Using Financial Accounting Information The Alternative to Debits & Credits

by Porter, Gary A.; Norton, Curtis L.

• ISBN13: 9780324645101
• ISBN10: 0324645104
• Edition: 5th
• Format: Hardcover
• Copyright: 2007-02-21
• Publisher: South-Western College Pub

Summary

USING FINANCIAL ACCOUNTING INFORMATION is a user-oriented text known for its strong decision-making focus, and the incorporation of flagship companies within a more traditional, balance sheet organization. Transactions, which as presented in a spreadsheet (accounting equation) format, are used to help students gain a better conceptual understanding of their impact on financial information.

Table of Contents

Introduction: Getting Started in Business	p. 2
The Finish Line, Inc.: Making Business Decisions	p. 3
What Is Business?	p. 4
Forms of Organization	p. 5
Business Entities	p. 5
Nonbusiness Entities	p. 7
Organizations and Social Responsibility	p. 7
The Nature of Business Activity	p. 7
Financing Activities	p. 7
Investing Activities	p. 8
Operating Activities	p. 8
Starting Your Study of Accounting	p. 9
Accounting as a Form of Communication	p. 12
The Finish Line, Inc.: Making Business Decisions	p. 13
What Is Accounting?	p. 14
Users of Accounting Information and Their Needs	p. 15
Internal Users	p. 15
External Users	p. 15
Using Financial Accounting Information	p. 16
Using the Ratio Decision Model: A Financial Decision Framework	p. 17
Financial Statements: How Accountants Communicate	p. 18
The Accounting Equation	p. 18
The Balance Sheet	p. 18
The Income Statement	p. 19
The Statement of Retained Earnings	p. 20
The Statement of Cash Flows	p. 21
Relationships Among the Financial Statements	p. 22
Looking at Financial Statements for a Real Company: Finish Line	p. 23
Finish Line's Balance Sheet	p. 23
Finish Line's Income Statement	p. 23
The Conceptual Framework: Foundation for Financial Statements	p. 26
Conceptual Framework for Accounting	p. 26
Economic Entity Concept	p. 26
Cost Principle	p. 26
Going Concern	p. 26
Time Period Assumption	p. 27
Generally Accepted Accounting Principles	p. 27
Accounting as a Social Science	p. 27
Who Determines the Rules of the Game?	p. 28
Introduction to Ethics in Accounting	p. 28
Accountants and Ethical Judgments	p. 31
The Changing Face of the Accounting Profession	p. 31
The Accounting Profession	p. 32
Employment by Private Business	p. 32
Employment by Nonbusiness Entities	p. 33
Employment in Public Accounting	p. 33
Accountants in Education	p. 35
Accounting as a Career	p. 35
Each chapter contains some or all of the following end-of-chapter material
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Financial Statements and the Annual Report	p. 58
The Finish Line, Inc.: Making Business Decisions	p. 59
What Financial Statements Tell about a Business	p. 61
Objectives of Financial Reporting	p. 61
The Primary Objective of Financial Reporting	p. 61
Secondary Objectives of Financial Reporting	p. 62
What Makes Accounting Information Useful? Qualitative Characteristics	p. 62
Understandability	p. 63
Relevance	p. 63
Reliability	p. 63
Comparability and Consistency	p. 64
Materiality	p. 64
Conservatism	p. 65
Financial Reporting: An International Perspective	p. 65
Looking at Financial Statements	p. 66
What Are the Parts of the Balance Sheet? Understanding the Operating Cycle	p. 66
The Classified Balance Sheet	p. 67
Current Assets	p. 67
Noncurrent Assets	p. 68
Current Liabilities	p. 69
Long-Term Liabilities	p. 70
Stockholders' Equity	p. 70
Using a Classified Balance Sheet: Introduction to Ratios	p. 71
Working Capital	p. 71
Current Ratio	p. 72
The Income Statement	p. 73
What Appears on the Income Statement?	p. 73
Format of the Income Statement	p. 73
Using an Income Statement	p. 76
The Statement of Retained Earnings	p. 76
The Statement of Cash Flows	p. 77
Looking at Financial Statements for a Real Company: The Finish Line, Inc.	p. 78
Finish Line's Condensed Balance Sheet	p. 79
Using the Ratio Decision Model: Analyzing the Current Ratio	p. 80
Finish Line's Income Statement	p. 81
Using the Ratio Decision Model: Analyzing the Profit Margin	p. 82
Other Elements of an Annual Report	p. 82
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Processing Accounting Information	p. 104
