This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw- Hill’s prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms.
Accounting for Managers WebsterFM.qxd 9/17/2003 9:46 AM Page i Other titles in the Briefcase Books series include: Customer Relationship Management by Kristin Anderson and Carol Kerr Communicating Effectively by Lani Arredondo Manager’s Guide to Performance Reviews by Robert Bacal Performance Management by Robert Bacal Recognizing and Rewarding Employees by R. Brayton Bowen Building a High Morale Workplace by Anne Bruce Motivating Employees by Anne Bruce and James S. Pepitone Six Sigma for Managers by Greg Brue Design for Six Sigma by Greg Brue and Robert G. Launsby Leadership Skills for Managers by Marlene Caroselli Negotiating Skills for Managers by Steven P. Cohen Effective Coaching by Marshall J. Cook Conflict Resolution by Daniel Dana Manager’s Guide to Strategy by Roger A. Formisano Project Management by Gary R. Heerkens Managing Teams by Lawrence Holpp Budgeting for Managers by Sid Kemp and Eric Dunbar Hiring Great People by Kevin C. Klinvex, Matthew S. O’Connell, and Christopher P. Klinvex Time Management by Marc Mancini Retaining Top Employees by J. Leslie McKeown Empowering Employees by Kenneth L. Murrell and Mimi Meredith Finance for Non-Financial Managers by Gene Siciliano Skills for New Managers by Morey Stettner Manager’s Survival Guide by Morey Stettner The Manager’s Guide to Effective Meetings by Barbara J. Streibel Interviewing Techniques for Managers by Carolyn P. Thompson Managing Multiple Projects by Michael Tobis and Irene P. Tobis To learn more about titles in the Briefcase Books series go to www.briefcasebooks.com You’ll find the tables of contents, downloadable sample chap- ters, information on the authors, discussion guides for using these books in training programs, and more. WebsterFM.qxd 9/17/2003 9:46 AM Page ii McGraw-Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto William H. Webster, CPA A Briefcase Book Accounting for Managers WebsterFM.qxd 9/17/2003 9:46 AM Page iii Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. Manufactured in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this pub- lication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. 0-07-143647-2 The material in this eBook also appears in the print version of this title: 0-07-142174-2 All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promo- tions, or for use in corporate training programs. For more information, please contact George Hoare, Special Sales, at george_hoare@mcgraw-hill.com or (212) 904-4069. TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw- Hill’s prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to com- ply with these terms. THE WORK IS PROVIDED “AS IS”. McGRAW-HILL AND ITS LICENSORS MAKE NO GUAR- ANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMA- TION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PAR- TICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw- Hill has no responsibility for the content of any information accessed through the work. Under no cir- cumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, puni- tive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise. DOI: 10.1036/0071436472 ebook_copyright 6x9.qxd 10/24/03 12:11 PM Page 1 Contents Preface ix 1. How to Speak Accounting 1 The Three Questions 1 Visualize to Understand 2 The Accounting System 5 Accounting from the Bottom Up 6 Double Entry 7 Bookkeeping and Accounting 12 Financial Statements 15 Accounting Principles 16 The Fundamental Equations of Accounting 18 The Advantages of an Accounting System 20 A Few Important Details 20 Manager’s Checklist for Chapter 1 24 2. Concepts and Principles, Checks and Balances 26 Closing the GAAP 28 Zen Accounting 36 Checks and Balances 37 Audits 40 Manager’s Checklist for Chapter 244 3. Financial Statements 45 The Lemonade Stand 45 Load, Wash, Rinse, Spin, Dry 47 Past as Prologue 49 The Income Statement 50 Statement of Cash Flows 53 The Balance Sheet 57 v WebsterFM.qxd 9/17/2003 9:46 AM Page v For more information about this title, click here. Copyright 2003 by The McGraw-Hill Companies, Inc. Click Here for Terms of Use. A Delicate Balance: The Adjusting Entries 59 Manager’s Checklist for Chapter 3 63 4. Financial Ratios 64 What Measures Performance? 64 Liquidity Ratios 69 Activity Ratios 70 Debt Ratios 74 Profitability Ratios 75 Putting It All Together 78 Manager’s Checklist for Chapter 4 82 5. Management Accounting 83 Management Accounting—for the Future 84 Cost/Volume/Profit Analysis 89 Manager’s Checklist for Chapter 5 101 6. Management Cost Accounting 102 Cost Behavior, Inventory, and Overhead 102 General Widget Company 112 Manager’s Checklist for Chapter 6 122 7. Cost Accounting in Action 123 Why the Fuss? 123 Job-Order and Process Costing Systems 125 As Complex as ABC 132 Standard Costing 139 Static and Flexible Budgeting 143 Manager’s Checklist for Chapter 7 144 8. Other Management Accounting Systems 146 They Want It, but They Don’t Want It—Yet They Still Need It 146 Balanced Scorecard 150 Hybrid Costing 156 Just-in-Time Inventory 156 Operation Costing Systems 159 Environmental/Full Cost Accounting 160 Target Costing 164 Transfer Pricing 166 Manager’s Checklist for Chapter 8 168 Contentsvi WebsterFM.qxd 9/17/2003 9:46 AM Page vi 9. Taxation 170 The Principal Taxes 173 Corporate Income and Deduction Tax Issues 178 Alternative Minimum Tax (AMT) 185 Tax Credits 185 Tax Practice 186 Manager’s Checklist for Chapter 9 188 10. Advanced Fraud 189 Fraud—Here, There, and Everywhere 190 Sarbanes-Oxley Act 192 Employment Trust Fund Fraud 193 External Fraud 196 Beginning Finance 199 Manager’s Checklist for Chapter 10 202 11. Where Will All This New Knowledge Take You? 203 A Story 206 Key Concepts 208 Manager’s Checklist for Chapter 11 209 Appendix: Resources, Accounting for Managers 211 Index 217 Contents vii WebsterFM.qxd 9/17/2003 9:46 AM Page vii This page intentionally left blank. [...]