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Using Financial Accounting Information : The Alternative to Debits and Credits

by
Edition:
5th
ISBN13:

9780324645101

ISBN10:
0324645104
Format:
Hardcover
Pub. Date:
2/21/2007
Publisher(s):
South-Western College Pub

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Summary

USING FINANCIAL ACCOUNTING INFORMATION is a user-oriented text known for its strong decision-making focus, and the incorporation of flagship companies within a more traditional, balance sheet organization. Transactions, which as presented in a spreadsheet (accounting equation) format, are used to help students gain a better conceptual understanding of their impact on financial information.

Table of Contents

Introduction: Getting Started in Businessp. 2
The Finish Line, Inc.: Making Business Decisionsp. 3
What Is Business?p. 4
Forms of Organizationp. 5
Business Entitiesp. 5
Nonbusiness Entitiesp. 7
Organizations and Social Responsibilityp. 7
The Nature of Business Activityp. 7
Financing Activitiesp. 7
Investing Activitiesp. 8
Operating Activitiesp. 8
Starting Your Study of Accountingp. 9
Accounting as a Form of Communicationp. 12
The Finish Line, Inc.: Making Business Decisionsp. 13
What Is Accounting?p. 14
Users of Accounting Information and Their Needsp. 15
Internal Usersp. 15
External Usersp. 15
Using Financial Accounting Informationp. 16
Using the Ratio Decision Model: A Financial Decision Frameworkp. 17
Financial Statements: How Accountants Communicatep. 18
The Accounting Equationp. 18
The Balance Sheetp. 18
The Income Statementp. 19
The Statement of Retained Earningsp. 20
The Statement of Cash Flowsp. 21
Relationships Among the Financial Statementsp. 22
Looking at Financial Statements for a Real Company: Finish Linep. 23
Finish Line's Balance Sheetp. 23
Finish Line's Income Statementp. 23
The Conceptual Framework: Foundation for Financial Statementsp. 26
Conceptual Framework for Accountingp. 26
Economic Entity Conceptp. 26
Cost Principlep. 26
Going Concernp. 26
Time Period Assumptionp. 27
Generally Accepted Accounting Principlesp. 27
Accounting as a Social Sciencep. 27
Who Determines the Rules of the Game?p. 28
Introduction to Ethics in Accountingp. 28
Accountants and Ethical Judgmentsp. 31
The Changing Face of the Accounting Professionp. 31
The Accounting Professionp. 32
Employment by Private Businessp. 32
Employment by Nonbusiness Entitiesp. 33
Employment in Public Accountingp. 33
Accountants in Educationp. 35
Accounting as a Careerp. 35
Each chapter contains some or all of the following end-of-chapter material
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Financial Statements and the Annual Reportp. 58
The Finish Line, Inc.: Making Business Decisionsp. 59
What Financial Statements Tell about a Businessp. 61
Objectives of Financial Reportingp. 61
The Primary Objective of Financial Reportingp. 61
Secondary Objectives of Financial Reportingp. 62
What Makes Accounting Information Useful? Qualitative Characteristicsp. 62
Understandabilityp. 63
Relevancep. 63
Reliabilityp. 63
Comparability and Consistencyp. 64
Materialityp. 64
Conservatismp. 65
Financial Reporting: An International Perspectivep. 65
Looking at Financial Statementsp. 66
What Are the Parts of the Balance Sheet? Understanding the Operating Cyclep. 66
The Classified Balance Sheetp. 67
Current Assetsp. 67
Noncurrent Assetsp. 68
Current Liabilitiesp. 69
Long-Term Liabilitiesp. 70
Stockholders' Equityp. 70
Using a Classified Balance Sheet: Introduction to Ratiosp. 71
Working Capitalp. 71
Current Ratiop. 72
The Income Statementp. 73
What Appears on the Income Statement?p. 73
Format of the Income Statementp. 73
Using an Income Statementp. 76
The Statement of Retained Earningsp. 76
The Statement of Cash Flowsp. 77
Looking at Financial Statements for a Real Company: The Finish Line, Inc.p. 78
Finish Line's Condensed Balance Sheetp. 79
Using the Ratio Decision Model: Analyzing the Current Ratiop. 80
Finish Line's Income Statementp. 81
Using the Ratio Decision Model: Analyzing the Profit Marginp. 82
