Federal Insurance Contributions Act tax FIFO First-in, first-out FOB Free on board FUTA Federal unemployment compensation tax GAAP Generally accepted accounting principles IASB International Accounting Standards Board IFRS International Financial Reporting Standards IMA Institute of Management Accountants IRC Internal Revenue Code IRR Internal rate of return IRS Internal Revenue Service JIT Just-in-time LIFO Last-in, first-out LCM Lower of cost or market MACRS Modified Accelerated Cost Recovery System MD&A Management’s Discussion and Analysis n/30 Net 30 n/eom Net, end-of-month NPV Net present value NSF Not sufficient funds P/E Ratio Price-earnings ratio POS Point of sale ROI Return on investment R&D Research and development SCM Supply chain management SEC Securities and Exchange Commission SOX Sarbanes-Oxley Act TQC Total quality control W-4 Employee’s Withholding Allowance Certificate WIP Work in process Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net I-18 Classification of Accounts Account Title Account Classification Normal Financial Balance Statement Accounts Payable Current liability Credit Balance sheet Accounts Receivable Current asset Debit Balance sheet Accumulated Depletion Contra fixed asset Credit Balance sheet Accumulated Depreciation Contra fixed asset Credit Balance sheet Advertising Expense Operating expense Debit Income statement Allowance for Doubtful Accounts Contra current asset Credit Balance sheet Amortization Expense Operating expense Debit Income statement Bonds Payable Long-term liability Credit Balance sheet Building Fixed asset Debit Balance sheet Capital Owner’s equity Credit Statement of owner’s equity/ Balance sheet Cash Current asset Debit Balance sheet Cash Dividends Stockholders’ equity Debit Retained earnings statement Cash Dividends Payable Current liability Credit Balance sheet Common Stock Stockholders’ equity Credit Balance sheet Cost of Merchandise (Goods) Cost of merchandise Debit Income statement Sold (goods) sold Customer Refunds Payable Current liability Credit Balance sheet Delivery Expense Operating expense Debit Income statement Depletion Expense Operating expense Debit Income statement Discount on Bonds Payable Long-term liability Debit Balance sheet Dividend Revenue Other income Credit Income statement Dividends Stockholders’ equity Debit Retained earnings statement Drawing Owner’s equity Debit Statement of owner’s equity Employees Federal Income Tax Current liability Credit Balance sheet Payable Equipment Fixed asset Debit Balance sheet Estimated Returns Inventory Current asset Debit Balance sheet Factory Overhead (Overapplied) Deferred credit Credit Balance sheet (interim) Factory Overhead (Underapplied) Deferred debit Debit Balance sheet (interim) Federal Income Tax Payable Current liability Credit Balance sheet Federal Unemployment Tax Current liability Credit Balance sheet Payable Finished Goods Current asset Debit Balance sheet Freight In Cost of merchandise Debit Income statement sold Freight Out Operating expense Debit Income statement Gain on Disposal of Fixed Assets Other income Credit Income statement Gain on Redemption of Bonds Other income Credit Income statement Gain on Sale of Investments Other income Credit Income statement Goodwill Intangible asset Debit Balance sheet Income Tax Expense Income tax Debit Income statement Income Tax Payable Current liability Credit Balance sheet Insurance Expense Operating expense Debit Income statement Interest Expense Other expense Debit Income statement Interest Receivable Current asset Debit Balance sheet Interest Revenue Other income Credit Income statement Investment in Bonds Investment Debit Balance sheet Investment in Stocks Investment Debit Balance sheet Investment in Subsidiary Investment Debit Balance sheet Land Fixed asset Debit Balance sheet Loss on Disposal of Fixed Assets Other expense Debit Income statement Loss on Redemption of Bonds Other expense Debit Income statement Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net I-19 Account Title Account Classification Normal Financial Balance Statement Loss on Sale of Investments Other expense Debit Income statement Marketable Securities Current asset Debit Balance sheet Materials Current asset Debit Balance sheet Medicare Tax Payable Current liability Credit Balance sheet Merchandise Inventory Current asset/Cost of Debit Balance sheet/Income merchandise sold statement Net Sales Revenue from sales Credit Income statement Notes Payable Current liability/Long- Credit Balance sheet term liability Notes Receivable Current asset/Investment Debit Balance sheet Patents Intangible asset Debit Balance sheet Paid-In Capital from Sale of Stockholders’ equity Credit Balance sheet Treasury Stock Paid-In Capital in Excess of Stockholders’ equity Credit Balance sheet Par (Stated Value) Payroll Tax Expense Operating expense Debit Income statement Pension Expense Operating expense Debit Income statement Petty Cash Current asset Debit Balance sheet Preferred Stock Stockholders’ equity Credit Balance sheet