Corporate Financial Accounting

by Warren,Carl S.

• ISBN13: 9780324188042
• ISBN10: 0324188048
• Format: Paperback
• Copyright: 2004-02-04
• Publisher: South-Western College Pub

Summary

Like the most successful businesses, this book successfully integrates innovation with tradition. Warren/Reeve/Fess uses the preparation of financial statements as the framework for understanding what accounting is all about.

Table of Contents

1. Introduction to Accounting and Business	1	(46)
Nature of a Business	2	(6)
Types of Businesses	2	(1)
Types of Business Organizations	3	(1)
Business Strategies	4	(2)
Value Chain of a Business	6	(1)
Business Stakeholders	6	(2)
The Role of Accounting in Business	8	(1)
Business Ethics	8	(2)
Profession of Accounting	10	(2)
Private Accounting	11	(1)
Public Accounting	11	(1)
Specialized Accounting Fields	11	(1)
Generally Accepted Accounting Principles	12	(2)
Business Entity Concept	13	(1)
The Cost Concept	13	(1)
Assets, Liabilities, and Owner's Equity 13
Business Transactions and the Accounting Equation	14	(5)
Financial Statements	19	(3)
Income Statement	19	(1)
Retained Earnings Statement	19	(2)
Balance Sheet	21	(1)
Statement of Cash Flows	21	(1)
Financial Analysis and Interpretation	22	(25)
2. Analyzing Transactions	47	(54)
Usefulness of an Account	48	(1)
Characteristics of an Account	49	(1)
Analyzing and Summarizing Transactions in Accounts	50	(5)
Balance Sheet Accounts	50	(2)
Income Statement Accounts	52	(2)
Dividends Account	54	(1)
Normal Balances of Accounts	55	(1)
Illustration of Analyzing and Summarizing Transactions	55	(13)
Trial Balance	68	(1)
Discovery and Correction of Errors	69	(2)
Discovery of Errors	69	(1)
Correction of Errors	70	(1)
Financial Analysis and Interpretation	71	(30)
3. The Matching Concept and the Adjusting Process	101	(38)
The Matching Concept	102	(1)
Nature of the Adjusting Process	103	(1)
Recording Adjusting Entries	104	(9)
Deferred Expenses (Prepaid Expenses)	105	(2)
Deferred Revenue (Unearned Revenue)	107	(1)
Accrued Expenses (Accrued Liabilities)	108	(3)
Accrued Revenues (Accrued Assets)	111	(1)
Fixed Assets	112	(1)
Summary of Adjustment Process	113	(4)
Financial Analysis and Interpretation	117	(22)
4. Completing the Accounting Cycle	139	(49)
Accounting Cycle	140	(1)
Work Sheet	140	(6)
Unadjusted Trial Balance Columns	141	(1)
Adjustments Columns	142	(1)
Adjusted Trial Balance Columns	143	(1)
Income Statement and Balance Sheet Columns	143	(3)
Financial Statements	146	(4)
Income Statement	147	(1)
Retained Earnings Statement	148	(1)
Balance Sheet	149	(1)
Adjusting and Closing Entries	150	(9)
Journalizing and Posting Closing Entries	151	(7)
Post-Closing Trial Balance	158	(1)
Fiscal Year	159	(2)
Financial Analysis and Interpretation	161	(1)
Appendix: Reversing Entries	161	(22)
Comprehensive Problem 1	183	(5)
Practice Set: Tom's Asphalt
This set is a service business operated as a proprietorship. It includes a narrative of transactions and instructions for an optional solution with no debits and credits. This set can be solved manually or with the P.A.S.S. software.
5. Accounting for Merchandising Businesses	188	(49)
Nature of Merchandising Businesses	189	(1)
Financial Statements for a Merchandising Business	190	(6)
Multiple-Step Income Statement	191	(3)
Single-Step Income Statement	194	(1)
Retained Earnings Statement	194	(1)
Balance Sheet	194	(2)
Sales Transactions	196	(4)
Cash Sales	196	(1)
Sales on Account	197	(1)
Sales Discounts	197	(2)
Sales Returns and Allowances	199	(1)
Purchase Transactions	200	(3)
Purchases Discounts	200	(1)
Purchases Returns and Allowances	201	(2)
Transportation Costs, Sales Taxes, and Trade Discounts	203	(3)
Transportations Costs	203	(1)
Sales Taxes	204	(1)
Trade Discounts	205	(1)
Illustration of Accounting for Merchandise Transactions	206	(1)
Chart of Accounts for a Merchandising Business	207	(1)
The Accounting Cycle for a Merchandising Business	208	(1)
Merchandise Inventory Shrinkage	208	(1)
Work Sheet	209	(1)
Closing Entries	209	(1)
Financial Analysis and Interpretation	209	(1)
Appendix: Work Sheet and Adjusting and Closing Entries for a Merchandising Business	210	(21)
Comprehensive Problem 2	231	(6)
Practice Set: Specialty Sports
This set is a merchandising business operated as a proprietorship. It includes business documents, and it can be solved manually or with the P.A.S.S. software.