Foot Locker, Inc.: Making Business Decisions	p. 105
Economic Events: The Basis for Recording Transactions	p. 106
External and Internal Events	p. 106
The Role of Source Documents in Recording Transactions	p. 107
Analyzing the Effects of Transactions on the Accounting Equation	p. 107
Balance Sheet and Income Statement for Glengarry Health Club	p. 111
What Is an Account?	p. 113
Chart of Accounts	p. 113
The General Ledger	p. 113
Processing Accounting Information	p. 114
Accounting Tools: The Double-Entry System	p. 116
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Income Measurement and Accrual Accounting	p. 152
Foot Locker, Inc.: Making Business Decisions	p. 153
Recognition and Measurement in Financial Statements	p. 155
Recognition	p. 155
Measurement	p. 155
Summary of Recognition and Measurement in Financial Statements	p. 157
The Accrual Basis of Accounting	p. 157
Comparing the Cash and Accrual Bases of Accounting	p. 157
What the Income Statement and the Statement of Cash Flows Reveal	p. 158
Accrual Accounting and Time Periods	p. 159
The Revenue Recognition Principle	p. 160
Expense Recognition and the Matching Principle	p. 161
Accrual Accounting and Adjustments	p. 163
Types of Adjustments	p. 163
Accruals and Deferrals	p. 168
Summary of Adjustments	p. 169
Comprehensive Example of Adjustments	p. 170
Adjustments at the End of January	p. 170
Income Statement and Balance Sheet for Duffy Transit	p. 172
Ethical Considerations for a Company on the Accrual Basis	p. 173
The Accounting Cycle	p. 174
The Use of a Work Sheet	p. 175
The Closing Process	p. 175
Interim Financial Statements	p. 175
Integrative Problem	p. 200
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Inventories and Cost of Goods Sold	p. 202
The Finish Line, Inc.: Making Business Decisions	p. 203
The Nature of Inventory	p. 204
Three Types of Inventory Cost and Three Forms of Inventory	p. 205
The Income Statement for a Merchandiser	p. 206
Net Sales of Merchandise	p. 207
Sales Returns and Allowances	p. 207
Credit Terms and Sales Discounts	p. 208
The Cost of Goods Sold	p. 208
The Cost of Goods Sold Model	p. 208
Inventory Systems: Perpetual and Periodic	p. 210
Beginning and Ending Inventories in a Periodic System	p. 211
The Cost of Goods Purchased	p. 211
The Gross Profit Ratio	p. 215
Using the Ratio Decision Model: Analyzing the Gross Profit Ratio	p. 216
Inventory Valuation and the Measurement of Income	p. 217
Inventory Costs: What Should Be Included?	p. 217
Inventory Costing Methods with a Periodic System	p. 218
Specific Identification Method	p. 219
Weighted Average Cost Method	p. 220
First-in, First-out Method (FIFO)	p. 220
Last-in, First-out Method (LIFO)	p. 221
Selecting an Inventory Costing Method	p. 221
Costing Methods and Cash Flow	p. 222
LIFO Liquidation	p. 223
The LIFO Conformity Rule	p. 223
The LIFO Reserve: Estimating LIFO's Effect on Income and on Taxes Paid	p. 224
Costing Methods and Inventory Profits	p. 224
Changing Inventory Methods	p. 225
Inventory Valuation in Other Countries	p. 225
Inventory Errors	p. 226
Valuing Inventory at Lower of Cost or Market	p. 229
Why Replacement Cost Is Used as a Measure of Market	p. 229
Conservatism Is the Basis for the Lower-of-Cost-or-Market Rule	p. 230
Application of the LCM Rule	p. 231
Methods for Estimating Inventory Value	p. 231
Gross Profit Method	p. 231
Retail Inventory Method	p. 233
Analyzing the Management of Inventory	p. 233
Using the Ratio Decision Model: Analyzing the Management of Inventory	p. 234
How Inventories Affect the Cash Flows Statement	p. 235
Accounting Tools: Inventory Costing Methods with the Use of a Perpetual Inventory System	p. 236
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Cash and Internal Control	p. 270
The Finish Line, Inc.: Making Business Decisions	p. 271
What Constitutes Cash?	p. 272
Cash Equivalents and the Statement of Cash Flows	p. 272
Control over Cash	p. 273
Cash Management	p. 273
Reading a Bank Statement	p. 273
The Bank Reconciliation	p. 276
The Bank Reconciliation and the Need for Adjustments to the Records	p. 278
Establishing a Petty Cash Fund	p. 278
An Introduction to Internal Control	p. 279
The Sarbanes-Oxley Act of 2002	p. 279