Premium on Bonds Payable Long-term liability Credit Balance sheet Prepaid Insurance Current asset Debit Balance sheet Prepaid Rent Current asset Debit Balance sheet Purchases Cost of merchandise Debit Income statement sold Purchases Discounts Cost of merchandise Credit Income statement sold Purchases Returns and Cost of merchandise Credit Income statement Allowances sold Rent Expense Operating expense Debit Income statement Rent Revenue Other income Credit Income statement Retained Earnings Stockholders’ equity Credit Balance sheet/Retained earnings statement Salaries Expense Operating expense Debit Income statement Salaries Payable Current liability Credit Balance sheet Sales Tax Payable Current liability Credit Balance sheet Social Security Tax Payable Current liability Credit Balance sheet State Unemployment Tax Payable Current liability Credit Balance sheet Stock Dividends Stockholders’ equity Debit Retained earnings statement Stock Dividends Distributable Stockholders’ equity Credit Balance sheet Supplies Current asset Debit Balance sheet Supplies Expense Operating expense Debit Income statement Treasury Stock Stockholders’ equity Debit Balance sheet Uncollectible Accounts Expense Operating expense Debit Income statement Unearned Rent Current liability Credit Balance sheet Utilities Expense Operating expense Debit Income statement Vacation Pay Expense Operating expense Debit Income statement Vacation Pay Payable Current liability/Long- Credit Balance sheet term liability Work in Process Current asset Debit Balance sheet Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net Abbreviations and Acronyms Commonly Used in Business and ­Accounting AAA American Accounting Association ABC Activity-based costing AICPA American Institute of Certified Public Accountants B2B Business-to-business B2C Business-to-consumer CFO Chief Financial Officer CMA Certified Management Accountant COGM Cost of goods manufactured COGS Cost of goods sold CPA Certified Public Accountant Cr Credit CVP Cost-volume-profit Dr Debit EFT Electronic funds transfer EPS Earnings per share ERP Enterprise resource planning FASB Financial Accounting Standards Board FICA tax Federal Insurance Contributions Act tax FIFO First-in, first-out FOB Free on board FUTA Federal unemployment compensation tax GAAP Generally accepted accounting principles IASB International Accounting Standards Board IFRS International Financial Reporting Standards IMA Institute of Management Accountants IRC Internal Revenue Code IRR Internal rate of return IRS Internal Revenue Service JIT Just-in-time LIFO Last-in, first-out LCM Lower of cost or market MACRS Modified Accelerated Cost Recovery System MD&A Management’s Discussion and Analysis n/30 Net 30 n/eom Net, end-of-month NPV Net present value NSF Not sufficient funds P/E Ratio Price-earnings ratio POS Point of sale ROI Return on investment R&D Research and development SCM Supply chain management SEC Securities and Exchange Commission SOX Sarbanes-Oxley Act TQC Total quality control W-4 Employee’s Withholding Allowance Certificate WIP Work in process Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net Classification of Accounts Account Title Account Classification Normal Financial Balance Statement Accounts Payable Current liability Credit Balance sheet Accounts Receivable Current asset Debit Balance sheet Accumulated Depletion Contra fixed asset Credit Balance sheet Accumulated Depreciation Contra fixed asset Credit Balance sheet Advertising Expense Operating expense Debit Income statement Allowance for Doubtful Accounts Contra current asset Credit Balance sheet Amortization Expense Operating expense Debit Income statement Bonds Payable Long-term liability Credit Balance sheet Building Fixed asset Debit Balance sheet Capital Owner’s equity Credit Statement of owner’s equity/ Balance sheet Cash Current asset Debit Balance sheet Cash Dividends Stockholders’ equity Debit Retained earnings statement Cash Dividends Payable Current liability Credit Balance sheet Common Stock Stockholders’ equity Credit Balance sheet Cost of Merchandise (Goods) Cost of merchandise Debit Income statement Sold (goods) sold Customer Refunds Payable Current liability Credit Balance sheet Delivery Expense Operating expense Debit Income statement Depletion Expense Operating expense Debit Income statement Discount on Bonds Payable Long-term liability Debit Balance sheet Dividend Revenue Other income Credit Income statement Dividends Stockholders’ equity Debit Retained earnings statement Drawing Owner’s equity Debit Statement of owner’s equity Employees Federal Income Tax Current liability Credit Balance sheet Payable Equipment Fixed asset Debit Balance sheet Estimated Returns Inventory Current asset Debit Balance sheet Factory Overhead (Overapplied) Deferred credit Credit Balance sheet (interim) Factory Overhead (Underapplied) Deferred debit Debit Balance sheet (interim) Federal Income Tax Payable Current liability Credit Balance sheet Federal Unemployment Tax Current liability Credit Balance