The handy accounting answer book (the handy answer book)

www.ebook3000.com www.ebook3000.com www.ebook3000.com About the Author Amber K Gray is a full-time accounting professor at Adrian College in Adrian, Michigan She earned her bachelor’s degree in business administration and master of science degree in accountancy from Western Michigan University Gray currently serves on the Accounting Educators Task Force of the Michigan Association of Certified Public Accountants and is a member of the Institute of Management Accountants Educational Case Journal Editorial Advisory and Review Board Prior to becoming a full-time accounting educator, Gray worked in public accounting and held various titles in corporate accounting such (photo by Darby Bullinger) as accounting manager, assistant controller, and controller During her time teaching at Adrian College, Gray earned the “Teacher of the Year” award and has been an honored guest at several leadership appreciation events She has been published in the International Journal of Business and Applied Social Science and has presented at conferences and other events on behalf of the Michigan Association of Certified Public Accountants iii www.ebook3000.com www.ebook3000.com www.ebook3000.com A LSO FROM V ISIBLE I NK P RESS The Handy African American History Answer Book by Jessie Carnie Smith ISBN: 978-1-57859-452-8 The Handy American Government Answer Book: How Washington, Politics, and Elections Work by Gina Misiroglu ISBN: 978-1-57859-639-3 The Handy American History Answer Book by David L Hudson Jr ISBN: 978-1-57859-471-9 The Handy Anatomy Answer Book, 2nd edition by Patricia Barnes-Svarney and Thomas E Svarney ISBN: 978-1-57859-542-6 The Handy Answer Book for Kids (and Parents), 2nd edition by Gina Misiroglu ISBN: 978-1-57859-219-7 The Handy Art History Answer Book by Madelynn Dickerson ISBN: 978-1-57859-417-7 The Handy Astronomy Answer Book, 3rd edition by Charles Liu ISBN: 978-1-57859-419-1 The Handy Bible Answer Book by Jennifer R Prince ISBN: 978-1-57859-478-8 The Handy Christianity Answer Book by Steve Werner ISBN: 978-1-57859-686-7 The Handy Civil War Answer Book by Samuel Willard Crompton ISBN: 978-1-57859-476-4 The Handy Communication Answer Book By Lauren Sergy ISBN: 978-1-57859-587-7 The Handy Diabetes Answer Book by Patricia Barnes-Svarney and Thomas E Svarney ISBN: 978-1-57859-597-6 The Handy Dinosaur Answer Book, 2nd edition by Patricia Barnes-Svarney and Thomas E Svarney ISBN: 978-1-57859-218-0 The Handy English Grammar Answer Book by Christine A Hult, Ph.D ISBN: 978-1-57859-520-4 The Handy Forensic Science Answer Book: Reading Clues at the Crime Scene, Crime Lab, and in Court by Patricia Barnes-Svarney and Thomas E Svarney ISBN: 978-1-57859-621-8 The Handy Geography Answer Book, 3rd edition by Paul A Tucci ISBN: 978-1-57859-576-1 The Handy Biology Answer Book, 2nd edition The Handy Geology Answer Book by Patricia Barnes-Svarney and Thomas E by Patricia Barnes Svarney and Thomas E Svarney Svarney ISBN: 978-1-57859-156-5 ISBN: 978-1-57859-490-0 The Handy Boston Answer Book by Samuel Willard Crompton ISBN: 978-1-57859-593-8 The Handy History Answer Book, 3rd edition by David L Hudson, Jr., J.D ISBN: 978-1-57859-372-9 The Handy California Answer Book by Kevin Hile ISBN: 978-1-57859-591-4 The Handy Hockey Answer Book by Stan Fischler ISBN: 978-1-57859-513-6 The Handy Chemistry Answer Book by Ian C Stewart and Justin P Lamont ISBN: 978-1-57859-374-3 The Handy Investing Answer Book by Paul A Tucci ISBN: 978-1-57859-486-3 www.ebook3000.com The Handy Physics Answer Book, 2nd edition by Paul W Zitzewitz, Ph.D ISBN: 978-1-57859-305-7 The Handy Islam Answer Book by John Renard, Ph.D ISBN: 978-1-57859-510-5 The Handy Law Answer Book by David L Hudson, Jr., J.D ISBN: 978-1-57859-217-3 The Handy Literature Answer Book: An Engaging Guide to Unraveling Symbols, Signs, and Meanings in Great Works By Daniel S Burt, Ph.D., and Deborah G Felder ISBN: 978-1-57859-635-5 The Handy Presidents Answer Book, 2nd edition by David L Hudson ISB N: 978-1-57859-317-0 The Handy Psychology Answer Book, 2nd edition by Lisa J Cohen, Ph.D ISBN: 978-1-57859-508-2 The Handy Math Answer Book, 2nd edition by Patricia Barnes-Svarney and Thomas E Svarney ISBN: 978-1-57859-373-6 The Handy Religion Answer Book, 2nd edition by John Renard, Ph.D ISBN: 978-1-57859-379-8 The Handy Military History Answer Book by Samuel Willard Crompton ISBN: 978-1-57859-509-9 The Handy Science Answer Book, 4th edition by The Carnegie Library of Pittsburgh ISBN: 978-1-57859-321-7 The Handy Mythology Answer Book by David A Leeming, Ph.D ISBN: 978-1-57859-475-7 The Handy State-by-State Answer Book: Faces, Places, and Famous Dates for All Fifty States by Samuel Willard Crompton ISBN: 978-1-57859-565-5 The Handy New York City Answer Book by Chris Barsanti ISBN: 978-1-57859-586-0 The Handy Nutrition Answer Book by Patricia Barnes-Svarney and Thomas E Svarney ISBN: 978-1-57859-484-9 The Handy Ocean Answer Book by Patricia Barnes-Svarney and Thomas E Svarney ISBN: 978-1-57859-063-6 The Handy Personal Finance Answer Book by Paul A Tucci ISBN: 978-1-57859-322-4 The Handy Philosophy Answer Book by Naomi Zack, Ph.D ISBN: 978-1-57859-226-5 P LEASE The Handy Supreme Court Answer Book by David L Hudson, Jr ISBN: 978-1-57859-196-1 The Handy Technology Answer Book by Naomi E Balaban and James Bobick ISBN: 978-1-57859-563-1 The Handy Texas Answer Book by James L Haley ISBN: 978-1-57859-634-8 The Handy Weather Answer Book, 2nd edition by Kevin S Hile ISBN: 978-1-57859-221-0 The Handy Wisconsin Answer Book by Terri Schlichenmeyer and Mark Meier ISBN: 978-1-57859-661-4 “H ANDY A NSWERS ” SERIES WWW HANDYANSWERS COM VISIT THE WEBSITE AT www.ebook3000.com THE HANDY ACCOUNTING ANSWER BOOK Copyright © 2019 by Visible Ink Press® This publication is a creative work fully protected by all applicable copyright laws, as well as by misappropriation, trade secret, unfair competition, and other applicable laws No part of this book may be reproduced in any form without permission in writing from the publisher, except by a reviewer who wishes to quote brief passages in connection with a review written for inclusion in a magazine, newspaper, or website All rights to this publication will be vigorously defended Visible Ink Press® 43311 Joy Rd., #414 Canton, MI 48187-2075 Visible Ink Press is a registered trademark of Visible Ink Press LLC Most Visible Ink Press books are available