Subject Index

A

Accelerated-depreciation method, 418, 435

Account(s). See also specific accounts

chart of, 62–63, 76

defined, 76

and recording process, 52–57

separate, 220

Accounting, 2–31. See also specific headings

assumptions in, 9–10

careers in, 11, 29–31

defined, 28

ethics in, 6–7

purpose of, 4–5

standards for, 8

terminology, 28–29

users of accounting data, 5–6

Accounting cycle, 156–183

adjusting entries in, 159–161

closing entries in, 164–168

completion of, 206–207, 224–226

correcting entries in, 171–173

and equity, 178

financial statements in, 161–163

illustration of, 170–171

post-closing trial balance in, 168–170

reversing entries in, 171, 183–185

standards in, 206–207

statements of financial position in, 173–180

terminology, 183

worksheets in, 158–163

Accounting principle, 708, 713, 733

Accounting reports, 4

Accounts payable:

decrease in, 653

increase in, 633, 646

as liabilities, 12

in merchandising operations, 215

payment of, 19

Accounts Payable account, 633, 653, G2

Accounts payable subsidiary ledgers, G1, G19

Accounts receivable, 370–379

in accrual accounting process, 632

decreases in, 632–633, 645, 647

defined, 368, 388

disposing of, 376–379

in merchandising operations, 219–222

recognition of, 369

valuation of, 370–376

Accounts Receivable account, 632–633, G1, G3, G5

Accounts receivable subsidiary ledgers, G1, G19

Accounts receivable turnover ratio, 385, 388, 697–698, 712

Account titles, 58–59

Accruals:

adjusting entries for, 100–102, 109–114

defined, 122

of interest receivable, 382–383

Accrual-basis accounting:

cash-basis accounting vs., 98

defined, 122

and GAAP, 153

and IFRS, 630–631

for postretirement benefits, H7

Accrued expenses, 110–114, 122, 184, 654

Accrued interest, 111

Accrued revenues, 109–110, 122, 184

Accumulated depletion, 427

Accumulated depreciation, 175, 644, 646

Acid-test (quick) ratio, 696–697, 704, 712

Acquisitions, 423, 428, 534, 582–583, 586–589

Additions, 422, 435

Adjustable-rate notes, 477

Adjusted trial balance, 117–119, 239, 628

Adjusting accounts, 94–122

adjusted trial balance in, 117–119

adjusting entries in, 100–116

and adjustments on worksheets, 159

and financial statements, 118–120

in merchandising operations, 238–239

and prepaid expenses, 122–124

standards for, 153–154

terminology, 122

timing issues with, 98–100

and unearned revenues, 124–125

worksheets for, 159

Adjusting entries, 100–116

in accounting cycle, 159–161

for accruals, 100–102, 109–114

and bank reconciliation, 338–339

correcting vs., 172

for deferrals, 102–109

defined, 122

for investments, 591–593

journalizing and posting of, 115–116

in merchandising operations, 224

in special journals, G4

types of, 101, 183

Advertising:

as prepaid expense, 102, 103, 123–124

in transaction analysis, 18

on websites, 96

Affiliated companies, 588, 599, 603

Aging schedules, 375

Aging the accounts receivable, 375, 388

Airlines, 106

Allowances:

purchase, 217, 233, 235–236

sales, 221, 233, 235–236

Allowance for Doubtful Accounts, 372–376, 383, 385, 388

Allowance method (uncollectible amounts), 372–376, 388

Amortization:

bond, 488–495

defined, 435

intangible assets, 428–431

on statements of financial position, 432

Amortized costs, 371n.1, 406. See also Cash (net) realizable value

Analysis:

financial statement, see Financial statement analysis

ratio, see Ratio analysis

of reported information, 4–5

transaction, 15–20, 48, 63–68

Annual depletion expense, 426–427

Annual interest rates, 381, 486, E1, E11

Annuities, 485–486

defined, E19

future value of, E4–E6, E19

present value of, E9–E11, E14, E17

Articles of incorporation, 523. See also Charters

Assets, 12

defined, 28, 48

depreciable, 413–414

intangible, 174–175

legal claim to, 380

and liabilities, 462

non-cash, 531

overstatement of, 102

plant, see Plant assets

purchasing of, 626

receivables as, 368, 370

in recording process, 53–54, 56

return on, 700

safeguarding of, 321, 323

on statements of financial positions, 24, 173–176, 692

Asset turnover ratio, 432, 435, 699–700, 704, 713

Associates, 586, 598

Assumption(s), 126–127

cost flow, 269–273, 311–312

economic entity, 10, 29, 127

going-concern, 127, 414, 435

monetary unit, 9, 29, 127

time period, 98, 122, 127, 153

Auditing:

careers in, 29–31

fees for, 364

internal auditors, 322–323, 344

of sustainability accounting policies, 317

Authorized shares, 525, 550, 554

Average collection period, 385, 388, 698

Average-cost inventory method, 269, 270

defined, 282

in periodic system, 272–274

in perpetual system, 283–284

B

Background checks, 323

Bad Debts Expense, 370–375, 381, 388

Balances (ledgers), 60

Balance sheets, 22, 94, 206, B3–B4. See also Statements of financial position

Banks:

deposits in, 333

earnings of, 582

and payroll accounting, F7

and real estate, 11

and reconciliation, 333, 336–339, 343

statements from, 334–338, 343

Bank reconciliation, 333, 336–339, 343

Bankruptcy, 520, 537

Bank service charges, 335, 339, 343

Bank statements, 334–338, 343

Bar coding, 269

Basic accounting equation, 12–14, 28

Bearer bonds, 468, 482

Benefits:

fringe, F8–F9, H6–H8

postretirement, H6–H9

Best-efforts contracts, 526n.2

Billing, by credit card companies, 377

Boards of directors, 468–469

for corporation management, 521

and dividends, 537, 539, 542

retained earnings restrictions created by, 547

Bonds:

advantages of, 467–468

and amortization, 488–495

borrowing with notes vs., 478

conversion of, 626

defined, 467, 482

discounts on, see Bond discounts

investment in, 583–585

issuance of, 468–470, 472–475

long-term, E11–E13

premiums on, see Bond premiums

redeeming of, 475–476

trading of, 470

types of, 468

value of, 470–473, 483–488

Bond certificates, 469–470, 482

Bond discounts:

amortization of, 488–490, 492–493

and interest rates, 472–473

issuance of bonds at discount, 473–474

Bond indenture, 469, 482

Bonding (internal control), 323, 343

Bond interest expense, 474, 488

Bond interest paid, 488

Bonds Payable account, 636, 646, 656

Bond premiums:

amortization of, 490–491, 493–494

and interest rates, 472–473

issuance of bonds at premium, 474–475

Bonuses, F2, F13

Bonus plans, 533

Book error, 339

Bookkeeping, 5, 29

Book of original entry, 58. See also Journals and journalizing

Book value:

of bonds, 474, 476

cost above, 601–602

cost equal to, 600, 601

defined, 122

fair value vs., 105

market value vs., 556–557

of plant assets, 414, 416–418, 423, 436–437

Book value per share, 555–557

Buffett, Warren, 545

Buildings, 411, 422, 636, 647, 655

Business documents, 57, 219

Business transactions, see Transactions

By-laws, 523

C

CAs (chartered accountants), 30

Calendar year, 98, 122

Callable bonds, 468, 482

Capital:

corporate, 521, 527–529

share, see Share capital

working, 466, 483, 696

Capital expenditures, 422, 435

Careers, accounting, 11, 29–31

Carrying value, 105, 474. See also Book value

Cash. See also Cash control(s); Net cash; Statements of cash flows

conserving, 622–623

as current asset, 176

defined, 343

disbursement of, 328–332, 339, G13

issuance of par value ordinary shares for, 530

liquidity of, 697

net change in, 637–639

purchase of inventory with, 215

receipt of, 64, 68

recording increases and decreases in, 53

reporting, 340–341

restricted, 341

in transaction analysis, 16–20

Cash account, 54, 637, G1–G2

Cash balance, 322, 688

Cash-basis accounting:

accrual-basis accounting vs., 98

defined, 122

and GAAP, 153

Cash control(s), 325–340

and bank deposits, 333

and bank statements, 334–336

and checks, 333–334

with electronic funds transfer systems, 339

with petty cash funds, 329–332

for receipt transactions, 325–328

reconciling bank account as, 336–339

standards for, 362–364

terminology, 343–344

with voucher systems, 328–329

Cash discounts, 369

Cash dividends, 538–542

as common form of distribution, 54

defined, 554

payout ratio for measurement of, 702–703

recording of, 586

Cash equivalents, 341, 343, 362–364

Cash flow statements, see Statements of cash flow

Cash payments journals, G11, G13–G15, G19

Cash purchase price, 410, 411

Cash (net) realizable value:

of accounts receivable, 371, 372

defined, 371, 388

of notes receivable, 382

Cash receipts, 325–328, 628, 651–652

Cash receipts journals, G7–G11, G19

Cash register tapes, 219

Cash-to-cash operating cycles, 377

CEOs (chief executive officers), 521

Certified public accountants (CPAs), 30

Changes in accounting principle, 708, 713, 733

Channel stuffing, 710

Charters (corporations), 523, 527, 554

Chartered accountants (CAs), 30

Chart of accounts, 62–63, 76

Checks:

and cash controls, 333–334

and debit memorandum, 335

mail receipts in form of, 327

NSF, 335, 339, 344

outstanding, 336, 344

payroll, F7–F8

Checking accounts, 333–336

Check register, 327

China, accounting standards of, 9

Classification:

of cash flows, 624–626

of expenses, 259

on income statements, 733

Classified statements of financial position, see Statements of financial position

