Financial Accounting

by Albrecht, W. Steve; Stice, James D.; Stice, Earl K.; Swain, Monte R.

• ISBN13: 9780324206746
• ISBN10: 0324206747
• Edition: 9th
• Format: Hardcover
• Copyright: 2004-01-06
• Publisher: Cengage Learning

Summary

Accounting is about decision making using financial information. The text focuses on developing a student's the ability to critically analyze accounting information and make informed business decisions. Students are exposed to a lot of real-world examples where they can see the effect that accounting information has on the decisions made by real companies. Also chapters are split into basic and expanded material so that the professor can easily cover the basics of a topic or, if he or she prefers, delve deeper into a selected topic. Finally, analysis is incorporated throughout the text so that students can learn to use accounting information as they learn how that information is prepared.

Table of Contents

Part I Financial Reporting and the Accounting Cycle	1	(290)
1 Accounting Information: Users and Uses	2	(28)
What's the Purpose of Accounting?	4	(5)
The Relationship of Accounting to Business	7	(2)
Who Uses Accounting Information	9	(4)
Lenders	10	(1)
Investors	10	(1)
Management	11	(1)
Other Users of Financial Information	11	(2)
Within What Kind of Environment Does Accounting Operate?	13	(7)
The Significance and Development of Accounting Standards	13	(1)
The Financial Accounting Standards Board	14	(1)
Other Organizations	14	(2)
International Business	16	(1)
Ethics in Accounting	17	(1)
Technology	18	(2)
So, Why Should I Study Accounting?	20	(1)
End-of-Chapter Materials	21	(6)
Competency Enhancement Opportunities	27	(3)
2 Financial Statements: An Overview	30	(50)
The Financial Statements	32	(15)
The Balance Sheet	32	(8)
The Income Statement	40	(4)
The Statement of Cash Flows	44	(2)
How the Financial Statements Tie Together	46	(1)
Notes to the Financial Statements	47	(3)
Summary of Significant Accounting Policies	48	(1)
Additional Information about Summary Totals	48	(1)
Disclosure of Information Not Recognized	48	(1)
Supplementary Information	49	(1)
The External Audit	50	(1)
Fundamental Concepts and Assumptions	51	(3)
The Separate Entity Concept	52	(1)
The Assumption of Arm's-Length Transactions	52	(1)
The Cost Principle	53	(1)
The Monetary Measurement Concept	53	(1)
The Going Concern Assumption	53	(1)
End-of-Chapter Materials	54	(26)
Competency Enhancement Opportunities	74	(6)
3 The Mechanics of Accounting	80	(58)
How Can We Collect All This Information?	82	(2)
How Do Transactions Affect the Accounting Equation?	84	(8)
The Accounting Equation	85	(1)
Using Accounts to Categorize Transactions	86	(4)
Expanding the Accounting Equation to Include Revenues, Expenses, and Dividends	90	(1)
Why Should I Understand the Mechanics of Accounting?	90	(2)
How Do We Record the Effects of Transactions?	92	(12)
Acquiring Cash, Either from Owners or by Borrowing	93	(1)
Acquiring Other Assets	94	(3)
Selling Goods or Providing Services	97	(3)
Collecting Cash and Paying Obligations	100	(1)
A Note on Journal Entries	101	(3)
Posting Journal Entries and Preparing a Trial Balance	104	(7)
Determining Account Balances	104	(1)
Illustration of the First Three Steps in the Accounting Cycle	105	(6)
Where Do Computers Fit In All This?	111	(27)
End-of-Chapter Materials	112	(21)
Competency Enhancement Opportunities	133	(5)
4 Completing the Accounting Cycle	138	(64)
Accrual Accounting	140	(4)
Periodic Reporting	141	(1)
Accrual- versus Cash-Basis Accounting	142	(2)
Adjusting Entries	144	(7)
Unrecorded Receivables	145	(1)
Unrecorded Liabilities	145	(2)
Prepaid Expenses	147	(2)
Unearned Revenues	149	(2)
Preparing Financial Statements	151	(6)
Financial Statement Preparation	152	(2)