at special quantity discounts when purchased in bulk by corporations, organizations, or groups Customized printings, special imprints, messages, and excerpts can be produced to meet your needs For more information, contact Special Markets Director, Visible Ink Press, www.visibleink.com, or 734-667-3211 Managing Editor: Kevin S Hile Art Director: Mary Claire Krzewinski Typesetting: Marco DiVita Proofreaders: Larry Baker and Shoshana Hurwitz Indexer: Larry Baker Cover images: Shutterstock Cataloging-in-Publication Data is on file at the Library of Congress ISBN: 978-1-57859-675-1 10 Printed in the United States of America www.ebook3000.com Table of Contents A C K N O W LE D G M E NTS xiii P H OTO S O U RC E S xv I N T R O D U CTI O N xvii WHAT IS ACCOUNTING? … Expenses (30) … Gains, Loses, and Comprehensive Income (31) Accounting Defined (1) … Users of Accounting Information (2) … Early Accounting (4) … A Very Brief History of Financial Accounting in the United States (6) FOUR BASIC FINANCIAL STATEMENTS … 35 FASB’S CONCEPTUAL FRAMEWORK … 11 The FASB (11) … The Conceptual Framework (12) … Qualitative Characteristics (13) Elements of Financial Statements (17) … Recognition, Measurement, and Disclosure Concepts (18) FINANCIAL STATEMENT ELEMENTS … 21 Elements (21) … Assets (22) … Liabilities (27) … Equity, Investments by Owners, and Distributions to Owners (29) … Revenues and Financial Statements (35) … The Basic Accounting Equation (38) … The Income Statement (41) … The Statement of Retained Earnings (45) … The Balance Sheet (47) … The Statement of Cash Flows (51) … Other Financial Reporting (57) FINANCIAL STATEMENT ANALYSIS … 61 Analysis Basics (61) … Horizontal Analysis (64) … Vertical Analysis (65) … Ratio Analysis Basics (69) … Liquidity Ratios (71) … Solvency Ratios (74) … Profitability Ratios (77) … Asset Management Ratios (81) … Market Performance Ratios (86) … The Balanced Scorecard (89) www.ebook3000.com ix GL OSSARY Sustainability Accounting—a complement to financial accounting that helps provide a more complete view of a corporation’s performance and its ability to create long-term value by defining qualitative and quantitative non-financial metrics on industry-specific sustainability topics likely to be of interest to investors and creditors SWOT Analysis—an analysis of a business in terms of its strengths, weaknesses, opportunities, and threats It is usually shown in a matrix form T-Account—a simplified form of the general ledger Temporary Accounts—those accounts that track activity over a certain period of time Temporary accounts must be “reset” or “zeroed out” at the end of each year to start tracking activity for the following year The temporary accounts are revenues, expenses, and dividends/distributions Time Period Assumption—the assumption that the long life of a business can be divided up and measured in shorter periods, such as a month, a quarter, or a year Time Value of Money—the basic concept recognizing that a dollar today is worth more than a dollar in the future Timeliness—users have the financial information in enough time to use it in their decisionmaking process Times Interest Earned Ratio—a measure of a company’s ability to pay interest payments on loans, calculated as (Net Income + Interest Expense + Income Tax Expense) / Interest Expense Top-Down Budget—a budget that originates from upper management and is then pushed down to levels of lower management and supervision Trademark—a name, slogan, or image that can be used to identify a company Trademarks provide value to companies in the form of instant brand recognition and reputation Transaction—an exchange or event that affects the assets, liabilities, or equity of the business Trend Analysis—see “Horizontal Analysis.” Trial Balance—a listing of all accounts in financial statement order showing the debit or credit balances Understandability—when a reasonably informed user can comprehend the information provided Variable Cost—a cost that changes in direct proportion to changes in an activity Verifiability—financial information should be able to be independently verified or audited Vertical Analysis—typically displayed as a common size financial statement, refers to financial statement analysis that looks the relationships among financial statement amounts for a specific point in time Weighted–Average Cost—an inventory costing method that smooths the price changes by taking an average cost of inventory and using that to compute cost of goods sold and ending inventory 383 Wholesaler—a merchandiser that buys goods from the manufacturer and sells them to a retailer Withholdings—amounts withheld from employees’ gross pay to cover the costs of the employee share of any benefits, taxes, and other voluntary reductions Working Capital—the difference between current assets and current liabilities Work-in-Process Inventory—an inventory account that represents a partially completed product 384 Further Reading Accounting-Degree.Org n.d The 10 Worst Corporate Accounting Scandals of All Time Accessed January 12, 2018 http://www.accounting-degree.org/scandals/ accountingWEB 2006 Honoring the Patron Saint of Accountants on All Saints’ Day November Accessed January 12, 2018 https://www.accountingweb.com/aa/standards/ honoring-the-patron-saint-of-accountants-on-all-saints-day AICPA n.d About the AICPA Accessed January 12, 2018 https://www.aicpa.org/about.html ——— 2017 CPA Examination Passing Rates Accessed January 11, 2018 https://www aicpa.org/content/dam/aicpa/becomeacpa/cpaexam/psychometricsandscoring/passin grates/downloadabledocuments/pass-rates-2017.pdf Block, Stanley B., Geoffrey A Hirt, and Bartley R Danielsen 2014 Foundations of Financial Management 15th Edition New York: McGraw-Hill Education Bloomberg Tax n.d “Impact of 2017 Tax Act on Business.” Accessed March 8, 2018 https:// www.lbmc.com/webfiles/TAX_RPT_Impact_of_2017_Tax_Act_on_Businesses_011118.pdf Brewer, Peter C., Ray H Garrison, and Eric W Noreen Introduction to Managerial Accounting 7th edition New York: McGraw-Hill Education, 2016 CCH Incorporated 2014 U.S Master Payroll Guide Chicago: Wolters Kluwer, 2014 CPA Canada Eight Famous People Who Are Accountants October 20 2017 Accessed January 12, 2018 https://www.cpacanada.ca/en/connecting-and-news/blogs/cpa-stories/ eight-famous-people-who-are-accountants ——— The 10 Worst Corporate Accounting Scandals of All Time June 12, 2015 Accessed January 12, 2018 