Financial And Managerial Accounting

by Warren, Carl S.

• ISBN13: 9780324188011
• ISBN10: 0324188013
• Format: Hardcover
• Copyright: 2004-02-09
• Publisher: South-Western College Pub

Summary

Ideal for first-year accounting courses, this market dominating text presents balanced coverage of both financial and managerial topics. In this text, the authors refine their proven approach to accounting's expanding role in business. This text uses the preparation of financial statements as the framework for understanding what accounting is all about.

Table of Contents

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	(1)
Business Entity Concept	13	(1)
The Cost Concept	13	(1)
Assets, Liabilities, and Owner's Equity	13	(1)
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)
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)
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)
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.
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	(27)
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.
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)
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)
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)
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	(2)
Stages of Acquiring Fixed Assets	364	(1)
Fixed Asset Components	365	(1)
Disposal of Fixed Assets	366	(4)
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)
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.
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)
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.
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	(21)
Amortization of Discount by the Interest Method	539	(1)
Amortization of Premium by the Interest Method	540	(15)
Comprehensive Problem 4	555	(5)
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	(31)
Work Sheet---Indirect Method	580	(3)
Work Sheet---Direct Method	583	(28)
Financial Statement Analysis	611	(46)
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	(29)
Management Discussion and Analysis	630	(1)
Independent Auditors' Report	630	(27)
Introduction to Managerial Accounting and Job Order Cost Systems	657	(46)
The Differences Between Managerial and Financial Accounting	658	(1)
The Management Accountant in the Organization	659	(1)
Manufacturing Cost Terms	660	(2)
Materials	660	(1)
Factory Labor	661	(1)
Factory Overhead Cost	662	(1)
Cost Accounting System Overview	662	(1)
Job Order Cost Systems for Manufacturing Businesses	663	(11)
Materials	663	(2)
Factory Labor	665	(2)
Factory Overhead Cost	667	(3)
Work in Process	670	(1)
Finished Goods and Cost of Goods Sold	671	(1)
Sales	671	(1)
Period Costs	672	(1)
Summary of Cost Flows for Goodwell Printers	672	(2)
Job Order Costing for Decision Making	674	(2)
Job Order Cost Systems for Professional Service Businesses	676	(27)
Practice Set: Dynamic Designs, Inc.
This set is a manufacturing business operated as a corporation that uses a job order cost system. The set can be solved manually or with the P.A.S.S. software.
Process Cost Systems	703	(42)
Comparing Job Order Costing and Process Costing	704	(2)
Physical Flows and Cost Flows for a Process Manufacturer	706	(2)
The First-In, First-Out (Fifo) Method	708	(6)
Step 1: Determine the Units to Be Assigned Costs	708	(2)
Step 2: Calculate Equivalent Units of Production	710	(1)
Step 3: Determine the Cost per Equivalent Unit	711	(2)
Step 4: Allocate Costs to Transferred and Partially Completed Units	713	(1)
Bringing It All Together: The Cost of Production Report	714	(1)
Journal Entries for a Process Cost System	715	(1)
Using the Cost of Production Report for Decision Making	716	(2)
Just-in-Time Processing	718	(1)
Appendix: Average Cost Method	719	(26)
Determining Cost Under the Average Cost Method	720	(2)
The Cost of Production Report	722	(23)
Cost Behavior and Cost-Volume-Profit Analysis	745	(42)
Cost Behavior	746	(5)
Variable Costs	746	(2)
Fixed Costs	748	(1)
Mixed Costs	748	(2)
Summary of Cost Behavior Concepts	750	(1)
Cost-Volume-Profit Relationships	751	(2)
Contribution Margin Concept	751	(2)
Mathematical Approach to Cost-Volume-Profit Analysis	753	(5)
Break-Even Point	754	(3)
Target Profit	757	(1)
Graphic Approach to Cost-Volume-Profit Analysis	758	(4)
Cost-Volume-Profit (Break-Even) Chart	758	(2)
Profit-Volume Chart	760	(1)
Use of Computers in Cost-Volume-Profit Analysis	761	(1)
Sales Mix Considerations	762	(2)
Special Cost-Volume-Profit Relationships	764	(3)
Operating Leverage	764	(2)
Margin of Safety	766	(1)
Assumptions of Cost-Volume-Profit Analysis	767	(20)
Profit Reporting for Management Analysis	787	(46)