The Notes	154	(1)
The Audit	154	(3)
Closing the Books	157	(3)
Real and Nominal Accounts	157	(1)
Closing Entries	158	(1)
Preparing a Post-Closing Trial Balance	159	(1)
A Summary of the Accounting Cycle	160	(1)
Adjusting Entries: Original Entries to Expense or Revenue	161	(2)
End-of-Chapter Materials	163	(39)
Competency Enhancement Opportunities	195	(7)
5 Introduction to Financial Statement Analysis	202	(52)
The Need for Financial Statement Analysis	204	(2)
Widely Used Financial Ratios	206	(6)
Debt Ratio	206	(1)
Current Ratio	207	(1)
Return on Sales	208	(1)
Asset Turnover	208	(1)
Return on Equity	208	(1)
Price-Earnings Ratio	209	(3)
Common-Size Financial Statements	212	(2)
Dupont Framework	214	(4)
Profitability Ratios	216	(1)
Efficiency Ratios	216	(1)
Leverage Ratios	217	(1)
Cash Flow Ratios	218	(3)
Usefulness of Cash Flow Ratios	218	(1)
Cash Flow to Net Income	219	(1)
Cash Flow Adequacy	220	(1)
Potential Pitfalls	221	(2)
Financial Statements Don't Contain All Information	221	(1)
Lack of Comparability	221	(1)
Search for the Smoking Gun	222	(1)
Anchoring, Adjustment, and Timeliness	222	(1)
End-of-Chapter Materials	223	(31)
Competency Enhancement Opportunities	248	(6)
6 Ensuring the Integrity of Financial Information	254	(37)
The Types of Problems That Can Occur	256	(4)
Types of Errors in the Reporting Process	257	(1)
Disagreements in Judgment	257	(2)
Fraudulent Financial Reporting	259	(1)
Safeguards Designed to Minimize Problems	260	(4)
The Control Environment	261	(1)
The Accounting System	262	(1)
Control Activities (Procedures)	262	(2)
Reasons for Earnings Management	264	(6)
Meet Internal Targets	265	(1)
Meet External Expectations	266	(1)
Income Smoothing	266	(1)
Window Dressing for an IPO or a Loan	267	(1)
The Earnings Management Continuum	267	(1)
Is Earnings Management Ethical?	268	(2)
Personal Ethics	270	(1)
The Sarbanes-Oxley Act	270	(2)
Public Company Oversight Board	271	(1)
Constraints on Auditors	271	(1)
Constraints on Management	271	(1)
The Role of Auditors in the Accounting Process	272	(4)
Internal Auditors	272	(1)
External Auditors	272	(1)
What Do Auditors Do?	273	(1)
Are Auditors Independent?	274	(2)
The Securities and Exchange Commission	276	(2)
The Effect of the 1934 Act on Independent Accountants	277	(1)
End-of-Chapter Materials	278	(14)
Competency Enhancement Opportunities	285	(4)
Comprehensive Problem 1-6	289	(2)
Part 2 Operating Activities	291	(168)
7 Selling a Product or a Service	292	(58)
Major Activities of a Business	295	(3)
Recognizing Revenue	298	(3)
When Should Revenue Be Recognized?	298	(1)
Application of the Revenue Recognition Criteria	299	(2)
Cash Collection	301	(3)
Sales Discounts	302	(1)
Sales Returns and Allowances	302	(1)
Control of Cash	303	(1)
Accounting for Credit Customers Who Don't Pay	304	(7)
Direct Write-Off Method	305	(1)
The Allowance Method	306	(4)
Real-World Illustration of Accounting for Bad Debts	310	(1)
Assessing How Well Companies Manage Their Receivables	311	(1)
Recording Warranty and Service Costs Associated with a Sale	312	(2)
Reconciling the Bank Account	314	(3)
Foreign Currency Transactions	317	(2)
Foreign Currency Transaction Example	317	(2)
End-of-Chapter Materials	319	(31)
Competency Enhancement Opportunities	344	(6)
8 Inventory	350	(60)
Inventory and Cost of Goods Sold	353	(4)
What Is Inventory?	353	(1)
What Costs Are Included in Inventory Cost?	354	(1)
Who Owns the Inventory?	355	(1)
Ending Inventory and Cost of Goods Sold	356	(1)
Accounting for Inventory Purchases and Sales	357	(5)
Overview of Perpetual and Periodic Systems	357	(1)
Perpetual and Periodic Journal Entries	358	(4)
Counting Inventory and Calculating Cost of Goods Sold	362	(3)
Taking a Physical Count of Inventory	363	(1)
The Income Effect of an Error in Ending Inventory	364	(1)