https://www.cpacanada.ca/en/connecting-and-news/news/professionalnews/2015/june/the-10-worst-corporate-accounting-scandals Darby, Mary “In Ponzi We Trust.” Smithsonian Magazine, December Accessed January 12, 2018 https://www.smithsonianmag.com/history/in-ponzi-we-trust-64016168/ 385 Devonish-Mills, Linda “IMA’s FRC Meets with the FASB.” Strategic Finance, December 2017 Elkins, Jenna 10 Total Random but Interesting Facts about Accounting May 2017 Accessed January 12, 2018 https://nasba.org/blog/2017/05/22/10-totally-random-but-interestingfacts-about-accounting/ FASB Convergence with the International Accounting Standards Board (IASB) Accessed January 12, 2018 http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1218220079490 ——— FASB About Us Accessed January 1, 2018 http://www.fasb.org/jsp/FASB/Page/Land ingPage&cid=1175805317407 Flesher, Dale L., Gary J Previts, and Tonya K Flesher “Profiling the New Industrial Professionals: The First CPAs of 1896-97.” Business and Economic History, Fall 1996, 252– 266 Gleeson-White Double Entry: How the Merchants of Venice Created Modern Finance New York: W W Norton & Company, Inc., 2011 Henry, Byron, and Margaret Hicks “A Survey of Perspectives on the Future of the Accounting Profession.” The CPA Journal, 85, no 8, 2015, pp 10–12 IFRS Who We Are Accessed January 12, 2018 http://www.ifrs.org/about-us/who-we-are/ IIA North America About the IIA Accessed January 12, 2018 https://na.theiia.org/aboutus/Pages/About-The-Institute-of-Internal-Auditors.aspx IMA About IMA Accessed January 12, 2018 https://www.imanet.org/about-ima?ssopc=1 King, Thomas A More than a Numbers Game: A Brief History of Accounting Hoboken: John Wiley & Sons, Inc., 2006 Kohler, Mark J The Tax and Legal Playbook Entrepreneur Press, 2015 Lanen, William, Shannon W Anderson, and Michael W Maher Fundamentals of Cost Accounting New York: McGraw-Hill/Irwin, 2014 London School of Business & Finance Famous People You Didn’t Know Were Accountants March 13, 2014 Accessed January 12, 2018 https://www.lsbf.org.uk/blog/opinion-features/7-famous-people-didnt-know-accountants/950 Mandell, Andrea “Academy Will Keep Accounting Firm PwC for Next Oscars Show, Despite Flub.” USA Today, March 29, 2017 Marr, Bernard Machine Learning, Artificial Intelligency - And the Future of Accounting July 7, 2017 Accessed January 12, 2018 https://www.forbes.com/sites/bernardmarr/2017/07/ 07/machine-learning-artificial-intelligence-and-the-future-of-accounting/#7bfe19052dd1 NASBA NASBA: About Us Accessed January 12, 2018 https://nasba.org/about/ Phillips, Fred, Robert Libby, and Patricia A Libby Fundamentals of Financial Accounting, 5th edition New York: McGraw-Hill Education, 2016 386 Previts, Gary J., and Mer A History of Accountancy in the United States Columbus: Ohio State University Press, 1998 Rogers, Jean “The Future Is Here: What to Know about Sustainability Accounting.” California CPA, 85 (3), 2016, pp 17–19 SEC EDGAR: Company Filings Search Accessed December 13, 2017 https://www.sec.gov/ edgar/searchedgar/companysearch.html ——— “How to Read a 10-K.” Accessed February 15, 2018 https://www.sec.gov/fastanswers/answersreada10khtm.html FURTHER READ IN G Robert Half 2018 Salary Guide for Accounting and Finance Professionals Salary Guide, Menlo Park: Robert Half, 2018 Soll, Jacob The Reckoning: Financial Accountability and the Rise and Fall of Nations New York: Basic Books, 2015 Spiceland, David J., James F Sepe, Mark W Nelson, and Wayne B Thomas Intermediate Accounting, 8th edition New York: McGraw-Hill Education, 2016 Sustainability Accounting Standards Board Alcoholic Beverages Sustainability Accounting Standard June, 2015 Weltman, Barbara Small Business Taxes 2008 Hoboken: John Wiley & Sons, 2008 Whittington, O Ray, and Kurt Pany Principles of Auditing & Other Assurance Services New York: McGraw-Hill Education, 2016 Wild, John J., Ken W Shaw, and Barbara Chiappetta Fundamental Accounting Principles New York: McGraw-Hill/Irwin, 2013 387 Index Note: (ill.) indicates photos and illustrations A Academy Awards, 285 account, 21 account numbers, 96 (ill.), 96–97 account recovery, 145, 146, 146 (ill.) accounting Academy Awards, 285 Accounting Hall of Fame, 285 accrual basis accounting, 20 American Institute of CPAs (AICPA), 282 American Insurance Group (AIG), 287 Bernard L Madoff Investment Securities LLC, 287 “Big Four,” 283 careers, 279–80 certified public accountant (CPA), 281 credentials, 280–81 definition, early, 4–6 Enron, 285, 286 (ill.) Federal Accounting Standards Advisory Board (FASAB), 282 finance vs., Financial Accounting Standards Board (FASB), 281–82 Freddie Mac, 287 full-disclosure principle, 20 future of, 288–90 Governmental Accounting Standards Board (GASB), 282 HealthSouth, 287 history of, in United States, 6–9 Institute of Internal Auditors (IIA), 282 Institute of Management Accountants (IMA), 282 International Accounting Standards Board (IASB), 282 International Financial Reporting Standards (IFRS), 282, 289–90 IT advancements’ impact on, 288–89 language of business, Lehman Brothers, 287 main activities of, measurement attributes, 20 modern, 5–6 National Association of State Boards of Accountancy (NASBA), 282–83 notable accountants, 284–85 Ponzi scheme, 288 private accountants, 279, 280 public accountants, 279, 280 Public Company Accounting Oversight Board (PCAOB), 283 salaries, 280 Saytam, 288 scandals, 285–88 Securities and Exchange Commission (SEC), 283 senior-level positions, 280 standards-setting entities, 281– 83 state boards of accountancy, 283 sustainability accounting, 289 trends in, 288 Tyco, 286–87 U.S railroad industry impact on, users of, 2–4 Waste Management, 286 WorldCom, 286 accounting cycle account numbers, 96 (ill.), 96– 97 accounting information system, 93 accounts payable cycle, 117 accrual entries, 108, 109 adjusted trial balance, 110, 111 (ill.) adjusting entries, 105–6, 108–10 bill of lading, 115 chart of accounts, 95–96 closing entries, 110, 112, 113 (ill.), 113–14, 114 (ill.) credit, 97, 100, 101 (ill.) credit memo, 116 debit, 97, 100, 101 (ill.) debit/credit framework, 98 (ill.), 98–99, 99 (ill.) deferral entries, 109 definition, 93 enterprise resource planning vs., 93 expense recognition principle, 107–8 general journal, 101 general ledger, 101–3, 102 (ill.) inventory cycle, 116 journal entry, 97, 99–101, 100 (ill.), 101 (ill.) materials requisition, 116–17 normal balance, 99 permanent accounts, 112 post-closing trial balance, 