Financial Accounting: A Business Process Approach

by Reimers, Jane L.

• ISBN13: 9780130779380
• ISBN10: 0130779385
• Edition: 1st
• Format: Package
• Copyright: 2003-01-01
• Publisher: Pearson College Div

Summary

"Appropriate for accounting majors AND non-majors." Students are introduced to an entrepreneur who decides to create his own business (Tom' s Wear). In subsequent chapters, students read this running case example and learn financial accounting concepts through Tom' s experiences as he grows and expands his business. This is the business process approach: Reimers 1) teaches students about the way a business works and 2) THEN shows how accounting fits into business processes. All of the traditional financial statements and the accounting equation are emphasized, but the focus is on how accounting relates to business processes. Excel Application Problems, financial statements, internal controls, and business risks are integrated into every chapter. Chapter 4 on accounting procedures (debits and credits) may be included or omitted based upon instructor preference.

Author Biography

Jane Reimers joined the Crummer Graduate School of Business at Rollins College following 14 years at Florida State University, where she held the KPMG Professorship in Accounting. Before joining the FSU faculty, she taught in the MBA program at Duke University's Fuqua School of Business.

Table of Contents

Preface	xiii
Business: What It's All About	2	(42)
Purpose of a Business	4	(1)
The Nature of Business Operations	5	(1)
Ownership Structure of a Business	6	(1)
Understanding Business: Starting a New Business: The Business Plan	7	(5)
Sole Proprietorships	7	(1)
Partnerships	8	(1)
Corporations	8	(4)
Business Activities and the Flow of Goods and Services	12	(5)
An Entrepreneur	12	(3)
The Acquisition/Payment Process	15	(2)
The Sales/Collection Process	17	(1)
Information Needs for Decision Making in a Business	17	(1)
Flow of Information	18	(2)
Who Needs Information About Transactions of the Business?	18	(2)
Accounting Information: A Part of the Information System	20	(1)
The Role of the Information System	20	(1)
Overview of the Financial Statements	20	(9)
Balance Sheet	21	(4)
Income Statement	25	(2)
Statement of Changes in Owners' Equity	27	(1)
Statement of Cash Flows	28	(1)
Flow of Information and the Financial Statements	29	(1)
Business Risks	29	(15)
No More Mr. Nerd Guy	31	(1)
Understanding Excel	32	(12)
Qualities of Accounting Information	44	(38)
Information for Decision Making	46	(1)
Statements of Financial Accounting Concepts	47	(1)
Objectives of Accounting Information	48	(1)
Qualitative Characteristics of Accounting Information	49	(1)
Elements of the Financial Statements	50	(1)
Transactions for the Second Month of Business	50	(5)
Assets	55	(1)
Liabilities	56	(1)
Equity	56	(1)
Measurement and Recognition in Financial Statements	57	(2)
Measuring Assets	57	(1)
Recognizing Revenue and Expenses	57	(2)
Accruals and Deferrals	59	(2)
Accrual Basis Accounting	59	(1)
Cash Basis Versus Accrual Basis Accounting	59	(1)
Accounting Periods and Cutoff Issues	60	(1)
More About the Financial Statements	61	(1)
Investors-Owners and Creditors	61	(1)
Understanding Business: Managing Cash-Planning Inflows and Outflows	62	(5)
An Example to Illustrate the Kind of Information Financial Statements Provide	63	(2)
Putting It All Together-The Objectives of Financial Statements and the Information in Statements of Clean Sweep and Maids-R-Us	65	(2)
Applying Our Knowledge: Ratio Analysis	67	(2)
Business Risks	69	(13)
Internal Controls-Definition and Objectives	69	(1)
Special Internal Control issues Related to Financial Statements	69	(2)
Summary of Chapters 1 and 2	71	(1)
Understanding Excel	72	(10)
Accruals and Deferrals: Timing Is Everything in Accounting	82	(42)
Measuring Income	84	(2)
Accruals	86	(5)
Accruals for Interest Expense and Interest Revenue	86	(1)