Inventory Cost Flow Assumptions	365	(5)
Specific Identification Inventory Cost Flow	366	(1)
FIFO Cost Flow Assumption	367	(1)
LIFO Cost Flow Assumption	368	(1)
Average Cost Flow Assumption	368	(1)
A Comparison of All Inventory Costing Methods	369	(1)
Assessing How Well Companies Manage Their Inventories	370	(4)
Evaluating the Level of Inventory	370	(1)
Impact of the Inventory Cost Flow Assumption	371	(1)
Number of Days' Purchases in Accounts Payable	372	(2)
Further Coverage of Inventory Errors	374	(6)
Complications of the Perpetual Method with LIFO and Average Cost	376	(2)
Reporting Inventory at Amounts below Cost	378	(1)
Inventory Valued at Net Realizable Value	378	(1)
Inventory Valued at Lower of Cost or Market	378	(2)
Method of Estimating Inventories	380	(1)
The Gross Margin Method	380	(1)
End-of-Chapter Materials	381	(29)
Competency Enhancement Opportunities	405	(5)
9 Completing the Operating Cycle	410	(49)
Employee Compensation	413	(8)
Payroll	414	(1)
Compensated Absences	415	(1)
Bonuses	416	(1)
Stock Options	417	(1)
Postemployment Benefits	418	(1)
Pensions	419	(2)
Postretirement Benefits Other Than Pensions	421	(1)
Taxes	421	(5)
Sales Taxes	422	(1)
Property Taxes	422	(1)
Income Taxes	423	(1)
Deferred Tax Example	424	(2)
Contingencies	426	(2)
Environmental Liabilities	427	(1)
Capitalize versus Expense	428	(2)
Research and Development	429	(1)
Advertising	430	(1)
Summarizing Operations on an Income Statement	430	(3)
Other Revenues and Expenses	431	(1)
Extraordinary Items	432	(1)
Earnings per Share	432	(1)
Differing Income Statement Formats	433	(1)
End-of-Chapter Materials	433	(23)
Competency Enhancement Opportunities	450	(6)
Comprehensive Problem 7-9	456	(3)
Part 3 Investing and Financing Activities	459	(234)
10 Investments in Property, Plant, and Equipment and in Intangible Assets	460	(64)
Nature of Long-Term Operating Assets	462	(1)
Deciding Whether to Acquire a Long-Term Operating Asset	463	(1)
Accounting for Acquisition of Property, Plant, and Equipment	464	(6)
Assets Acquired by Purchase	465	(1)
Assets Acquired by Leasing	465	(2)
Assets Acquired by Self-Construction	467	(1)
Acquisition of Several Assets at Once	468	(2)
Calculating and Recording Depreciation Expense	470	(6)
Straight-Line Method of Depreciation	471	(2)
Units-of-Production Method of Depreciation	473	(1)
A Comparison of Depreciation Methods	474	(1)
Partial-Year Depreciation Calculations	474	(1)
Units-of-Production Method with Natural Resources	475	(1)
Repairing and Improving Property, Plant, and Equipment	476	(2)
Recording Impairments of Asset Value	478	(2)
Recording Decreases in the Value of Property, Plant, and Equipment	478	(1)
Recording Increases in the Value of Property, Plant, and Equipment	479	(1)
Disposal of Property, Plant, and Equipment	480	(2)
Discarding Property, Plant, and Equipment	480	(1)
Selling Property, Plant, and Equipment	481	(1)
Exchanging Property, Plant, and Equipment	481	(1)
Accounting for Intangible Assets	482	(5)
Amortization of Intangible Assets	485	(1)
Impairment of Intangible Assets	486	(1)
Measuring Property, Plant, and Equipment Efficiency	487	(1)
Evaluating the Level of Property, Plant, and Equipment	487	(1)
Industry Differences in Fixed Asset Turnover	487	(1)
Accelerated Depreciation Methods	488	(4)
Declining-Balance Method of Depreciation	488	(2)
Sum-of-the-Years'-Digits Method of Depreciation	490	(1)
A Comparison of Depreciation Methods	491	(1)
Changes in Depreciation Estimates	492	(1)
End-of-Chapter Materials	493	(31)
Competency Enhancement Opportunities	518	(6)
11 Long-Term Debt Financing	524	(60)
Measuring Long-Term Liabilities	526	(6)
Present Value and Future Value Concepts	526	(4)
Computing the Present Value of an Annuity	530	(2)