114 (ill.), 114–15 posting process, 101 purchase order, 115, 116 purchase requisition, 116 receiving report, 116 revenue recognition principle, 106–7 sales and accounts receivables cycle, 115 sales invoice, 115 sales order, 115 shipping document, 117 source document, 115–17 steps 1–3 (analyze, record, and post), 94–104 steps 4–8 (month-end close), 94, 104–10 steps 9–11 (year-end close), 94, 110–15 subledger, 104 T account, 103 (ill.), 103–4, 104 (ill.) temporary accounts, 112 389 390 transaction, 94, 97 transaction analysis, 94–95, 101 trial balance, 104–5, 105 (ill.) accounting equation, 38–41 Accounting Hall of Fame, 285 accounting information system, 93, 268–69, 274–75 Accounting Principles Board (APB), Accounting Standards Codification, accounts payable, 27 accounts payable cycle, 117 accounts receivable, 23, 140–42, 141 (ill.) accounts receivable turnover, 81–82 accrual basis accounting, 20, 45 accrual entries, 108, 109 accrued expenses, 27–28 acid test ratio, 74 activity-based costing (ABC) See also cost classifications; job-order costing; operating cycle; process costing activity cost pools, 187 activity rate, 188, 188 (ill.) definition, 186 gross profit per unit, 190–91, 191 (ill.) job-order costing vs., 186–87 manufacturing overhead, 188– 89, 189 (ill.) overhead costs, 187 per-unit product cost, 189, 189 (ill.) predetermined overhead rate (POHR), 187, 190, 190 (ill.), 191, 191 (ill.) total product cost, 189, 189 (ill.) activity cost pools, 187 activity rate, 188, 188 (ill.) actual price (AP), 223 actual quantity (AQ), 222–23 adjusted trial balance, 110, 111 (ill.) adjusting entries, 105–6, 108–10 administrative cost, 165 aging of accounts receivable, 141– 42, 141 (ill.), 143–44, 144 (ill.), 145 allocation base, 178 American Association of Public Accountants, American Institute of Certified Public Accountants (AICPA), 7, 11, 282 American Insurance Group (AIG), 287 amortization, 153 annual reports, 58 Arthur Andersen, 283, 285, 286 Arthur Young, 283 asset management ratios See also liquidity ratios; market performance ratios; profitability ratios; solvency ratios accounts receivable turnover, 81–82 average collection period, 83 average sale period, 84–85 creditors and investors’ use of, 81 fixed asset turnover, 85–86 inventory turnover, 83–84 measurement of, 81 operating cycle, 85 assets See also comprehensive income; equity; gains; liabilities; losses; revenues accounts receivable, 23 cash account, 23 cash equivalent, 23 cost paid vs market value, 26– 27 current, 26 definition, 22 goodwill, 25–26 intangible, 25, 25 (ill.) inventory, 24, 24 (ill.) long-lived tangible asset, 24–25 net accounts receivable, 23 net property, plant, and equipment, 26 noncurrent, 26 notes receivable, 23 “other assets,” 26 “other current assets,” 26 prepaid expense, 24 types of accounts, 22–23 audit reports, 38 average collection period, 83 average sale period, 84–85 avoidable cost, 242 B bad debt expense account recovery, 145, 146, 146 (ill.) aging of accounts receivable method, 143–44, 144 (ill.), 145 calculation of, 142 definition, 142 percentage of credit sales method, 142–43, 143 (ill.), 145 writing off, 145, 145 (ill.) balance sheet See also financial statements; income statement; statement of cash flows; statement of retained earnings basic format, 47, 47 (ill.) classified, 48, 49 (ill.) comparative, 50, 50 (ill.) equity, 50 order of assets on, 48 order of liabilities on, 48 owner’s equity, 50 purpose of, 48 shareholders’ equity, 50 stockholders’ equity, 50 time period recorded for, 50 balanced scorecard customer perspective, 90, 91 definition, 89 financial perspective, 90, 91 internal business process perspective, 90, 91 items to measure on, 91 learning and growth perspective, 90–91 nonfinancial measures and financial measures, 89–90 bank statement reconciliation, 122– 24, 125–26 (ill.) basic accounting equation, 38–39 basis, 277 benefits, 275 Bernard L Madoff Investment Securities LLC, 287 “Big Four,” 283 bill of lading, 115 bill of materials, 176 Boards of Accountancy, 11 book value, 149 book value per share, 89 break-even point, 234, 238, 240 (ill.), 240–41 Brendsel, Leland, 287 Broaker, Frank, 284 budget See also standard costs and variances advantages of, 201–2 budgeted balance sheet, 215–17, 216 (ill.) budgeted income statement, 215 cash budget, 213–15, 214 (ill.) control, 217–18 definition, 201 direct labor budget, 209–10, 210 (ill.) direct materials budget, 207–8, 208 (ill.) ending finished goods inventory budget, 211–12, 212 (ill.) flexible budget, 217, 218, 219, 219 (ill.) manufacturing overhead budget, 210–11, 211 (ill.) master budget, 203 organizations’ need for, 201 preparation of, 202 production budget, 205 C capital budgeting, 256, 260 capital gains and losses, 278 car expenses, 277 cash account, 23 cash basis of accounting, 45 cash budget, 213–15, 214 (ill.) cash equivalent, 23 cash inflows, 257–58 cash outflows, 257 cashflow, 270 certified public accountant (CPA), 281 charitable donations, 277 chart of accounts, 95–96 Clarke, Vaughn, 287 classified balance sheet, 48, 49 (ill.) clay tokens, 4–5, (ill.) closing entries, 110, 112, 113 (ill.), 113–14, 114 (ill.) club stores, 158 combined product and period cost, 165 Committee on Accounting Procedure (CAP), common size balance sheet, 68 (ill.), 69–69 common size income statement, 66 (ill.), 66–67 company overview, 265 comparability, 15–16 comparative balance sheet, 50, 50 (ill.) comparative income statement, 44, 44 (ill.) competitor financial information, 70 comprehensive income, 33 See also assets; equity; gains; liabilities; losses; revenues Concepts Statements, 12 conceptual framework, 12 conservatism, 15 constrained resource, 251 constrained resource decision, 251– 54, 252 (ill.), 253 (ill.), 254 (ill.) contributed capital, 29 contribution format income statement, 231–32, 232 (ill.), 233 contribution margin, 232–33 contribution margin per unit, 232– 33 contribution margin ratio, 233 control, 217–18 control activities, 121–22 control environment, 121 conversion cost, 163–64, 164 (ill.) Coopers and Lybrand, 283 copyright, 152 corporation, 263–64 cost, 160 cost accounting See activity-based costing; cost classifications; joborder costing; operating cycle; process costing cost assignment, 199 cost behavior, 165 cost center, 255 cost classifications See also activity-based costing (ABC); job-order costing; operating cycle; process costing administrative cost, 165 combined product