Receivables with Interest	87	(2)
Accruals for Other Revenues and Expenses	89	(2)
Deferrals	91	(8)
Deferrals Related to Revenue	91	(2)
Deferrals Related to Expenses	93	(6)
Understanding Business: Recognizing Revenue: When Is it the Right Time?	99	(1)
Summing Up	100	(1)
Applying Our Knowledge: Ratio Analysis	100	(2)
Business Risks	102	(22)
Summary Problem: Tom s Wear in the Third Month of Business	103	(7)
Understanding Excel	110	(14)
Keeping the Books: The Mechanics of an Accounting System	124	(44)
The General Ledger Accounting System	127	(2)
Debits and Credits	129	(2)
The Accounting Cycle	131	(13)
Step 1: Recording Journal Entries	132	(2)
Step 2: Posting Journal Entries to the General Ledger	134	(1)
Step 3: Prepare an Unadjusted Trial Balance	134	(1)
Step 4: Adjusting Journal Entries	134	(5)
Steps 5 and 6: Preparing the Adjusted Trial Balance and the Financial Statements	139	(1)
Step 7: Close the Revenue and Expense Accounts	140	(4)
Step 8: Preparing a Postclosing Trial Balance	144	(1)
Review and Summary of the Accounting Cycle	144	(1)
What's Next? The General Ledger System Versus Integrated Information Systems	145	(1)
Understanding Business: Enterprise Resource Planning Systems	146	(1)
Business Risks	147	(21)
Summary Problem: Tom's Wear Transactions for March 2001 in a General Ledger System	148	(7)
Understanding Excel	155	(13)
Acquisitions: Purchase and Use of Business Assets	168	(42)
Acquisition of Long-Term Assets: The Business Process	171	(1)
Allocating the Cost of Long-Term Assets	172	(1)
Acquisition Costs	173	(2)
Basket Purchase Allocation	174	(1)
Depreciation	175	(1)
Depreciation and the Financial Statements	175	(6)
Straight-Line Depreciation	175	(2)
Activity (units of production) Depreciation	177	(1)
Declining Balance Method	178	(1)
Specific Depreciation Formulas	179	(2)
Capital Expenditures versus Revenue Expenditures	181	(2)
Revising Estimates of Useful Life and Residual Value	183	(1)
Depletion and Amortization	184	(1)
Depletion	184	(1)
Amortization	184	(1)
Selling a Long-Term Asset	185	(1)
Depreciation and Taxes	186	(1)
Finding and Using Depreciation Information	187	(1)
Understanding Business: Lease or Buy?	188	(1)
Applying Our Knowledge: Ratio Analysis	189	(1)
Business Risks	189	(21)
Summary Problem: Tom's Wear Expands in April 2001	190	(6)
Understanding Excel	196	(14)
Acquisition and Payment: Inventory and Liabilities	210	(44)
Acquiring Merchandise for Sale	212	(1)
Understanding Business: Inventory Cost Flow Assumptions and Taxes	213	(3)
Procedures for Acquisition of Goods	213	(1)
Merchandise Inventory	214	(1)
Purchases	214	(2)
Selecting and Accounting for Goods Sold: Inventory Cost Flow	216	(2)
Keeping Track of the Inventory: Four Cost Flow Assumptions	217	(1)
Record Keeping for the Inventory	218	(1)
Example of Cost Flow Assumptions and Timing of Record Keeping	218	(5)
Perpetual Inventory	218	(1)
Periodic Inventory	219	(1)
FIFO Periodic	220	(1)
FIFO Perpetual	220	(1)
LIFO Periodic	221	(1)
Accounting Choices Make a Difference	222	(1)
Average Cost: Periodic Weighted Average	222	(1)
Conclusions About Inventory Cost Flow Assumptions	222	(1)
Inventory and Cost of Goods Sold in Merchandising Operations	223	(1)
Inventory Errors	224	(2)
Ending Inventory Errors	224	(1)
Beginning Inventory Errors	225	(1)
Gross Profit Method of Estimating Ending Inventory	226	(1)
Valuing Inventory: Lower-of Cost-or-Market	226	(1)
Finding and Using Inventory Information	227	(1)
Applying Our Knowledge: Ratio Analysis	228	(1)
Paying for Acquisitions: Liabilities	229	(3)
Common Types of Liabilities	230	(1)
Acquisition of Human Resources and Payroll Liabilities	230	(2)
Business Risks	232	(22)
Inventory: Risks and Controls	232	(1)
Liabilities: Risks and Controls	232	(1)
Summary Problem: Tom's Wear Faces New Challenges in May	233	(5)
Understanding Excel	238	(16)
Sales and Collection Cycle	254	(40)
Sales Cycle	256	(1)
