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1 Welcome to Accounting: Introduction and Financial Statements 1-1
The Importance of Accounting 1-2
Why Study Accounting? 1-2
Who Uses Accounting Information? 1-4
Business Types and Classifications 1-7
Types of Businesses That Use Accounting 1-7
Business Classifications 1-9
The Building Blocks of Accounting 1-11
Ethics in Financial Reporting 1-11
Accounting Standards 1-12
Principles and Assumptions 1-13
The Four Financial Statements 1-16
Income Statement 1-16
Owner’s Equity Statement 1-18
Balance Sheet 1-20
Statement of Cash Flows 1-22
The Financial Statement Connections 1-23
Careers in Accounting 1-27
Public Accounting 1-27
Private Accounting 1-27
Governmental Accounting 1-28
Forensic Accounting 1-28
2 The Accounting Equation and Transaction Analysis 2-1
The Accounting Elements 2-2
Assets 2-2
Liabilities 2-3
Owner’s Equity 2-4
Basic Accounting Equation 2-5
Accounting Equation in Action 2-5
Business Transactions 2-8
Defining Business Transactions 2-8
The Account 2-9
Transaction Analysis 2-10
Example Transactions 2-11
Summary of Transactions 2-13
Revenues and Expenses 2-15
Revenues 2-15
Expenses 2-16
Expanding the Accounting Equation 2-17
Expanded Accounting Equation 2-18
Transaction Analysis Using the Expanded Accounting Equation 2-19
Summary of Transactions 2-22
3 The Recording Process: Debits and Credits 3-1
Debits and Credits 3-2
The T-Account Form Using Debits and Credits 3-2
Balancing an Account 3-3
Debit and Credit Rules 3-5
Normal Balances 3-9
Summary of Debit/Credit Rules 3-10
Chart of Accounts 3-11
Using Debits and Credits 3-14
Debit-Credit Analysis 3-14
Designer Dinners—Basic Transactions 3-15
Summary of Basic Transactions 3-17
Designer Dinners—Additional Transactions 3-18
Summary of Expanded Transactions 3-23
4 The Recording Process: The Journal, Ledger, and Trial Balance 4-1
Using a Journal in the Recording Process 4-2
Business Documents 4-2
Steps in the Recording Process 4-3
Using the Journal 4-4
Posting to the Ledger 4-9
The Ledger 4-9
Posting 4-13
The Recording Process Illustrated 4-14
Summary of Transactions 4-26
The Trial Balance 4-30
Trial Balance Benefits 4-31
Steps for Preparing a Trial Balance 4-32
Dollar Signs and Underlining 4-33
Locating Errors 4-34
Limitations of a Trial Balance 4-36
5 Adjusting the Accounts and Preparing an Adjusted Trial Balance 5-1
Reasons for Adjusting Entries 5-2
Fiscal and Calendar Years 5-2
Recognizing Revenues and Expenses 5-3
The Need for Adjusting Entries 5-4
Adjusting Entries 5-6
Supplies 5-6
Insurance 5-9
Depreciation 5-12
Salaries and Wages 5-15
Summary of Basic Relationships 5-17
The Adjusted Trial Balance 5-21
Preparing the Adjusted Trial Balance 5-21
Preparing Financial Statements 5-22
6 Preparing a Worksheet and Completing the Accounting Cycle 6-1
The Worksheet 6-2
The Purpose of the Worksheet 6-2
Steps in Preparing a Worksheet 6-3
Preparing Financial Statements from a Worksheet 6-10
Preparing Adjusting Entries from a Worksheet 6-10
The Closing Process 6-14
Temporary and Permanent Accounts 6-15
Preparing Closing Entries 6-16
Closing Entries Illustrated 6-18
Posting Closing Entries 6-22
Preparing a Post-Closing Trial Balance 6-26
The Accounting Cycle 6-28
Steps in the Accounting Cycle 6-28
Correcting Entries—An Avoidable Step 6-29
7 Accounting for Merchandising Companies: Purchases 7-1
Merchandising Operations 7-2
Merchandising Company Accounts 7-2
Merchandising Company Operating Cycle 7-4
Flow of Costs 7-5
Two Inventory Systems—Perpetual and Periodic 7-6
Purchases and Freight Costs 7-9
Purchase of Inventory 7-10
Payment of Freight Costs 7-12
Returns/Allowances and Payments 7-16
Purchase Returns and Allowances 7-16
Payment for Inventory Purchases 7-18
Summary of Purchase Transactions 7-22
8 Accounting for Merchandising Companies: Sales 8-1
Sales, Sales Taxes, and Freight Costs 8-2
Timing and Business Documents 8-2
Recording the Sale of Merchandise 8-2
Credit Card Sales 8-6
Sales Taxes 8-8
Payment of Freight Costs by the Seller 8-10