Other Elements of an Annual Reportp. 82
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Processing Accounting Informationp. 104
Foot Locker, Inc.: Making Business Decisionsp. 105
Economic Events: The Basis for Recording Transactionsp. 106
External and Internal Eventsp. 106
The Role of Source Documents in Recording Transactionsp. 107
Analyzing the Effects of Transactions on the Accounting Equationp. 107
Balance Sheet and Income Statement for Glengarry Health Clubp. 111
What Is an Account?p. 113
Chart of Accountsp. 113
The General Ledgerp. 113
Processing Accounting Informationp. 114
Accounting Tools: The Double-Entry Systemp. 116
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Income Measurement and Accrual Accountingp. 152
Foot Locker, Inc.: Making Business Decisionsp. 153
Recognition and Measurement in Financial Statementsp. 155
Recognitionp. 155
Measurementp. 155
Summary of Recognition and Measurement in Financial Statementsp. 157
The Accrual Basis of Accountingp. 157
Comparing the Cash and Accrual Bases of Accountingp. 157
What the Income Statement and the Statement of Cash Flows Revealp. 158
Accrual Accounting and Time Periodsp. 159
The Revenue Recognition Principlep. 160
Expense Recognition and the Matching Principlep. 161
Accrual Accounting and Adjustmentsp. 163
Types of Adjustmentsp. 163
Accruals and Deferralsp. 168
Summary of Adjustmentsp. 169
Comprehensive Example of Adjustmentsp. 170
Adjustments at the End of Januaryp. 170
Income Statement and Balance Sheet for Duffy Transitp. 172
Ethical Considerations for a Company on the Accrual Basisp. 173
The Accounting Cyclep. 174
The Use of a Work Sheetp. 175
The Closing Processp. 175
Interim Financial Statementsp. 175
Integrative Problemp. 200
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Inventories and Cost of Goods Soldp. 202
The Finish Line, Inc.: Making Business Decisionsp. 203
The Nature of Inventoryp. 204
Three Types of Inventory Cost and Three Forms of Inventoryp. 205
The Income Statement for a Merchandiserp. 206
Net Sales of Merchandisep. 207
Sales Returns and Allowancesp. 207
Credit Terms and Sales Discountsp. 208
The Cost of Goods Soldp. 208
The Cost of Goods Sold Modelp. 208
Inventory Systems: Perpetual and Periodicp. 210
Beginning and Ending Inventories in a Periodic Systemp. 211
The Cost of Goods Purchasedp. 211
The Gross Profit Ratiop. 215
Using the Ratio Decision Model: Analyzing the Gross Profit Ratiop. 216
Inventory Valuation and the Measurement of Incomep. 217
Inventory Costs: What Should Be Included?p. 217
Inventory Costing Methods with a Periodic Systemp. 218
Specific Identification Methodp. 219
Weighted Average Cost Methodp. 220
First-in, First-out Method (FIFO)p. 220
Last-in, First-out Method (LIFO)p. 221
Selecting an Inventory Costing Methodp. 221
Costing Methods and Cash Flowp. 222
LIFO Liquidationp. 223
The LIFO Conformity Rulep. 223
The LIFO Reserve: Estimating LIFO's Effect on Income and on Taxes Paidp. 224
Costing Methods and Inventory Profitsp. 224
Changing Inventory Methodsp. 225
Inventory Valuation in Other Countriesp. 225
Inventory Errorsp. 226
Valuing Inventory at Lower of Cost or Marketp. 229
Why Replacement Cost Is Used as a Measure of Marketp. 229
Conservatism Is the Basis for the Lower-of-Cost-or-Market Rulep. 230
Application of the LCM Rulep. 231
Methods for Estimating Inventory Valuep. 231
Gross Profit Methodp. 231
Retail Inventory Methodp. 233
Analyzing the Management of Inventoryp. 233
Using the Ratio Decision Model: Analyzing the Management of Inventoryp. 234
How Inventories Affect the Cash Flows Statementp. 235
Accounting Tools: Inventory Costing Methods with the Use of a Perpetual Inventory Systemp. 236
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Cash and Internal Controlp. 270
The Finish Line, Inc.: Making Business Decisionsp. 271
What Constitutes Cash?p. 272
Cash Equivalents and the Statement of Cash Flowsp. 272
Control over Cashp. 273
Cash Managementp. 273
Reading a Bank Statementp. 273
The Bank Reconciliationp. 276
The Bank Reconciliation and the Need for Adjustments to the Recordsp. 278