6. Accounting Systems, Internal Controls, and Cash	237	(42)
Basic Accounting Systems	238	(1)
Internal Control	239	(6)
Objectives of Internal Control	239	(1)
Elements of Internal Control	240	(5)
Nature of Cash and the Importance of Controls Over Cash	245	(1)
Control of Cash Receipts	245	(2)
Controlling Cash Received from Cash Sales	245	(1)
Controlling Cash Received in the Mail	246	(1)
Internal Control of Cash Payments	247	(2)
Basic Features of the Voucher System	247	(2)
Electronic Funds Transfer	249	(1)
Bank Accounts: Their Nature and Use as a Control Over Cash	249	(4)
Business Bank Accounts	249	(2)
Bank Statement	251	(1)
Bank Accounts as a Control Over Cash	251	(2)
Bank Reconciliation	253	(2)
Petty Cash	255	(2)
Presentation of Cash on the Balance Sheet	257	(1)
Financial Analysis and Interpretation	258	(21)
7. Receivables	279	(37)
Classification of Receivables	280	(1)
Accounts Receivable	280	(1)
Notes Receivable	280	(1)
Other Receivables	280	(1)
Internal Control of Receivables	281	(1)
Uncollectible Receivables	282	(1)
Allowance Method of Accounting for Uncollectibles	283	(4)
Write-Offs to the Allowance Account	284	(1)
Estimating Uncollectibles	285	(2)
Direct Write-Off Method of Accounting for Uncollectibles	287	(1)
Characteristics of Notes Receivable	288	(2)
Due Date	289	(1)
Interest	290	(1)
Maturity Value	290	(1)
Accounting for Notes Receivable	290	(2)
Receivables on the Balance Sheet	292	(1)
Financial Analysis and Interpretation	292	(2)
Appendix: Discounting Notes Receivable	294	(22)
8. Inventories	316	(38)
Internal Control of Inventories	317	(2)
Effect of Inventory Errors on Financial Statements	319	(1)
Inventory Cost Flow Assumptions	320	(2)
Inventory Costing Methods Under a Perpetual Inventory System	322	(3)
First-In, First-Out Method	322	(1)
Last-In, First-Out Method	323	(1)
Average Cost Method	324	(1)
Computerized Perpetual Inventory Systems	324	(1)
Inventory Costing Methods Under a Periodic Inventory System	325	(2)
First-In, First-Out Method	325	(1)
Last-In, First-Out Method	326	(1)
Average Cost Method	326	(1)
Comparing Inventory Costing Methods	327	(2)
Use of the First-In, First-Out Method	328	(1)
Use of the Last-In, First-Out Method	328	(1)
Use of the Average Cost Method	329	(1)
Valuation of Inventory at Other than Cost	329	(1)
Valuation at Lower of Cost or Market	329	(1)
Valuation at Net Realizable Value	330	(1)
Presenting Merchandise Inventory on the Balance Sheet	330	(1)
Estimating Inventory Cost	331	(2)
Retail Method of Inventory Costing	332	(1)
Gross Profit Method of Estimating Inventories	333	(1)
Financial Analysis and Interpretation	333	(21)
9. Fixed Assets and Intangible Assets	354	(42)
Nature of Fixed Assets	355	(4)
Classifying Costs	356	(1)
The Cost of Fixed Assets	356	(1)
Donated Assets	357	(1)
Nature of Depreciation	357	(2)
Accounting for Depreciation	359	(5)
Straight-Line Method	360	(1)
Units-of-Production Method	361	(1)
Declining-Balance Method	361	(1)
Comparing Depreciation Methods	362	(1)
Depreciation for Federal Income Tax	362	(1)
Revising Depreciation Estimates	363	(1)
Composite-Rate Method	364	(1)
Capital and Revenue Expenditures	364	(3)
Stages of Acquiring Fixed Assets	364	(1)
Fixed Asset Components	365	(2)
Disposal of Fixed Assets 366
Discarding Fixed Assets	367	(1)
Selling Fixed Assets	367	(1)
Exchanging Similar Fixed Assets	368	(2)
Leasing Fixed Assets	370	(1)
Internal Control of Fixed Assets	371	(1)