Closing costs, 410

Closing entries:

in accounting cycle, 164–168

defined, 183

in merchandising operations, 224–225

in special journals, G4

Closing the books, 164–170

Collection (credit cards), 377

Collection agents, 463

Commercial substance, 436

Commissions, 112, F1

Common-size analysis, see Vertical analysis

Common stock, 94. See also Share capital

Communication:

as accounting activity, 4–5

in internal control, 317

Company officers, 5

Comparability of information, 126

Comparative analysis, 688. See also Financial statement analysis

Compensating balances, 343

Compensation, see Salaries; Wages

Complete information, 126

Component depreciation, 420, 435

Compounding periods, E17

Compound interest, E2–E4, E19

Compound interest tables, E3–E4

Compound journal entries, 59, 76

Comprehensive income, 229–230

defined, 233, 713

and financial statements, 595, 708–709

under IFRS, 733

and standards, 577–578

Computers, 51

Confirmatory value, of information, 126

Consigned goods, 267, 282

Consistency, 126, 275

Consistency principle, 282

Consolidated balance sheets, B3–B4, C2

Consolidated financial statements, 588–589, 598, 599–603, A1–A6, B1–B6, C1–C4, D1–D4

Consolidated income statements, 603, A3, B1, B6, C1

Consolidated statements of cash flows, A6, B5, C3, D4

Consolidated statements of changes in equity, A4–A5, B6, C4

Consolidated statements of comprehensive income, A3, B2, C1

Consolidated statements of earnings, comprehensive earnings, and retained earnings, D1

Consolidated statements of financial position, A1–A2, D2–D3

Constant percentage rate, 488

Consumerism, 210

Consumption, 210–211

Contingent liabilities, H1–H3, H8

Contra asset accounts, 105, 122, 164

Contractual agreements, 428

Contractual interest rate:

on bonds, 469, 472–473

defined, 482

Contractual restrictions, 547

Contra equity accounts, 533

Contra revenue accounts, 221, 222, 226, 233

Control accounts, G1–G3, G10, G16, G19

Control environment (internal control), 316

Controllers:

responsibilities of, 521

salaries of, 31

Controlling interest, 588, 598

Convergence, 29

Convertible bonds, 468, 482

Copyrights, 429–431, 435

Corporate social responsibility (CSR), 25

creating value, 177

selling green, 223

shareholder proposals for, 529

sustainability reporting, 317, 427

Corporation(s), 518–554

and book value per share, 555–557

capital in, 527–529

characteristics of, 520–522

classification of, 520

defined, 10, 29, 520, 554

and dividends, 538–546

equity in, 178

formation of, 523

international differences in, 47–48

investment by, 582

long-term financing of, 468

ordinary shares of, 524, 529–532

ownership of, 524–525

preference shares of, 536–537

retained earnings of, 546–552

share issue considerations in, 524–527

standards for, 577–578

terminology, 554

treasury shares of, 532–536

Correcting entries:

in accounting cycle, 171–173

defined, 183

in special journals, G4

Cost(s):

depreciable, 415

flow of, 213–215

freight, 215–217, 235, 412

of inventory, 268

organization, 523, 554

of patents, 428–429

of plant assets, 410–413

of research and development, 430–431

and value, 414–415

weight-averaged unit, 272, 282

Cost above book value, 601–602

Cost allocation, 414

Cost constraint, 128

Cost equal to book value, 600, 601

Cost flow assumptions, 269–273, 311–312

Cost flow methods, 269–275, 282–285

Costing, inventory, 268–276, 311–312, 710

Cost method, 533, 586, 599

Cost of goods sold:

on income statements, 692

and inventory, 274, 276–277, 288–289

in merchandising operations, 212–214, 221, 233–234

Cost of Goods Sold account, G5, G7

Cost principle, 127. See also Historical cost principle

Coupon bonds, 468. See also Bearer bonds

CPAs (certified public accountants), 30

Credit(s) (Cr.):