and period cost, 165 conversion cost, 163–64, 164 (ill.) cost, 160 cost behavior, 165 cost object, 161 different types of, 161 direct cost, 161 direct labor, 162 direct material, 162 expense, 160 fixed cost, 168 (ill.), 169, 171–72 high-low method, 173–75, 174 (ill.) indirect cost, 161 indirect labor, 162–63 indirect material, 163 manufacturing cost, 162 manufacturing overhead, 163 mixed costs, 169, 169 (ill.), 170, 171–72 necessity of, 160–61 nonmanufacturing cost, 162 period cost, 164, 166 (ill.) prime cost, 163 product cost, 162 scatterplot method, 172–73 (ill.), 174–75 selling, general, and administrative (SG&A) costs, 165 selling cost, 165 step cost, 169, 170, 171 (ill.) variable cost, 166, 167 (ill.), 171–72 cost object, 161 cost of goods manufactured, 181 cost of goods sold, 181 cost per unit, 178 cost structure, 236–38, 237 (ill.) cost-volume-profit analysis, 233 cost-volume-profit equation, 233– 34 cost-volume-profit graph, 234–35, 235 (ill.) costs of finished goods, 194 credit, 97, 100, 101 (ill.) credit memo, 116 Cromwell, John Wesley, Jr., 285 Cullinan, Brian, 285 current assets, 26 current liabilities, 28 current portion of long-term debt, 28–29 current ratio, 73 customer payment, 132–33, 132–33 (ill.) customer perspective, 90, 91 INDEX responsibility for, 202 revenue variance, 219–20 safety stock, 205–6, 206 (ill.) sales budget, 203–4, 204 (ill.) schedule of expected cash collections, 204–5, 205 (ill.) schedule of expected cash disbursements for direct materials, 208–9, 209 (ill.) self-imposed budget, 203 selling and administrative expense budget, 212–13, 213 (ill.) spending variance, 220 static budget, 217, 218–19 time frame prepared for, 202 top-down budget, 202–3 budgeted balance sheet, 215–17, 216 (ill.) budgeted income statement, 215 Buntrock, Dean L., 286 business deductions, 278 business performance, 256 business plan, 264–65, 268 D debit, 97, 100, 101 (ill.) debit/credit framework, 98 (ill.), 98– 99, 99 (ill.) debt, 29 debt-to-assets ratio, 75–76 debt-to-equity ratio, 76–77 decentralized organization, 254–55 deferral entries, 109 degree of operating leverage, 236, 236 (ill.) Deloitte, (ill.), 283 Deloitte Haskins and Sells, 283 depreciation, 148–50, 277 description of products and services, 265–66 Diemer, Walter, 284 differential cost, 241–42 differential revenue, 242 direct cost, 161 direct labor, 162, 176, 196 direct labor budget, 209–10, 210 (ill.) direct labor efficiency variance, 227 direct labor rate variance, 226–27 direct labor variances, 225–26, 226 (ill.) 391 direct materials, 162, 175–76, 196 direct materials budget, 207–8, 208 (ill.) direct materials price variance, 224– 25 direct materials quantity variance, 225 direct materials variances, 223–24, 224 (ill.) direct method, 54 disclosure, 18 dividend payout ratio, 88 dividend yield ratio, 88 dollar change, 62–63 double-entry accounting system, double-entry system, 5–6 drop or retain a segment decision, 243–47, 244 (ill.), 245 (ill.), 246 (ill.) E earnings per share, 86–87 Ebbers, Bernie, 286 EDGAR, elements, 21–22 See also assets; comprehensive income; equity; gains; liabilities; losses; revenues employee, 271–72 employee withholdings, 154 (ill.), 154–55 employer, 271 employer payroll taxes, 155, 155 (ill.) ending finished goods inventory budget, 211–12, 212 (ill.) Enron, 285, 286 (ill.) enterprise resource planning (ERP), 93, 268 equity, 29–30, 50 See also assets; comprehensive income; gains; liabilities; losses; revenues equivalent unit, 195–96 Ernst & Whinney, 283 executive summary, 265 expense recognition principle, 107– expenses, 19–20, 30–31, 32, 160 external users, extraordinary repairs, replacements of, and additions, 147–48, 148 (ill.) EY (company), 283 F 392 Fair Labor Standards Act (FLSA), 271–73 faithful representation, 13–15 Falk, Peter, 284 Federal Accounting Standards Advisory Board (FASAB), 282 Federal Insurance Contributions Act (FICA) taxes, 273 Federal Unemployment Tax Act (FUTA) taxes, 274 finance vs accounting, Financial Accounting Standards Board (FASB), 281–82, 289 authority of, 11 board members, 12 Concepts Statements, 12 conceptual framework, 12 creation of, 9, 11 definition, 11 financial reporting, objective, 12 generally accepted accounting principles (GAAP), 11 financial accounting vs managerial accounting, 3–4 financial condition of business, 2, financial information comparability, 15–16 conservatism, 15 disclosure, 18 expenses, 19–20 faithful representation, 13–15 going-concern assumption, 17 key constraint of, 16–17 materiality, 13 measurement, 18 monetary unit assumption, 18 qualitative characteristics, 13 recognition, 18–20 relevance, 13 revenue, 19 separate entity assumption, 17 time period assumption, 17–18 timeliness, 16 underlying assumptions of, 17 understandability, 16 verifiability, 16 financial perspective, 90, 91 financial plan, 267 financial reporting and reports, 12, 38, 57 financial statement analysis, 61–63, 62 (ill.) See also horizontal analysis; ratio analysis; vertical analysis financial statement disclosures, 57– 58, 58 (ill.) financial statements See also assets; balance sheet; income statement; liabilities; statement of cash flows; statement of retained earnings account, 21 accuracy of, 37–38 annual reports, 58 audit reports, 38 balancing, 39 basic accounting equation, 38– 39 definition, 35 differences among, 36–37 disclosures, 57–58, 58 (ill.) elements, 21–22 elements of, 17–18 financial reporting and reports, 38, 57 net income, 40 order of preparation, 41 other names for, 36 parenthetical disclosure, 57, 57 (ill.) preparation of, 37 quarterly reports, 59 requirements surrounding, 37 retained earnings, 40 supplemental schedule, 59 (ill.), 59–60 transactions, 39 use of, 35–36 used for external users, 2, (ill.) financing activities, finished good, 159–60 first-in, first-out (FIFO) method, 134–35, 134–35 (ill.), 139, 195 fixed asset turnover, 85–86 fixed assets book value, 149 definition, 146 depreciation, 148–50 extraordinary repairs, replacements of, and additions, 147– 48, 148 (ill.) ordinary repairs and maintenance, 147, 147 (ill.) recording purchases, 146–47, 147 (ill.) selling or getting rid of, 150–51, 151 (ill.) straight-line method of depreciation, 149–50, 150 (ill.) fixed cost, 168 (ill.), 169, 171–72 flexible budget, 217, 218, 219, 219 (ill.) Form W-4, 271 franchise, 152–53 fraud, 119–20 fraud triangle, 120 Freddie Mac, 287 free on board (FOB), 128 free on board (FOB) destination mean, 128 