The Income Statement Under Variable Costing and Absorption Costing	788	(5)
Income from Operations When Units Manufactured Equal Units Sold	790	(1)
Income from Operations When Units Manufactured Exceed Units Sold	790	(1)
Income from Operations When Units Manufactured Are Less than Units Sold	791	(1)
Comparing Income from Operations Under the Two Concepts	792	(1)
Income Analysis Under Variable Costing and Absorption Costing	793	(2)
Management's Use of Variable Costing and Absorption Costing	795	(3)
Controlling Costs	795	(2)
Pricing Products	797	(1)
Planning Production	797	(1)
Analyzing Market Segments	797	(1)
Contribution Margin Reporting for Market Segments	798	(3)
Sales Territory Profitability Analysis	798	(1)
Product Profitability Analysis	799	(1)
Salesperson Profitability Analysis	800	(1)
Contribution Margin Analysis	801	(2)
Contribution Margin Reporting and Analysis for Service Firms	803	(30)
Contribution Margin Report	803	(2)
Market Segment Analysis	805	(1)
Contribution Margin Analysis	805	(28)
Budgeting	833	(46)
Nature and Objectives of Budgeting	834	(3)
Objectives of Budgeting	834	(2)
Human Behavior and Budgeting	836	(1)
Budgeting Systems	837	(4)
Static Budget	838	(1)
Flexible Budget	839	(1)
Computerized Budgeting Systems	840	(1)
Master Budget	841	(1)
Income Statement Budgets	842	(7)
Sales Budget	842	(1)
Production Budget	843	(1)
Direct Materials Purchases Budget	843	(2)
Direct Labor Cost Budget	845	(1)
Factory Overhead Cost Budget	846	(1)
Cost of Goods Sold Budget	846	(1)
Selling and Administrative Expenses Budget	846	(1)
Budgeted Income Statement	847	(2)
Balance Sheet Budgets	849	(30)
Cash Budget	849	(3)
Capital Expenditures Budget	852	(1)
Budgeted Balance Sheet	852	(27)
Performance Evaluation Using Variances from Standard Costs	879	(36)
Standards	880	(2)
Setting Standards	880	(1)
Types of Standards	880	(1)
Reviewing and Revising Standards	881	(1)
Support and Criticism of Standards	882	(1)
Budgetary Performance Evaluation	882	(2)
Direct Materials Variances	884	(2)
Direct Materials Price Variance	885	(1)
Direct Materials Quantity Variance	885	(1)
Direct Materials Variance Relationships	885	(1)
Reporting Direct Materials Variances	886	(1)
Direct Labor Variances	886	(2)
Direct Labor Rate Variance	886	(1)
Direct Labor Time Variance	887	(1)
Direct Labor Variance Relationships	887	(1)
Reporting Direct Labor Variances	887	(1)
Factory Overhead Variances	888	(5)
The Factory Overhead Flexible Budget	888	(1)
Variable Factory Overhead Controllable Variance	889	(1)
Fixed Factory Overhead Volume Variance	889	(2)
Reporting Factory Overhead Variances	891	(1)
Factory Overhead Variances and the Factory Overhead Account	892	(1)
Recording and Reporting Variances from Standards	893	(2)
Standards for Nonmanufacturing Expenses	895	(1)
Nonfinancial Performance Measures	895	(20)
Performance Evaluation for Decentralized Operations	915	(40)
Centralized and Decentralized Operations	916	(1)
Advantages of Decentralization	916	(1)
Disadvantages of Decentralization	917	(1)
Responsibility Accounting	917	(1)
Responsibility Accounting for Cost Centers	917	(2)
Responsibility Accounting for Profit Centers	919	(4)
Service Department Charges	920	(2)
Profit Center Reporting	922	(1)
Responsibility Accounting for Investment Centers	923	(6)
Rate of Return on Investment	923	(4)
Residual Income	927	(1)
The Balanced Scorecard	928	(1)
Transfer Pricing	929	(26)
Market Price Approach	930	(1)
Negotiated Price Approach	931	(1)
Cost Price Approach	931	(24)
Differential Analysis and Product Pricing	955	(38)
Differential Analysis	956	(8)
Lease or Sell	957	(1)
Discontinue a Segment or Product	958	(2)
Make or Buy	960	(2)
Replace Equipment	962	(1)
Process or Sell	963	(1)
Accept Business at a Special Price	963	(1)
Setting Normal Product Selling Prices	964	(7)
Total Cost Concept	965	(2)
Product Cost Concept	967	(1)
Variable Cost Concept	968	(1)
Choosing a Cost-Plus Approach Cost Concept	969	(1)
Activity-Based Costing	969	(1)
Target Costing	969	(2)
Product Profitability and Pricing Under Production Bottlenecks	971	(22)
Product Profitability Under Production Bottlenecks	971	(1)
Product Pricing Under Production Bottlenecks	972	(21)
Capital Investment Analysis	993	(13)
Nature of Capital Investment Analysis	994	(1)
Methods of Evaluating Capital Investment Proposals	995	(9)
Methods that Ignore Present Value	995	(2)
Present Value Methods	997	(7)
Factors that Complicate Capital Investment Analysis	1004	(2)
Income Tax	1004	(1)
Unequal Proposal Lives	1004	(1)
Lease versus Capital Investment	1005	(1)
Uncertainty	1006	(1)
Changes in Price Levels	1006	(1)
Qualitative Considerations	1006