sheet Payable Finished Goods Current asset Debit Balance sheet Freight In Cost of merchandise Debit Income statement sold Freight Out Operating expense Debit Income statement Gain on Disposal of Fixed Assets Other income Credit Income statement Gain on Redemption of Bonds Other income Credit Income statement Gain on Sale of Investments Other income Credit Income statement Goodwill Intangible asset Debit Balance sheet Income Tax Expense Income tax Debit Income statement Income Tax Payable Current liability Credit Balance sheet Insurance Expense Operating expense Debit Income statement Interest Expense Other expense Debit Income statement Interest Receivable Current asset Debit Balance sheet Interest Revenue Other income Credit Income statement Investment in Bonds Investment Debit Balance sheet Investment in Stocks Investment Debit Balance sheet Investment in Subsidiary Investment Debit Balance sheet Land Fixed asset Debit Balance sheet Loss on Disposal of Fixed Assets Other expense Debit Income statement Loss on Redemption of Bonds Other expense Debit Income statement Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net Account Title Account Classification Normal Financial Balance Statement Loss on Sale of Investments Other expense Debit Income statement Marketable Securities Current asset Debit Balance sheet Materials Current asset Debit Balance sheet Medicare Tax Payable Current liability Credit Balance sheet Merchandise Inventory Current asset/Cost of Debit Balance sheet/Income merchandise sold statement Net Sales Revenue from sales Credit Income statement Notes Payable Current liability/Long- Credit Balance sheet term liability Notes Receivable Current asset/Investment Debit Balance sheet Patents Intangible asset Debit Balance sheet Paid-In Capital from Sale of Stockholders’ equity Credit Balance sheet Treasury Stock Paid-In Capital in Excess of Stockholders’ equity Credit Balance sheet Par (Stated Value) Payroll Tax Expense Operating expense Debit Income statement Pension Expense Operating expense Debit Income statement Petty Cash Current asset Debit Balance sheet Preferred Stock Stockholders’ equity Credit Balance sheet Premium on Bonds Payable Long-term liability Credit Balance sheet Prepaid Insurance Current asset Debit Balance sheet Prepaid Rent Current asset Debit Balance sheet Purchases Cost of merchandise Debit Income statement sold Purchases Discounts Cost of merchandise Credit Income statement sold Purchases Returns and Cost of merchandise Credit Income statement Allowances sold Rent Expense Operating expense Debit Income statement Rent Revenue Other income Credit Income statement Retained Earnings Stockholders’ equity Credit Balance sheet/Retained earnings statement Salaries Expense Operating expense Debit Income statement Salaries Payable Current liability Credit Balance sheet Sales Tax Payable Current liability Credit Balance sheet Social Security Tax Payable Current liability Credit Balance sheet State Unemployment Tax Payable Current liability Credit Balance sheet Stock Dividends Stockholders’ equity Debit Retained earnings statement Stock Dividends Distributable Stockholders’ equity Credit Balance sheet Supplies Current asset Debit Balance sheet Supplies Expense Operating expense Debit Income statement Treasury Stock Stockholders’ equity Debit Balance sheet Uncollectible Accounts Expense Operating expense Debit Income statement Unearned Rent Current liability Credit Balance sheet Utilities Expense Operating expense Debit Income statement Vacation Pay Expense Operating expense Debit Income statement Vacation Pay Payable Current liability/Long- Credit Balance sheet term liability Work in Process Current asset Debit Balance sheet Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 www.downloadslide.net This is an electronic version of the print textbook Due to electronic rights restrictions, some third party content may be suppressed Editorial review has deemed that any suppressed content does not materially affect the overall learning experience The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN, author, title, or keyword for materials in your areas of interest Important notice: Media content referenced within the product description or the product text may not be available in the eBook version Copyright 2018 Cengage Learning All Rights Reserved May not be copied, scanned, or duplicated, in whole or in part WCN 02-200-202 ... 65% Financial Accounting/ 35% Managerial Accounting Corporate Approach • 26 Chapters • 50% Financial Accounting/ 50% Managerial Accounting • Chapters 1–14 • Financial Chapters 1–17 from Accounting, ... Warren/Reeve /Duchac s Financial AccountingT E R15e gives students a solid foundation in CHAP n to ctioworld odureal accounting to prepare them for future business courses and Intrthe ness nd Busi Accounting. .. or in part WCN 02-200-202 FINANCIAL ACCOUNTING 15e Carl S Warren Professor Emeritus of Accounting University of Georgia, Athens James M Reeve Professor Emeritus of Accounting University of Tennessee,