free on board (FOB) shipping point, 128, 128 (ill.) full-disclosure principle, 20 G gains, 31, 32 See also assets; comprehensive income; equity; liabilities; losses; revenues general journal, 101 H Half, Robert, 281 Haskins, Charles Waldo, Haskins & Sells, HealthSouth, 287 high-low method, 173–75, 174 (ill.) horizontal analysis, 64–65, 65–66 See also ratio analysis; vertical analysis I income statement See also balance sheet; financial statements; statement of cash flows; statement of retained earnings accrual basis accounting, 45 basic format for, 41, 42 (ill.) cash basis of accounting, 45 comparative income statement, 44, 44 (ill.) gross profit, 43 multiple-step income statement, 42 (ill.), 42–43 net income, 43, 44–45 operating income, 43 purpose of, 41 single-step income statement, 41, 43 time period recorded for, 43 income tax law, independent contractor, 271–72 indirect cost, 161 indirect labor, 162–63 indirect material, 163 indirect method, 54 industry data, 70 industry summary, 266 information and communication, 121 Institute of Accounts of New York, Institute of Internal Auditors (IIA), 282 Institute of Management Accountants (IMA), 282 intangible assets, 25 (ill.) amortization, 153 copyright, 152 definition, 25, 152 franchise, 152–53 goodwill, 153 licensing right, 152 patent, 152 purchases of, 153 selling or getting rid of, 154 trademark, 152 internal business process perspective, 90, 91 internal control components, 121 definition, 120 journal entries, 124–25 (ill.) limitations of, 122 protecting cash, 122 reconciling items to bank statement balance, 123 reconciling items to cash general ledger, 123 internal rate of return, 260 internal users, International Accounting Standards Board (IASB), 282, 289 International Financial Reporting Standards (IFRS), 282, 289–90 inventory, 24, 24 (ill.) inventory accounting first-in, first-out (FIFO) method, 134–35, 134–35 (ill.), 139 inventory cost methods, 133–34, 139 knowing cost inventory, 133 last-in, last-out (LIFO) method, 135–36, 135–36 (ill.), 139 lower of cost or market rule for inventory, 139–40, 140 (ill.) periodic vs perpetual inventory system, 138 (ill.), 138–39 specific identification method, 134 weighted-average method, 137– 38, 137–38 (ill.) inventory cost methods, 133–34, 139 inventory cycle, 116 inventory purchaser, 127–28, 128 (ill.) inventory turnover, 83–84 investing activities, investment center, 255–56 J Jagger, Mick, 284 job cost sheet, 178, 179 (ill.) job-order costing See also activitybased costing (ABC); cost classifications; operating cycle; process costing activity-based costing vs., 186– 87 allocation base, 178 bill of materials, 176 businesses using, 175 cost of goods manufactured, 181 cost of goods sold, 181 cost per unit, 178 definition, 175 direct labor, 176 direct materials, 175–76 gross profit, 178–79 job cost sheet, 178, 179 (ill.) manufacturing overhead, 176, 178, 184–86, 185 (ill.) net income, 179 period costs, 181 predetermined overhead rate (POHR), 176–77, 177 (ill.) process costing vs., 192 process costing vs tracking costs, 175 recording in accounting system, 179, 180 (ill.) schedule of costs of goods manufactured and cost of goods sold, 181–83, 182 (ill.), 183 (ill.), 186, 186 (ill.) journal entry, 97, 99–101, 100 (ill.), 101 (ill.) INDEX general ledger, 101–3, 102 (ill.) generally accepted accounting principles (GAAP), 11, 289 Giovanni Farolfi & Co., Gleeson-White, Jane, Glenn, David, 287 going-concern assumption, 17 Golden, Russ, 289–90 goodwill, 25–26, 153 Governmental Accounting Standards Board (GASB), 282 Greenberg, Hank, 287 Grisham, John, 284 gross profit, 43, 178–79 gross profit percentage, 78–79 K Kenny G, 284 key milestones, 267–68 key performance indicators (KPIs), 268 Kozlowski, Dennis, 286–87 KPMG (company), 283 L last-in, last-out (LIFO) method, 135–36, 135–36 (ill.), 139 Lay, Kenneth, 285, 286 (ill.) learning and growth perspective, 90–91 Lehman Brothers, 287 Leonardo da Vinci, liabilities See also assets; comprehensive income; equity; gains; losses; revenues accounts payable, 27 accrued expenses, 27–28 current, 28 393 current portion of long-term debt, 28–29 debt, 29 definition, 27 noncurrent, 28 notes payable, 27 “other liabilities,” 28 types of accounts, 27 licensing right, 152 Liddell, Chuck, 284 limited liability company (LLC), 264 limited liability partnership (LLP), 263 liquidity ratios See also asset management ratios; market performance ratios; profitability ratios; solvency ratios acid test ratio, 74 current ratio, 73 measurement of, 71 quick ratio, 73–74 short term creditors, use of, 71 solvency ratios vs., 74–75 working capital, 72 long-lived tangible asset, 24–25 long-term creditors, 75 losses, 32 See also assets; comprehensive income; equity; gains; liabilities; revenues Lotus 1-2-3, lower of cost or market rule for inventory, 139–40, 140 (ill.) M 394 machine learning, 289 Madoff, Bernie, 287 make-or-buy decision, 247 (ill.), 247–49, 248 (ill.) management team, 265 managerial accounting avoidable cost, 242 break-even point, 234, 238, 240 (ill.), 240–41 business performance, 256 capital budgeting, 256, 260 cash inflows, 257–58 cash outflows, 257 constrained resource, 251 constrained resource decision, 251–54, 252 (ill.), 253 (ill.), 254 (ill.) contribution format income statement, 231–32, 232 (ill.), 233 contribution margin, 232–33 contribution margin per unit, 232–33 contribution margin ratio, 233 cost center, 255 cost structure, 236–38, 237 (ill.) cost-volume-profit analysis, 233 cost-volume-profit equation, 233–34 cost-volume-profit graph, 234– 35, 235 (ill.) decentralized organization, 254–55 decision making, 241 degree of operating leverage, 236, 236 (ill.) differential cost, 241–42 differential revenue, 242 drop or retain a segment decision, 243–47, 244 (ill.), 245 (ill.), 246 (ill.) financial accounting vs., 3–4 internal rate of return, 260 investment center, 255–56 make-or-buy decision, 247 (ill.), 247–49, 248 (ill.) margin of safety, 239 margin of safety in units, 239 margin of safety percentage, 240 net operating income, 233 net present value method, 259– 60 opportunity cost, 243, 248 (ill.), 248–49 payback method, 258 preference decision, 257 profit center, 255 relevant costs and relevant benefits, 241, 242, 243 responsibility accounting, 254 responsibility center, 255 return on investment, 256 screening decision, 257 shared fixed costs, 246 (ill.), 246–47 simple rate of return method, 259 special order decision, 