Natural Resources	372	(1)
Intangible Assets	372	(4)
Patents	373	(1)
Copyrights and Trademarks	373	(1)
Goodwill	374	(2)
Financial Reporting for Fixed Assets and Intangible Assets	376	(1)
Financial Analysis and Interpretation	376	(2)
Appendix: Sum-of-the-Years-Digits Depreciation	378	(18)
10. Current Liabilities	396	(47)
The Nature of Current Liabilities	397	(1)
Short-Term Notes Payable and Current Portion of Long-Term Debt	398	(2)
Short-Term Notes Payable	398	(1)
Current Portion of Long-Term Debt	399	(1)
Contingent Liabilities	400	(1)
Payroll and Payroll Taxes	401	(7)
Liability for Employee Earnings	402	(1)
Deductions from Employee Earnings	403	(3)
Computing Employee Net Pay	406	(1)
Liability for Employer's Payroll Taxes	406	(2)
Accounting Systems for Payroll and Payroll Taxes	408	(7)
Payroll Register	408	(2)
Employee's Earnings Record	410	(1)
Payroll Checks	410	(1)
Payroll System Diagram	411	(1)
Internal Controls for Payroll Systems	411	(4)
Employees' Fringe Benefits	415	(2)
Vacation Pay	415	(1)
Pensions	416	(1)
Postretirement Benefits Other Than Pensions	417	(1)
Financial Analysis and Interpretation	417	(19)
Comprehensive Problem 3	436	(7)
Practice Set: Groom and Board
This set includes payroll transactions for a merchandising business operated as a proprietorship. It includes business documents, and it can be solved manually or with the P.A.S.S. software.
Practice Set: The Coddled Canine with Peachtree® Accounting Software
This set includes payroll transactions for a merchandising business operated as a proprietorship. It can be solved with the Peachtree software.
11. Corporations: Organization, Capital Stock Transactions, and Dividends	443	(36)
Nature of a Corporation	444	(2)
Characteristics of a Corporation	444	(1)
Forming a Corporation	445	(1)
Sources of Paid-In Capital	446	(3)
Stock	446	(3)
Issuing Stock	449	(3)
Premium on Stock	450	(1)
No-Par Stock	451	(1)
Treasury Stock Transactions	452	(1)
Stock Splits	453	(1)
Accounting for Dividends	454	(2)
Cash Dividends	454	(1)
Stock Dividends	455	(1)
Reporting Stockholders' Equity	456	(3)
Stockholders' Equity in the Balance Sheet	457	(1)
Reporting Retained Earnings	458	(1)
Financial Analysis and Interpretation	459	(20)
12. Income Taxes, Unusual Income Items, and Investments in Stocks	479	(42)
Corporate Income Taxes	480	(4)
Payment of Income Taxes	480	(1)
Allocating Income Taxes	481	(2)
Reporting and Analyzing Taxes	483	(1)
Unusual Items Affecting the Income Statement	484	(4)
Unusual Items Affecting Income from Continuing Operations	484	(2)
Unusual Items Not Affecting Income from Continuing Operations	486	(2)
Reporting Unusual Below-the-Line Items	488	(1)
Earnings per Common Share	488	(2)
Comprehensive Income	490	(1)
Accounting for Investments in Stocks	491	(4)
Short-Term Investments in Stocks	491	(2)
Long-Term Investments in Stocks	493	(2)
Sale of Investments in Stocks	495	(1)
Business Combinations	495	(3)
Mergers and Consolidations	495	(1)
Parent and Subsidiary Corporations	496	(1)
Consolidated Financial Statements	496	(2)
Financial Analysis and Interpretation	498	(23)
Practice Set: Nina's Decorating House
This set is a service and merchandising business operated as a corporation. It includes narrative for six months of transactions, which are to be recorded in a general journal. The set can be solved manually or with the P.A.S.S. software.
Practice Set: First Designs, Inc.