Establishing a Petty Cash Fundp. 278
An Introduction to Internal Controlp. 279
The Sarbanes-Oxley Act of 2002p. 279
The Control Environmentp. 282
The Accounting Systemp. 282
Internal Control Proceduresp. 283
Limitations on Internal Controlp. 284
Computerized Business Documents and Internal Controlp. 285
Control over Cash Receiptsp. 286
The Role of Computerized Business Documents in Controlling Cash Disbursementsp. 287
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Investments and Receivablesp. 304
Apple Computer Company: Making Business Decisionsp. 305
Accounting for Investmentsp. 306
Investments in Highly Liquid Financial Instrumentsp. 307
Investing Idle Cashp. 307
Accounting for an Investment in a Certificate of Deposit (CD)p. 307
Investments in Stocks and Bondsp. 308
Accounts Receivablep. 310
The Use of a Subsidiary Ledgerp. 310
The Valuation of Accounts Receivablep. 311
Two Methods to Account for Bad Debtsp. 311
Write-Offs of Uncollectible Accounts with the Allowance Methodp. 312
Two Approaches to the Allowance Method of Accounting for Bad Debtsp. 313
The Accounts Receivable Turnover Ratiop. 316
Using the Ratio Decision Model: Analyzing the Accounts Receivable Rate of Collectionp. 316
Notes Receivablep. 318
Important Terms Connected with Promissory Notesp. 318
Accelerating the Inflow of Cash from Salesp. 320
Credit Card Salesp. 320
Discounting Notes Receivablep. 321
How Liquid Assets Affect the Statement of Cash Flowsp. 321
Accounting for Investments in Stocks and Bondsp. 323
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Operating Assets: Property, Plant, and Equipment, Natural Resources, and Intangiblesp. 348
Nike: Making Business Decisionsp. 349
Operating Assets: Property, Plant, and Equipmentp. 350
Balance Sheet Presentationp. 350
Acquisition of Property, Plant, and Equipmentp. 351
Use and Depreciation of Property, Plant, and Equipmentp. 353
Capital versus Revenue Expendituresp. 358
Environmental Aspects of Operating Assetsp. 360
Disposal of Property, Plant, and Equipmentp. 360
Operating Assets: Natural Resourcesp. 361
Balance Sheet Presentationp. 361
Depletion of Natural Resourcesp. 361
Operating Assets: Intangible Assetsp. 362
Balance Sheet Presentationp. 363
Acquisition Cost of Intangible Assetsp. 364
Amortization of Intangiblesp. 365
How Long-Term Assets Affect the Statement of Cash Flowsp. 367
Analyzing Long-Term Assets for Average Life and Asset Turnoverp. 368
Using the Ratio Decision Model: Analyzing Average Life and Asset Turnoverp. 369
Integrative Problemp. 389
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Current Liabilities, Contingencies, and the Time Value of Moneyp. 392
Jacuzzi: Making Business Decisionsp. 393
Current Liabilitiesp. 395
Accounts Payablep. 396
Notes Payablep. 396
Current Maturities of Long-Term Debtp. 398
Taxes Payablep. 398
Other Accrued Liabilitiesp. 398
Reading the Statement of Cash Flows for Changes in Current Liabilitiesp. 399
Contingent Liabilitiesp. 401
Contingent Liabilities That Are Recordedp. 401
Contingent Liabilities That Are Disclosedp. 402
Contingent Liabilities versus Contingent Assetsp. 404
Time Value of Money Conceptsp. 405
Simple Interestp. 406
Compound Interestp. 406
Interest Compoundingp. 406
Future Value of a Single Amountp. 407
Present Value of a Single Amountp. 409
Future Value of an Annuityp. 410
Present Value of an Annuityp. 412
Solving for Unknownsp. 413
Accounting Tools: Payroll Accountingp. 419
Accounting Tools: Using Excel for Problems Involving Interest Calculationsp. 423
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Long-Term Liabilitiesp. 454
Coca-Cola: Making Business Decisionsp. 455
Balance Sheet Presentationp. 457
Bonds Payablep. 458
Characteristics of Bondsp. 458
Issuance of Bondsp. 460
Factors Affecting Bond Pricep. 460
Premium or Discount on Bondsp. 462
Bond Amortizationp. 464
Redemption of Bondsp. 467
Liability for Leasesp. 469
Leasesp. 469
Analyzing Debt to Assess a Firm's Ability to Pay Its Liabilitiesp. 473
How Long-Term Liabilities Affect the Statement of Cash Flowsp. 474