The Control Environment	p. 282
The Accounting System	p. 282
Internal Control Procedures	p. 283
Limitations on Internal Control	p. 284
Computerized Business Documents and Internal Control	p. 285
Control over Cash Receipts	p. 286
The Role of Computerized Business Documents in Controlling Cash Disbursements	p. 287
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Investments and Receivables	p. 304
Apple Computer Company: Making Business Decisions	p. 305
Accounting for Investments	p. 306
Investments in Highly Liquid Financial Instruments	p. 307
Investing Idle Cash	p. 307
Accounting for an Investment in a Certificate of Deposit (CD)	p. 307
Investments in Stocks and Bonds	p. 308
Accounts Receivable	p. 310
The Use of a Subsidiary Ledger	p. 310
The Valuation of Accounts Receivable	p. 311
Two Methods to Account for Bad Debts	p. 311
Write-Offs of Uncollectible Accounts with the Allowance Method	p. 312
Two Approaches to the Allowance Method of Accounting for Bad Debts	p. 313
The Accounts Receivable Turnover Ratio	p. 316
Using the Ratio Decision Model: Analyzing the Accounts Receivable Rate of Collection	p. 316
Notes Receivable	p. 318
Important Terms Connected with Promissory Notes	p. 318
Accelerating the Inflow of Cash from Sales	p. 320
Credit Card Sales	p. 320
Discounting Notes Receivable	p. 321
How Liquid Assets Affect the Statement of Cash Flows	p. 321
Accounting for Investments in Stocks and Bonds	p. 323
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Operating Assets: Property, Plant, and Equipment, Natural Resources, and Intangibles	p. 348
Nike: Making Business Decisions	p. 349
Operating Assets: Property, Plant, and Equipment	p. 350
Balance Sheet Presentation	p. 350
Acquisition of Property, Plant, and Equipment	p. 351
Use and Depreciation of Property, Plant, and Equipment	p. 353
Capital versus Revenue Expenditures	p. 358
Environmental Aspects of Operating Assets	p. 360
Disposal of Property, Plant, and Equipment	p. 360
Operating Assets: Natural Resources	p. 361
Balance Sheet Presentation	p. 361
Depletion of Natural Resources	p. 361
Operating Assets: Intangible Assets	p. 362
Balance Sheet Presentation	p. 363
Acquisition Cost of Intangible Assets	p. 364
Amortization of Intangibles	p. 365
How Long-Term Assets Affect the Statement of Cash Flows	p. 367
Analyzing Long-Term Assets for Average Life and Asset Turnover	p. 368
Using the Ratio Decision Model: Analyzing Average Life and Asset Turnover	p. 369
Integrative Problem	p. 389
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Current Liabilities, Contingencies, and the Time Value of Money	p. 392
Jacuzzi: Making Business Decisions	p. 393
Current Liabilities	p. 395
Accounts Payable	p. 396
Notes Payable	p. 396
Current Maturities of Long-Term Debt	p. 398
Taxes Payable	p. 398
Other Accrued Liabilities	p. 398
Reading the Statement of Cash Flows for Changes in Current Liabilities	p. 399
Contingent Liabilities	p. 401
Contingent Liabilities That Are Recorded	p. 401
Contingent Liabilities That Are Disclosed	p. 402
Contingent Liabilities versus Contingent Assets	p. 404
Time Value of Money Concepts	p. 405
Simple Interest	p. 406
Compound Interest	p. 406
Interest Compounding	p. 406
Future Value of a Single Amount	p. 407
Present Value of a Single Amount	p. 409
Future Value of an Annuity	p. 410
Present Value of an Annuity	p. 412
Solving for Unknowns	p. 413
Accounting Tools: Payroll Accounting	p. 419
Accounting Tools: Using Excel for Problems Involving Interest Calculations	p. 423
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Long-Term Liabilities	p. 454
Coca-Cola: Making Business Decisions	p. 455
Balance Sheet Presentation	p. 457
Bonds Payable	p. 458
Characteristics of Bonds	p. 458
Issuance of Bonds	p. 460
Factors Affecting Bond Price	p. 460
Premium or Discount on Bonds	p. 462
Bond Amortization	p. 464
Redemption of Bonds	p. 467
Liability for Leases	p. 469
Leases	p. 469
Analyzing Debt to Assess a Firm's Ability to Pay Its Liabilities	p. 473
How Long-Term Liabilities Affect the Statement of Cash Flows	p. 474
Using the Ratio Decision Model: Analyzing the Debt-to-Equity and Times Interest Earned Ratios	p. 474
Accounting Tools: Other Liabilities	p. 476