Sales Returns and Allowances and Receipts of Payment 8-12
Sales Returns and Allowances 8-12
Receipt of Payment for Sales 8-15
Summary of Sales Transactions 8-18
9 Accounting for Merchandising Companies: Worksheets and Financial Statements 9-1
Adjusting Entries and Worksheet for a Merchandising Company 9-2
Preparing Adjusting Entries for Unearned Revenue 9-2
Adjusting Entries for a Merchandising Company 9-5
Using a Worksheet 9-6
Financial Statements for Merchandising Companies 9-10
Balance Sheet 9-10
Single-Step Income Statement 9-10
Multiple-Step Income Statement 9-12
The Closing Process for Merchandising Companies 9-19
Closing Entries for Merchandising Companies 9-19
10 Accounting Information Systems, Subsidiary Ledgers, and Special Journals 10-1
Basic Accounting Information System Concepts 10-2
Accounting Information Systems 10-2
Computerized Accounting Systems 10-3
Subsidiary Ledgers 10-7
The Need for Subsidiary Ledgers 10-7
Subsidiary Ledger Example 10-8
Special Journals 10-11
Purpose of Special Journals 10-11
Knowing Which Special Journal to Use 10-13
Special Journals: Purchases Journal and Cash Payments Journals 10-16
Purchases Journal 10-16
Cash Payments Journal 10-20
Special Journals: Sales Journal and Cash Receipts Journal 10-26
Sales Journal 10-26
Cash Receipts Journal 10-30
Effects of Special Journals on the General Journal 10-35
11 Inventories 11-1
Classifying and Determining Inventory 11-2
Classifying Inventory 11-2
Determining Inventory Quantities 11-3
Inventory Cost Flow Methods and Financial Effects 11-6
Specific Identification 11-7
Cost Flow Assumptions 11-8
Financial Statement Effects of Cost Flow Methods 11-13
Using Inventory Cost Flow Methods Consistently 11-15
Inventory Valuation and the Effects of Inventory Errors on the Financial Statements 11-17
Lower-of-Cost-or-Net Realizable Value 11-17
Effects of Errors on the Financial Statements 11-18
Estimating Inventories 11-22
Gross Profit Method 11-22
Retail Inventory Method 11-23
Inventory Cost Flow Methods for the Perpetual Inventory System 11-26
First-In, First-Out (FIFO) 11-27
Last-In, First-Out (LIFO) 11-27
Average-Cost 11-28
12 Cash, Banking, and Internal Controls 12-1
Internal Controls and Cash 12-2
Internal Control 12-2
Cash Receipts 12-2
Cash Payments 12-3
Voucher System Controls 12-3
Banking Procedures 12-5
Checking Account 12-5
Electronic Banking 12-6
Writing Checks 12-8
Making Deposits 12-10
Bank Statement 12-13
Bank Reconciliation 12-16
The Need for a Bank Reconciliation 12-17
Reconciling Items 12-18
Preparing a Bank Reconciliation 12-19
Journal Entries Required After a Bank Reconciliation 12-24
Petty Cash 12-28
Establishing the Petty Cash Fund 12-28
Making Payments from the Petty Cash Fund 12-29
Replenishing the Petty Cash Fund 12-30
Change Fund 12-32
Establishing and Maintaining a Change Fund 12-33
Cash Over and Short 12-34
Fraud and Internal Controls 12-36
Fraud 12-36
The Importance of Internal Controls 12-38
Internal Control Activities 12-39
13 Payroll Accounting: Employee Taxes 13-1
Determining Employee Payroll 13-2
Overview of Payroll 13-2
Steps in Computing Employee Payroll 13-3
Recording the Payroll 13-14
Maintaining Payroll Department Records 13-14
Recognizing Payroll Expenses and Liabilities 13-17
Recording Payment of the Payroll 13-19
Internal Control for Payroll 13-22
Payroll Fraud 13-22
Proper Internal Controls 13-22
14 Payroll Accounting: Employer Taxes 14-1
Determining and Recording Payroll Taxes 14-2
FICA Taxes 14-2
Federal Unemployment Taxes 14-4
State Unemployment Taxes 14-5
Summary 14-5
Recording Employer Payroll Taxes 14-7
Filing and Paying Payroll Taxes 14-9
FICA Taxes and Federal Income Tax 14-9
Federal Unemployment Tax 14-16
State and City Taxes 14-21
Wage and Tax Statement 14-21
Recording Payment of Taxes 14-23
Workers’ Compensation Insurance 14-25
Computation of Workers’ Compensation Premium 14-25
Recording Workers’ Compensation Premium Payment 14-26
Year-End Adjustment for Workers’ Compensation Premium 14-27
Index I-1