249 (ill.), 249–50, 250 (ill.) sunk cost, 242 target profit, 238–39 time value of money, 258–59 manufacturer, 158, 160 (ill.) manufacturing cost, 162 manufacturing overhead, 163, 176, 178, 184–86, 185 (ill.), 188–89, 189 (ill.), 196 manufacturing overhead budget, 210–11, 211 (ill.) margin of safety, 239 margin of safety in units, 239 margin of safety percentage, 240 market performance ratios See also asset management ratios; liquidity ratios; profitability ratios; solvency ratios book value per share, 89 dividend payout ratio, 88 dividend yield ratio, 88 earnings per share, 86–87 investors’ use of, 86 measurement of, 86 price-earnings ratio, 87–88 marketing strategy, 267 Marr, Bernard, 288–89 master budget, 203 materiality, 13 materials requisition, 116–17 Matthew, Saint, 285 meal and entertainment expenses, 276–77 measurement, 18 measurement attributes, 20 merchandiser customer payment, 132–33, 132–33 (ill.) definition, 126, 158 free on board (FOB) destination mean, 128 free on board (FOB) shipping point, 128, 128 (ill.) inventory purchaser, 127–28, 128 (ill.) periodic inventory system, 126 perpetual inventory system, 126–27 purchase allowances, 129, 129 (ill.) purchase discount, 129, 130 (ill.) purchase payments, 129–30, 130 (ill.) purchase returns, 129, 129 (ill.) sales allowances, 131, 132, 132 (ill.) sales discount, 132, 132 (ill.) sales of inventory, 130–31, 131 (ill.) sales returns, 131, 131 (ill.), 132 service company vs., 126 shrinkage, 127 2/10, n/30, 128 Mesopotamia, 4–5, (ill.) metrics, 267–68 Microsoft Excel, 269, 269 (ill.) mileage rate, 277 minimum wage, 272 mixed costs, 169, 169 (ill.), 170, 171–72 modern accounting, 5–6 monetary unit assumption, 18 monitoring, 121 Morgan, John Pierpont, 284 multiple-step income statement, 42 (ill.), 42–43 N National Association of State Boards of Accountancy (NASBA), 282–83 net accounts receivable, 23 O operating activities, operating costs, 157 operating cycle See also activitybased costing (ABC); cost classifications; job-order costing; process costing club stores, 158 costs not considered operating costs, 157 definition, 85, 157 evaluation of, 85 finished good, 159–60 length of, 157–58 manufacturer, 158, 160 (ill.) merchandiser, 158 operating costs, 157 raw materials, 159 retailers, 158, 159 service company, 158 wholesalers, 158, 159 work-in-process inventory, 159 operating income, 43 opportunity cost, 243, 248 (ill.), 248–49 ordinary repairs and maintenance, 147, 147 (ill.) “other assets,” 26 “other current assets,” 26 “other liabilities,” 28 overhead costs, 187 overtime, 272 owner’s equity, 50 P Pacioli, Luca Bartolomeo de, 5–6, (ill.) parentheses, 56 parenthetical disclosure, 57, 57 (ill.) partnership, 262–63 patent, 152 payback method, 258 payroll, 274–75 payroll period, 273 payroll-related costs, 154 payroll tax obligations, 273 payroll withholding, 273–74 Peat Marwick Mitchell, 283 per diem rate, 277 per-unit product cost, 189, 189 (ill.) percent change, 63 percentage of credit sales method, 142–43, 143 (ill.), 145 period costs, 164, 166 (ill.), 181 periodic inventory system, 126, 138 (ill.), 138–39 permanent accounts, 112 perpetual inventory system, 126–27, 138 (ill.), 138–39 pie chart, 67, 67 (ill.) Ponzi, Charles, 288, 288 (ill.) Ponzi scheme, 288 Porter, Michael E., 266 Porter’s five forces analysis, 266–67 post-closing trial balance, 114 (ill.), 114–15 posting process, 101 predetermined overhead rate (POHR), 176–77, 177 (ill.), 187, 190, 190 (ill.), 191, 191 (ill.) preference decision, 257 prepaid expense, 24 price-earnings ratio, 87–88 Price Waterhouse, 283 prime cost, 163 private accountants, 4, 279, 280 process costing See also activitybased costing (ABC); cost classifications; job-order costing; operating cycle cost assignment, 199 costs of finished goods, 194 definition, 191 direct labor, 196 direct materials, 196 equivalent unit, 195–96 FIFO method, 195 job-order costing, 192 manufacturing overhead, 196 processing department, 192, 192 (ill.), 193–94, 194 (ill.) recording in accounting system, 192–93, 193 (ill.), 194–95 weighted-average method, 195– 96, 196 (ill.), 196–98, 197 (ill.), 198 (ill.) when to use, 192 processing department, 192, 192 (ill.), 193–94, 194 (ill.) product cost, 162 production budget, 205 profit center, 255 profitability, 270–71 profitability ratios See also asset management ratios; liquidity ratios; market performance ratios; solvency ratios gross profit percentage, 78–79 investors’ use of, 77 measurement of, 77 net profit margin, 79, 80 return on assets, 79–80 return on equity, 80–81 public accountants, 4, 279, 280 Public Company Accounting Oversight Board (PCAOB), 8, 283 purchase allowances, 129, 129 (ill.) purchase discount, 129, 130 (ill.) purchase order, 115, 116 purchase payments, 129–30, 130 (ill.) purchase requisition, 116 purchase returns, 129, 129 (ill.) PwC (company), 283, 285 INDEX net income, 32–33, 40, 43, 44–45, 46, 179 net loss, 33 net operating income, 233 net present value method, 259–60 net profit margin, 79, 80 net property, plant, and equipment, 26 net revenues, 30 new hires, 271 Newhart, Bob, 284 noncurrent assets, 26 noncurrent liabilities, 28 nonmanufacturing cost, 162 normal balance, 99 notes payable, 27 notes receivable, 23 Q–R quarterly reports, 59 quick ratio, 73–74 railroad industry, Raju, Ramalinga, 288 ratio analysis See also asset management ratios; horizontal analysis; liquidity ratios; market performance ratios; profitability ratios; solvency ratios; vertical analysis competitor financial information, 70 definition, 69–70 industry data, 70 standard formula, 70–71 use of, 70 raw materials, 159 receiving report, 116 recognition, 18–20 relevance, 13 relevant costs and relevant benefits, 241, 242, 243 responsibility accounting, 254 responsibility center, 255 retailers, 158, 159 retained earnings, 29–30, 40 return on assets, 79–80 return on equity, 80–81 return on investment, 256 revenue recognition principle, 106– revenue variance, 219–20 revenues, 19, 30, 32 See also assets; comprehensive income; equity; gains; liabilities; losses Rinieri Fini & Brothers, 395 risk assessment, 121 Rogers, Jean, 289 Ross, Christine, 284 rounding numbers, 65 S 396 S corporation, 264 safety stock, 205–6, 206 (ill.) sales allowances, 131, 132, 132 (ill.) sales and accounts receivables cycle, 115 sales budget, 203–4, 204 (ill.) sales discount, 132, 132 (ill.) sales invoice, 115 sales of inventory, 130–31, 131 (ill.) sales order, 