in account, 52–53

accrued expenses, 111

accrued revenues, 109

on bank statements, 334–336

defined, 76

in ledgers, 60

notes receivable as, 368

purchase of inventory with, 215

in recording process, 52–54, 58

in transaction analysis, 17–19

in trial balance, 70–71

on worksheets, 161

Credit Balance, 52

Credit cards, 369, 377–378, 460–461

Crediting accounts, 52

Creditors:

claims of, 174

and earning power, 699

as external users, 6

and liabilities, 12

and limited liability, 520

long-term, 688, 703

short-term, 688, 695

Creditors’ subsidiary ledgers, G1

Credit terms, 218

CSR, see Corporate social responsibility

Cumulative dividend, 537, 554

Currencies:

countries and regions associated with, 9

and liquidity, 466

Currency signs, 72

Current assets:

defined, 183

non-cash, 632–634

and ratio analysis, 694, 697

on statements of financial position, 176–177, 207, 264, 592

Current liability(-ies), 462–467. See also specific current liabilities

analysis of, 466

changes in, 633–634

defined, 183, 462, 482

maturities of long-term debt, 464

and ratio analysis, 694

sales taxes payable, 463

statement presentation of, 465

on statements of financial position, 178–179

terminology, 482–483

unearned revenues, 463–464

Current ratio, 466, 482, 696, 704, 713

Customers:

and credit card sales, 377

as external users, 6

Customer deposits, 106

Customers’ subsidiary ledgers, G1, G19

D

Dassler, Adolf “Adi,” 518–519

Date of transaction, 58

Days in inventory (ratio), 279, 282, 699

Debenture bonds, 468, 482

Debit(s) (Dr.):

in account, 52–53

accrued expenses, 111

accrued revenues, 109

in allowance accounts, 376

on bank statements, 334–335

defined, 76

in ledgers, 60

in recording process, 52–54, 58

in trial balance, 70–71

on worksheets, 159, 161

Debit balance, 52

Debiting accounts, 52

Debts. See also Liability(-ies)

and current ratio, 696

uncollectible, 370–376

Debt covenants, 480

Debt investments, 583–585, 599

Debt to total assets ratio, 479, 482, 703, 705, 713

Declaration date (cash dividends), 539, 554

Declining-balance method (depreciation), 415, 417–419, 435

Deferrals:

adjusting entries for, 102–109

basic relationships for, 125

defined, 122

types of, 102

Deferred revenue, 107. See also Unearned revenue

Deficit, 547, 554

Defined-benefit pension plans, H7–H8

Defined-contribution pension plans, H7–H8

Delivery Expense account, 217

Depletion (natural resources), 426–427, 435

Deposits:

bank, 333

in transit, 336, 343

Deposit slips, 333

Depreciable cost, 415, 435

Depreciation, 413–421

accumulated, 175, 644, 646

as allocation concept vs. valuation concept, 104, 105

component, 420, 435

defined, 122, 413, 435

and income taxes, 420

and increase in equipment, 655–656

methods of, 415–419, 426, 428

and operating expenses, 654

periodic, 420–421

and plant asset disposal, 423–425

and prepaid expenses, 104–106

recognition of, 414

on statements of cash flow, 631

on statements of financial position, 432

and useful life, 414–416, 422–423

Depreciation schedule, 416

Diminishing-balance method (depreciation), 418n.1

Direct issuance of shares, 525

Direct method (statements of cash flows), 628, 643, 650–657

Directors, see Boards of directors

Direct-write off method (uncollectible amounts), 370–371, 388

Disbursement (cash), 328–332, 339, G13

Disclosure of contingent liabilities, H2–H3

Discontinued operations, 707, 713

Discount(s):

bond, see Bond discounts

cash, 369

and present value, E7–E9, E11, E14–E15

purchase, 218, 233, 236

sales, 222, 233, 236

Discounting the future amount, E7

Discount period, 218

Dishonored notes receivable, 383, 388

Dividends, 538–546

ability to pay, 624

cash, see Cash dividends

cash flows from, 625

defined, 29, 76, 538, 554

making decisions about paying, 541, 622–623

and preference shares, 536–537

in recording process, 54–55, 67

reporting, 538

and retained earnings, 13, 24, 547

share, 467, 542–546, 554

from share investments, 587–588, 691

share splits, 544–546

standards, 577–578

on statements of financial position, 595

terminology, 554

in transaction analysis, 20

on worksheets, 161

Dividends account, 118, 164–166, 539

Dividends in arrears, 537

Division of labor, G3, G4, G7. See also Segregation of duties

Documents:

business, 57, 219

prenumbered, 320, G5, G13

shipping, 320

Documentation:

for cash controls, 325–326, 329

for internal control, 320

Dot-com boom, 96

Double-entry accounting system, 53, 56, 60, 76, 93

Double taxation, 522

Dr., see Debit(s)