Understanding Business: Managing Accounts Receivable	257	(1)
Timing of Revenue Recognition	258	(1)
Revenue Recognition: Some Examples	258	(1)
Sales Discounts	259	(1)
Sales Returns	260	(1)
Payment for Goods and Services	261	(1)
Accounting for Cash	261	(3)
Accounts Receivable: Collecting Payment for Sales Made on Account	264	(5)
Direct Write-Off Method	264	(1)
Allowance Method	265	(4)
Credit Card Sales	269	(1)
Warranties	270	(1)
Finding and Using Information about Sales and Accounts Receivable	271	(1)
Using the Financial Statement Information for Analysis	272	(1)
Business Risks	273	(21)
Summary Problem: Tom's Wear Increases Sales in June	274	(7)
Understanding Excel	281	(13)
Special Acquisitions: Financing a Business with Debt	294	(52)
Understanding Business: Financing Your Business: Using a Line of Credit	297	(1)
Long-Term Notes Payable and Mortgages	297	(4)
Time Value of Money	301	(10)
Simple Versus Compound Interest	301	(1)
Future Value	302	(3)
Future Value of an Annuity	305	(2)
Present Value	307	(4)
Long-Term Liabilities: Raising Money by Issuing Bonds	311	(3)
What Is a Bond?	311	(1)
More About Bonds	312	(2)
Issuing Bonds Payable	314	(1)
Getting the Money	314	(1)
Paying the Bondholders	314	(1)
Accounting for Bonds Payable	315	(8)
Issuing Bonds at a Discount or a Premium	315	(3)
Amortizing Bond Discounts and Premiums: Effective Interest Method	318	(4)
Straight-Line Amortization of Bond Discounts and Premiums	322	(1)
Zero-Coupon Bonds	323	(1)
Callable and Convertible Bonds	324	(1)
Callable Bonds	324	(1)
Convertible Bonds	324	(1)
Financial Statement Analysis	325	(1)
Business Risks	326	(20)
Summary Problem: Tom's Wear Obtains Debt Financing in July	327	(6)
Understanding Excel	333	(13)
Special Acquisitions: Financing a Business with Equity	346	(34)
Owners of a Business	348	(1)
Components of Shareholders' Equity in a Corporation: Contributed Capital	348	(5)
Stock: Authorized, Issued and Outstanding	349	(4)
Understanding Business: Why Do Companies Have Preferred Stock?	353	(2)
Treasury Stock	355	(3)
Company Buys Its Own Stock	355	(2)
Selling Treasury Stock	357	(1)
Stock Dividends	358	(1)
Stock Splits	358	(1)
Components of Shareholders' Equity in a Corporation: Retained Earnings	359	(1)
Analysis of Shareholders' Equity	359	(3)
Business Risks	362	(18)
Summary Problem: Tom's Wear Goes Public	362	(7)
Understanding Excel	369	(11)
Preparing the Statement of Cash Flows	380	(34)
Importance of the Statement of Cash Flows	382	(1)
Understanding Business: It's All About Cash Flow	383	(1)
Two Methods of Preparing and Presenting the Statement of Cash Flows	384	(1)
Review of the Three Sections of the Statement of Cash Flows	385	(1)
Accrual Accounting versus Cash	386	(2)
Preparing the Statement of Cash Flows	388	(6)
Direct Method of Computing Cash from Operations	388	(2)
Indirect Method of Computing Cash from Operations	390	(2)
Cash from Investing and Financing Activities	392	(2)
Summary of Direct and Indirect Methods	394	(1)
Financial Statement Analysis	394	(20)
Summary Problem: Tom's Wear for April 2001 Revisited	396	(3)
Understanding Excel	399	(15)
Financial Statement Analysis	414
Financial Information: Looking Beneath the Surface	416	(1)
Closer Look at the Income Statement	416	(3)
Discontinued Operations	417	(1)
Extraordinary Items	418	(1)
Understanding Business: Ordinary Extraordinary Items?	419	(2)
Changes in Accounting Principle	419	(2)
Other Financial Statement Items	421	(2)
Comprehensive Income	421	(1)
Investments in Securities	421	(2)
Analysis of Financial Information	423	(11)
Horizontal Analysis	424	(1)
Vertical Analysis	424	(1)
Ratio Analysis	425	(9)
Conclusion	434
Summary Problem: Analysis of the Financial Tom's Wear	434	(3)
Understanding Excel	437
Appendix A Aual Report of Pier 1 Imports	A-1
Appendix B Present and Future Value Tables	B-1
Appendix C Check Figures for End-of Chapter Problems	C-1
Glossary	G-1
Subject Index	I-1