115 sales returns, 131, 131 (ill.), 132 Sarbanes-Oxley Act (2002), Sarjeant, Thomas, Saytam, 288 scatterplot method, 172–73 (ill.), 174–75 schedule of costs of goods manufactured and cost of goods sold, 181– 83, 182 (ill.), 183 (ill.), 186, 186 (ill.) schedule of expected cash collections, 204–5, 205 (ill.) schedule of expected cash disbursements for direct materials, 208–9, 209 (ill.) Schmandt-Besserat, Denise, screening decision, 257 Scrushy, Richard, 287 Securities Act (1933 and 1934), Securities and Exchange Commission (SEC), 8, 11, 283 self-imposed budget, 203 selling, general, and administrative (SG&A) costs, 165 selling and administrative expense budget, 212–13, 213 (ill.) selling cost, 165 Sells, Elijah Watt, separate entity assumption, 17 service company, 126, 158 shared fixed costs, 246 (ill.), 246–47 shareholders’ equity, 50 shipping document, 117 short term creditors, 71 shrinkage, 127 simple rate of return method, 259 single-step income statement, 41, 43 Skilling, Jeff, 285 small business accounting information system, 268–69, 274–75 basis, 277 benefits, 275 business deductions, 278 business plan, 264–65, 268 capital gains and losses, 278 car expenses, 277 cashflow, 270 charitable donations, 277 choosing a business structure, 261 company overview, 265 corporation, 263–64 depreciation, 277 description of products and services, 265–66 employee, 271–72 employer, 271 executive summary, 265 financial plan, 267 independent contractor, 271–72 industry summary, 266 key milestones, 267–68 limited liability company (LLC), 264 limited liability partnership (LLP), 263 management team, 265 marketing strategy, 267 meal and entertainment expenses, 276–77 metrics, 267–68 mileage rate, 277 minimum wage, 272 new hires, 271 overtime, 272 partnership, 262–63 payroll, 274–75 payroll period, 273 payroll tax obligations, 273 payroll withholding, 273–74 per diem rate, 277 Porter’s five forces analysis, 266–67 primary forms of business organization, 261 profitability, 270–71 S corporation, 264 sole proprietorship, 261–62, 263, 278 spreadsheet software, 269, 269 (ill.) SWOT analysis, 266 tax professional, 275 tax records, 276 tax return, 276 taxable income, 278 sole proprietorship, 261–62, 263, 278 solvency ratios See also asset management ratios; liquidity ratios; market performance ratios; profitability ratios debt-to-assets ratio, 75–76 debt-to-equity ratio, 76–77 liquidity ratio vs., 74–75 long-term creditors’ use of, 75 measurement of, 74 times interest earned ratio, 75, 76 source document, 115–17 special order decision, 249 (ill.), 249–50, 250 (ill.) specific identification method, 134 spending variance, 220 spreadsheet software, 269, 269 (ill.) standard cost, 221, 221 (ill.) standard cost variance analysis, 221–22, 222 (ill.) standard costs and variances See also budget actual price (AP), 223 actual quantity (AQ), 222–23 direct labor efficiency variance, 227 direct labor rate variance, 226– 27 direct labor variances, 225–26, 226 (ill.) direct materials price variance, 224–25 direct materials quantity variance, 225 direct materials variances, 223– 24, 224 (ill.) standard cost, 221, 221 (ill.) standard cost variance analysis, 221–22, 222 (ill.) standard quantity (SQ), 223 variable manufacturing overhead variances, 227–28, 228 (ill.) variable overhead efficiency variance, 229 variable overhead rate variance, 228–29 standard formula, 70–71 standard quantity (SQ), 223 state boards of accountancy, 283 state taxes, 155 State Unemployment Tax Act (SUTA) taxes, 274 statement of cash flows See also balance sheet; financial statements; income statement; statement of retained earnings basic format of, 51–52, 52 (ill.) dating of, 56 financing activities, 56 importance of, 53 investing activities, 56 investing activities section, 53– 54 operating activities section, 53 parentheses, 56 positive and negative cash flows, 53, 54, 56 T T account, 103 (ill.), 103–4, 104 (ill.) target profit, 238–39 tax professional, 275 tax records, 276 tax return, 276 taxable income, 278 temporary accounts, 112 time period assumption, 17–18 time value of money, 258–59 timeliness, 16 times interest earned ratio, 75, 76 top-down budget, 202–3 total product cost, 189, 189 (ill.) Touche Ross, 283 trademark, 152 traditional income statement, 231 transaction, 94, 97 transaction analysis, 94–95, 101 transactions, 39 trend percentage, 64 (ill.), 64–65 2/10, n/30, 128 Tyco, 286–87 U–V vertical analysis See also horizontal analysis; ratio analysis common size balance sheet, 68 (ill.), 69–69 common size income statement, 66 (ill.), 66–67 definition, 65 horizontal analysis vs., 65–66 pie chart, 67, 67 (ill.) INDEX purpose of, 51 supplemental disclosures, 56 types of formats, 54, 55 (ill.) statement of retained earnings See also balance sheet; financial statements; income statement; statement of cash flows basic format, 45–46, 46 (ill.) beginning balance, 45 ending balance, 46 net income, 46 purpose of, 45 time period recorded for, 47 static budget, 217, 218–19 step cost, 169, 170, 171 (ill.) stockholders’ equity, 50 straight-line method of depreciation, 149–50, 150 (ill.) subledger, 104 sunk cost, 242 supplemental disclosures, 56 supplemental schedule, 59 (ill.), 59– 60 sustainability accounting, 289 Swartz, Mark, 286–87 Sweeney, Julia, 284, 284 (ill.) SWOT analysis, 266 W Waste Management, 286 weighted-average method, 137–38, 137–38 (ill.), 195–96, 196 (ill.), 196–98, 197 (ill.), 198 (ill.) wholesalers, 158, 159 work-in-process inventory, 159 working capital, 72 WorldCom, 286 write-down of inventory, 140 writing, writing off, 145, 145 (ill.) understandability, 16 variable cost, 166, 167 (ill.), 171–72 variable manufacturing overhead variances, 227–28, 228 (ill.) variable overhead efficiency variance, 229 variable overhead rate variance, 228–29 verifiability, 16 397 ... 978-1-57859-563-1 The Handy Texas Answer Book by James L Haley ISBN: 978-1-57859-634-8 The Handy Weather Answer Book, 2nd edition by Kevin S Hile ISBN: 978-1-57859-221-0 The Handy Wisconsin Answer Book by... 978-1-57859-686-7 The Handy Civil War Answer Book by Samuel Willard Crompton ISBN: 978-1-57859-476-4 The Handy Communication Answer Book By Lauren Sergy ISBN: 978-1-57859-587-7 The Handy Diabetes Answer Book. .. 978-1-57859-374-3 The Handy Investing Answer Book by Paul A Tucci ISBN: 978-1-57859-486-3 www.ebook3000.com The Handy Physics Answer Book, 2nd edition by Paul W Zitzewitz, Ph.D ISBN: 978-1-57859-305-7 The Handy