Accounting for Long-Term Liabilities	532	(4)
Interest-Bearing Notes	532	(2)
Mortgages Payable	534	(2)
Accounting for Lease Obligations	536	(2)
Operating Leases	537	(1)
The Nature of Bonds	538	(8)
Types of Bonds	538	(1)
Characteristics of Bonds	539	(1)
Determining a Bond's Issuance Price	540	(4)
Accounting for Bonds Payable Issued at Face Value	544	(1)
Bond Retirements before Maturity	545	(1)
Using Debt-Related Financial Ratios	546	(2)
Debt Ratio and Debt-to-Equity Ratio	546	(1)
Times Interest Earned Ratio	547	(1)
Bonds Issued at a Discount or at a Premium	548	(10)
Accounting for Bonds Issued at a Discount	548	(2)
Accounting for Bonds Issued at a Premium	550	(1)
Effective-Interest Amortization	551	(7)
End-of-Chapter Materials	558	(26)
Competency Enhancement Opportunities	577	(7)
12 Equity Financing	584	(54)
Raising Equity Financing	587	(2)
Difference between a Loan and an Investment	587	(1)
Proprietorships and Partnerships	588	(1)
Corporations and Corporate Stock	589	(3)
Characteristics of a Corporation	589	(1)
Starting a Corporation	590	(1)
Common Stock	590	(1)
Preferred Stock	591	(1)
Accounting for Stock	592	(5)
Issuance of Stock	592	(2)
Accounting for Stock Repurchases	594	(2)
Balance Sheet Presentation	596	(1)
Retained Earnings	597	(5)
Cash Dividends	597	(4)
Dividend Payout Ratio	601	(1)
Other Equity Items	602	(3)
Equity Items That Bypass the Income Statement	602	(1)
Statement of Stockholders' Equity	603	(2)
Accounting for Stock Dividends	605	(2)
Stock Splits	606	(1)
Prior-Period Adjustments	607	(1)
End-of-Chapter Materials	608	(30)
Competency Enhancement Opportunities	633	(5)
13 Investments in Debt and Equity Securities	638	(55)
Why Companies Invest in Other Companies	640	(3)
Classifying a Security	643	(3)
Held-to-Maturity Securities	644	(1)
Equity Method Securities	644	(1)
Trading and Available-for-Sale Securities	644	(1)
Why the Different Classifications?	645	(1)
Accounting for Trading and Available-for-Sale Securities	646	(4)
Accounting for the Purchase of Securities	646	(2)
Accounting for the Return Earned on an Investment	648	(1)
Accounting for the Sale of Securities	649	(1)
Accounting for Changes in the Value of Securities	650	(3)
Changes in the Value of Trading Securities	650	(1)
Changes in the Value of Available-for Sale Securities	651	(1)
Subsequent Changes in Value	651	(2)
Accounting for Held-to-Maturity Securities	653	(6)
Accounting for the Initial Purchase	653	(1)
Accounting for Bonds Purchased between Interest Dates	654	(1)
Accounting for the Amortization of Bond Discounts and Premiums	655	(3)
Accounting for the Sale or Maturity of Bond Investments	658	(1)
Accounting for Equity Investments Using the Equity Method	659	(2)
Illustrating the Equity Method	660	(1)
Consolidated Financial Statements	661	(2)
End-of-Chapter Materials	663	(27)
Competency Enhancement Opportunities	685	(5)
Comprehensive Problem 10-13	690	(3)
Part 4 Other Dimensions of Financial Reporting	693
14 The Statement of Cash Flows	694
What's the Purpose of a Statement of Cash Flows?	696	(1)
What Information Is Reported in the Statement of Cash Flows?	697	(5)
Major Classifications of Cash Flows	697	(3)
Noncash Investing and Financing Activities	700	(2)
Cash Flow Patterns	702	(1)
Preparing a Statement of Cash Flows-A Simple Example	702	(3)
Analyzing the Other Primary Financial Statements to Prepare a Statement of Cash Flows	705	(11)
A Six-Step Process for Preparing a Statement of Cash Flows	707	(1)
An Illustration of the SixStep Process	708	(8)
Using Information from the Statement of Cash Flows to Make Decisions	716	(2)
End-of-Chapter Materials	718
Competency Enhancement Opportunities	745
Appendices
A Microsoft's 2002 Form 10-K	A-1
B Glossary	B-1
C Check Figures	C-1
Indexes
Subject	SI-1
Real World Company	C7-1