... basics in real-time accounting It accounting provides the information you need to run your business, and it begins with day-to-day record keeping Gathering this information on the “gozinta” and “gozouta” forms the basis for many of your managerial decisions These numbers can be sliced and diced many ways to help you do your job We’ll cover management accounting in Chapters 5, 6, and 7 Accounting from the... business Accounting can become quite complex It has a high MEGO factor MEGO stands for that state of mental saturation when “My Eyes Glaze Over” in stupefaction An exasperated student was once overheard complaining, “Who ever thought addition and subtraction could be this hard?” 1 Copyright 2003 by The McGraw-Hill Companies, Inc Click Here for Terms of Use 2 Accounting for Managers In the Beginning Accounting. .. implies: give you tips and tactics for using the ideas in this book to intelligently understand and use accounting to do your job better These boxes provide warnings for where things could go wrong when looking at the numbers These boxes give you how-to and insider hints for effectively developing and using accounting information Every subject has some special jargon, especially accounting. These boxes provide... credited, and the memo are also recorded 14 Accounting for Managers Before we overload you with more accounting terminology, let’s use the example of our new service business to show how all this works As a result of the three transactions we’ve entered, here are the ledgers for five accounts: Income: Consulting Services Debit Credit Notes 6/2 $1000 Invoice for consulting services $1,000 Total Assets:... check for several items This requires a more complex entry: our accounts still balance, but they are spread out over several transactions, not just two We’ll illustrate this with a general journal entry for a check that was written to an office supply store Let’s say we bought a 22 Accounting for Managers printer, ink cartridges, and supplies for the annual Christmas party The PR column stands for posting... synonym for income, so ments are the income and this can also be called a statement of expense statement and the revenue balance sheet Balance sheet A financial statement If you’re using a comthat shows the financial position—that puterized accounting pack- is, the assets, liabilities, and value—of a company on a particular day age, you simply go to the 12 Accounting for Managers Automagic Accounting. .. see how accounting of all the accounts in the accounting system Some of moves from the recording them may be used every day, such as of each transaction to the Cash, and some rarely or even never presentation of useful reports Bookkeeping and Accounting Many people confuse bookkeeping and accounting They think that bookkeeping is accounting Bookkeeping is the act of recording transactions in the accounting. .. As you 6 Accounting for Managers move up in complexity, the plumbing in a 1000-square-foot house with one bathroom and one kitchen is simpler than in a mansion with a dozen bathrooms and several kitchens You want an accounting system that meets your needs The information an accounting system provides has two faces—external and internal To provide these two different views, your accounting system divides... Here for Terms of Use x Preface make as a manager I’m interested in making sure that you finish with an understanding of several key accounting concepts For this reason, only the most concentrated examples are included here After finishing this book and working in your job for a while, you may decide to take some accounting courses to practice with detailed examples of the many problems you find in accounting. .. organization You may work for one of the many levels of government or for a nonprofit organization Although both government and nonprofits have separate accounting rules, most of the same basic functions apply across all the organizational types I’ll touch on some of these differences as we travel through the book As you go through this book, you’ll find that accounting concepts or information influence . James S. Pepitone Six Sigma for Managers by Greg Brue Design for Six Sigma by Greg Brue and Robert G. Launsby Leadership Skills for Managers by Marlene Caroselli. Checklist for Chapter 4 82 5. Management Accounting 83 Management Accounting for the Future 84 Cost/Volume/Profit Analysis 89 Manager’s Checklist for Chapter