Using the Ratio Decision Model: Analyzing the Debt-to-Equity and Times Interest Earned Ratiosp. 474
Accounting Tools: Other Liabilitiesp. 476
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Stockholders' Equityp. 498
Jacuzzi: Making Business Decisionsp. 499
An Overview of Stockholders' Equityp. 500
Equity as a Source of Financingp. 500
Stockholders' Equity on the Balance Sheetp. 501
How Income and Dividends Affect Retained Earningsp. 502
Identifying the Components of the Stockholders' Equity Section of the Balance Sheetp. 502
What Is Preferred Stock?p. 505
Issuance of Stockp. 506
Stock Issued for Cashp. 506
Stock Issued for Noncash Considerationp. 506
What Is Treasury Stock?p. 507
Retirement of Stockp. 508
Dividends: Distribution of Income to Shareholdersp. 509
Cash Dividendsp. 509
Cash Dividends for Preferred and Common Stockp. 509
Stock Dividendsp. 510
Stock Splitsp. 512
Statement of Stockholders' Equityp. 513
What Is Comprehensive Income?p. 514
What Analyzing Stockholders' Equity Reveals About a Firm's Valuep. 516
Book Value per Sharep. 516
Using the Ratio Decision Model: Analyzing Book Value per Sharep. 516
Calculating Book Value When Preferred Stock Is Presentp. 518
Market Value per Sharep. 519
How Changes in Stockholders' Equity Affect the Statement of Cash Flowsp. 519
Accounting Tools: Unincorporated Businessesp. 521
Integrative Problemp. 547
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
The Statement of Cash Flowsp. 550
Best Buy: Making Business Decisionsp. 551
Cash Flows and Accrual Accountingp. 553
Purpose of the Statement of Cash Flowsp. 554
An Examplep. 554
Reporting Requirements for a Statement of Cash Flowsp. 555
The Definition of Cash: Cash and Cash Equivalentsp. 556
Classification of Cash Flowsp. 557
Two Methods of Reporting Cash Flow from Operating Activitiesp. 560
Noncash Investing and Financing Activitiesp. 562
How the Statement of Cash Flows Is Put Togetherp. 564
The Accounting Equation and the Statement of Cash Flowsp. 564
An Approach to Preparing the Statement of Cash Flows: Direct Methodp. 565
An Approach to Preparing the Statement of Cash Flows: Indirect Methodp. 575
Comparison of the Indirect and Direct Methodsp. 576
The Use of Cash Flow Informationp. 577
Creditors and Cash Flow Adequacyp. 577
Using the Ratio Decision Model: Analyzing Cash Flow Adequacyp. 578
Stockholders and Cash Flow per Sharep. 580
Accounting Tools: A Work-Sheet Approach to the Statement of Cash Flowsp. 580
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Financial Statement Analysisp. 612
Wm. Wrigley Jr. Company: Making Business Decisionsp. 613
Precautions in Statement Analysisp. 614
Watch for Alternative Accounting Principlesp. 614
Take Care When Making Comparisonsp. 614
Understand the Possible Effects of Inflationp. 615
Analysis of Comparative and Common-Size Statementsp. 616
Horizontal Analysisp. 616
Vertical Analysisp. 621
Liquidity Analysis and the Management of Working Capitalp. 623
Working Capitalp. 623
Current Ratiop. 624
Acid-Test Ratiop. 624
Cash Flow from Operations to Current Liabilitiesp. 625
Accounts Receivable Analysisp. 626
Inventory Analysisp. 627
Cash Operating Cyclep. 628
Solvency Analysisp. 628
Debt-to-Equity Ratiop. 628
Times Interest Earnedp. 629
Debt Service Coveragep. 629
Cash Flow from Operations to Capital Expenditures Ratiop. 630
Profitability Analysisp. 631
Rate of Return on Assetsp. 631
Components of Return on Assetsp. 632
Return on Common Stockholders' Equityp. 633
Return on Assets, Return on Equity, and Leveragep. 633
Earnings per Sharep. 634
Price/Earnings Ratiop. 635
Dividend Ratiosp. 636
Summary of Selected Financial Ratiosp. 636
Accounting Tools: Reporting and Analyzing Other Income Statement Itemsp. 638
Integrative Problemp. 671
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Excerpts from the Finish Line, Inc., Form 10-K for 2006p. A-1
Excerpts from Foot Locker, Inc., Form 10-K for 2005p. B-1
Glossaryp. G-1
Comprehensive Indexp. I-1
Table of Contents provided by Ingram. All Rights Reserved.


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