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Stockholders' Equity	p. 498
Jacuzzi: Making Business Decisions	p. 499
An Overview of Stockholders' Equity	p. 500
Equity as a Source of Financing	p. 500
Stockholders' Equity on the Balance Sheet	p. 501
How Income and Dividends Affect Retained Earnings	p. 502
Identifying the Components of the Stockholders' Equity Section of the Balance Sheet	p. 502
What Is Preferred Stock?	p. 505
Issuance of Stock	p. 506
Stock Issued for Cash	p. 506
Stock Issued for Noncash Consideration	p. 506
What Is Treasury Stock?	p. 507
Retirement of Stock	p. 508
Dividends: Distribution of Income to Shareholders	p. 509
Cash Dividends	p. 509
Cash Dividends for Preferred and Common Stock	p. 509
Stock Dividends	p. 510
Stock Splits	p. 512
Statement of Stockholders' Equity	p. 513
What Is Comprehensive Income?	p. 514
What Analyzing Stockholders' Equity Reveals About a Firm's Value	p. 516
Book Value per Share	p. 516
Using the Ratio Decision Model: Analyzing Book Value per Share	p. 516
Calculating Book Value When Preferred Stock Is Present	p. 518
Market Value per Share	p. 519
How Changes in Stockholders' Equity Affect the Statement of Cash Flows	p. 519
Accounting Tools: Unincorporated Businesses	p. 521
Integrative Problem	p. 547
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
The Statement of Cash Flows	p. 550
Best Buy: Making Business Decisions	p. 551
Cash Flows and Accrual Accounting	p. 553
Purpose of the Statement of Cash Flows	p. 554
An Example	p. 554
Reporting Requirements for a Statement of Cash Flows	p. 555
The Definition of Cash: Cash and Cash Equivalents	p. 556
Classification of Cash Flows	p. 557
Two Methods of Reporting Cash Flow from Operating Activities	p. 560
Noncash Investing and Financing Activities	p. 562
How the Statement of Cash Flows Is Put Together	p. 564
The Accounting Equation and the Statement of Cash Flows	p. 564
An Approach to Preparing the Statement of Cash Flows: Direct Method	p. 565
An Approach to Preparing the Statement of Cash Flows: Indirect Method	p. 575
Comparison of the Indirect and Direct Methods	p. 576
The Use of Cash Flow Information	p. 577
Creditors and Cash Flow Adequacy	p. 577
Using the Ratio Decision Model: Analyzing Cash Flow Adequacy	p. 578
Stockholders and Cash Flow per Share	p. 580
Accounting Tools: A Work-Sheet Approach to the Statement of Cash Flows	p. 580
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Financial Statement Analysis	p. 612
Wm. Wrigley Jr. Company: Making Business Decisions	p. 613
Precautions in Statement Analysis	p. 614
Watch for Alternative Accounting Principles	p. 614
Take Care When Making Comparisons	p. 614
Understand the Possible Effects of Inflation	p. 615
Analysis of Comparative and Common-Size Statements	p. 616
Horizontal Analysis	p. 616
Vertical Analysis	p. 621
Liquidity Analysis and the Management of Working Capital	p. 623
Working Capital	p. 623
Current Ratio	p. 624
Acid-Test Ratio	p. 624
Cash Flow from Operations to Current Liabilities	p. 625
Accounts Receivable Analysis	p. 626
Inventory Analysis	p. 627
Cash Operating Cycle	p. 628
Solvency Analysis	p. 628
Debt-to-Equity Ratio	p. 628
Times Interest Earned	p. 629
Debt Service Coverage	p. 629
Cash Flow from Operations to Capital Expenditures Ratio	p. 630
Profitability Analysis	p. 631
Rate of Return on Assets	p. 631
Components of Return on Assets	p. 632
Return on Common Stockholders' Equity	p. 633
Return on Assets, Return on Equity, and Leverage	p. 633
Earnings per Share	p. 634
Price/Earnings Ratio	p. 635
Dividend Ratios	p. 636
Summary of Selected Financial Ratios	p. 636
Accounting Tools: Reporting and Analyzing Other Income Statement Items	p. 638
Integrative Problem	p. 671
Study Highlights
Ratio Review
Accounts Highlighted
Key Terms Quiz
Alternate Terms
Warmup Exercises & Solutions
Review Problem & Solution
Questions
Exercises
Multi-Concept Exercises
Problems
Multi-Concept Problems
Alternate Problems
Alternate Multi-Concept Problems
Decision Cases
Solutions to Key Terms Quiz
Excerpts from the Finish Line, Inc., Form 10-K for 2006	p. A-1
Excerpts from Foot Locker, Inc., Form 10-K for 2005	p. B-1
Glossary	p. G-1
Comprehensive Index	p. I-1
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