This set is a departmentalized merchandising business operated as a corporation. It includes a narrative of transactions, which are to be recorded in special journals. The set can be solved manually or with the P.A.S.S. software.
13. Bonds Payable and Investments in Bonds	521	(39)
Financing Corporations	522	(1)
Characteristics of Bonds Payable	523	(1)
The Present-Value Concept and Bonds Payable	524	(4)
Present Value of the Face Amount of Bonds	525	(1)
Present Value of the Periodic Bond Interest Payments	526	(2)
Accounting for Bonds Payable	528	(4)
Bonds Issued at Face Amount	528	(2)
Bonds Issued at a Discount	530	(1)
Amortizing a Bond Discount	530	(1)
Bonds Issued at a Premium	531	(1)
Amortizing a Bond Premium	531	(1)
Zero-Coupon Bonds	531	(1)
Bond Sinking Funds	532	(1)
Bond Redemption	533	(1)
Investments in Bonds	534	(2)
Accounting for Bond Investments-Purchase, Interest, and Amortization	534	(1)
Accounting for Bond Investments-Sale	535	(1)
Corporation Balance Sheet	536	(2)
Balance Sheet Presentation of Bonds Payable	536	(2)
Balance Sheet Presentation of Bond Investments	538	(1)
Financial Analysis and Interpretation	538	(1)
Appendix: Effective Interest Rate Method of Amortization	539	(16)
Amortization of Discount by the Interest Method	539	(1)
Amortization of Premium by the Interest Method	540	(15)
Comprehensive Problem 4	555	(5)
14. Statement of Cash Flows	560	(51)
Reporting Cash Flows	561	(4)
Cash Flows from Operating Activities	562	(1)
Cash Flows from Investing Activities	563	(1)
Cash Flows from Financing Activities	563	(1)
Noncash Investing and Financing Activities	564	(1)
No Cash Flow per Share	564	(1)
Statement of Cash Flows-The Indirect Method	565	(9)
Retained Earnings	565	(6)
Common Stock	571	(1)
Bonds Payable	571	(1)
Building	572	(1)
Land	572	(1)
Preparing the Statement of Cash Flows	573	(1)
Statement of Cash Flows-The Direct Method	574	(4)
Cash Received from Customers	574	(1)
Cash Payments for Merchandise	575	(1)
Cash Payments for Operating Expenses	576	(1)
Gain on Sale of Land	577	(1)
Interest Expense	577	(1)
Cash Payments for Income Taxes	577	(1)
Reporting Cash Flows from Operating Activities-Direct Method	577	(1)
Financial Analysis and Interpretation	578	(2)
Appendix: Work Sheet for Statement of Cash Flows	580	(32)
Work Sheet-Indirect Method	580	(3)
Work Sheet-Direct Method	583	(28)
15. Financial Statement Analysis	611
Basic Analytical Procedures	612	(5)
Horizontal Analysis	612	(2)
Vertical Analysis	614	(2)
Common-Size Statements	616	(1)
Other Analytical Measures	617	(1)
Solvency Analysis	617	(7)
Current Position Analysis	618	(1)
Accounts Receivable Analysis	619	(1)
Inventory Analysis	620	(1)
Ratio of Fixed Assets to Long-Term Liabilities	621	(1)
Ratio of Liabilities to Stockholders' Equity	622	(1)
Number of Times Interest Charges Earned	622	(2)
Profitability Analysis	624	(4)
Ratio of Net Sales to Assets	624	(1)
Rate Earned on Total Assets	624	(1)
Rate Earned on Stockholders' Equity	625	(1)
Rate Earned on Common Stockholders' Equity	626	(1)
Earnings per Share on Common Stock	626	(1)
Price-Earnings Ratio	627	(1)
Dividends per Share and Dividend Yield	627	(1)
Summary of Analytical Measures	628	(1)
Corporate Annual Reports	628
Management Discussion and Analysis	630	(1)
Independent Auditors' Report	630
Appendix A: Interest Tables	A-2
Appendix B: Alternative Methods of Recording Deferrals	B-1
Appendix C: Special Journals and Subsidiary Ledgers	C-1
Appendix D: Periodic Inventory Systems for Merchandising Businesses	D-1
Appendix E: Foreign Currency Transactions	E-1
Appendix F: The Home Depot Annual Report	F-1
Glossary	G-1
Subject Index	I-1
Company Index	I-10