Dual posting, G16

Duties, segregation of, see Segregation of duties

E

Earnings:

gross, F1–F5, F10, F13

from investment income, 582

quality of, 709–711, 713

retained, see Retained earnings

statements of, F7, F13

Earnings per share (EPS), 701–702, 704, 713

Earning power, 706–709

Ebbers, Bernie, 423

Economic entity(-ies):

basic accounting equation for, 12

defined, 10

Economic entity assumption, 10, 29, 127

Economic events, 4–5

Effective-interest method (amortization), 488–492

EFTs, see Electronic funds transfers

Electronic funds transfers (EFTs), 339, 343, F7

Electronic product codes, 269, 279

Electronic spreadsheet programs, 158

Employees:

fraud committed by, 220–221, 316, 323, 324, F12

fringe benefits for, F8–F9, H6–H8

hiring of, 66, F12

salaries of, 112

Employee earnings record, F5, F13

Employee's Withholding Allowance Certificate (Form W-4), F4, F13

Employer taxes, F8–F11

The End of Work (Jeremy Rifkin), 210

Environmental responsibility, 25

EPS, see Earnings per share

Equipment:

in accounting cycle, 175

changes in, 636, 647

exchange of, 436

increase in, 655–656

as plant asset, 411–413

sale of, 654

in transaction analysis, 16–17, 64

Equipment account, 636

Equity, 12–14, 527–529. See also Statements of changes in equity

and accounting cycle, 178

book value per share, 555

changes in, B6

and comprehensive income, 708, 709

defined, 29, 48, 183

and issuance of shares, 525, 527

in recording process, 54–55

and retained earnings, 15–16, 546, 547

and revenue, 17–18

and share dividends, 542–544

shareholders’, 94

standards, 577–578

on statements of financial position, 24, 174, 527, 549–551

with treasury shares, 533–535

Equity accounts, 543, 546, 554

Equity method, 587, 592, 599

Equity transactions, 534

Errors, 50–51

and bank reconciliation, 336–339

correction of, 171–173

internal controls for detecting, 154

inventory, 276–278

in merchandising operations, 224

transposition, 71

trial balance for uncovering, 70–72

Ethics, 6–7

abuse of revenue recognition principle, 100

acquisitions, 414

adjusting accounts, 96–97

adjusting entries, 111

artificially increasing cash from, 635

cash equivalent treatment, 341

changes in accounting principle, 708

corporations, 521

defined, 29

economic entity assumption, 10, 127

employee theft, 316, 324

falsifying inventory, 266

financial statement analysis, 708

fraudulent disbursements, 332

internal control, 331

inventories, 265, 269, 277

investing, 592, 593

irregularities, 71

lease accounting, H5

liabilities, 178–179, 469

natural resources, 426

not-for-profit organizations, 7

receivables, 368, 369

rewarding bonuses, F2

statements of cash flows, 624

Excel, 158

Exchange (assets), 436–437, 626

Exchanges (markets):

national securities, 520

trading of shares on, 526

Exclusive rights of use, 174

Expanded accounting equation, 29

Expenditures, 422–423

Expenses:

accrued, 110–114, 122, 184, 654

classification of, 259

defined, 29, 48

on income statements, 22

interest, 229, 474, 488

matching of revenues with, 375

operating, see Operating expenses

payment of, 19

payroll, F6–F9

prepaid, see Prepaid expenses

in recording process, 55

and retained earnings, 13

shifting of, 96–97

understatement of, 102

on worksheets, 161

Expense recognition principle, 99, 122

External transactions, 14

External users, 6

F

Face value (par value):

of bonds, 469, 470, 472–474, 486

defined, 482

present value of, 483–485

Factor, 377, 388

Fair trade practices, 25

Fair value:

defined, 599

and depreciation, 105, 424

fluctuations in, 708

of investments, 590–593

of leased property, H4–H5

principle of, 8, 29, 128, 229

and receivables, 406

revaluation to, 154

Fair value through profit or loss (FVPL) securities, 599

Faithful representation, 29, 126

FASB, see Financial Accounting Standards Board

Federal Insurance Contribution Act (FICA), F2–F3, F5, F8–F10, F13

Federal Unemployment Tax Act (FUTA), F9

Federal unemployment taxes, F9, F13

Fees, professional, F1, F13

FICA, see Federal Insurance Contribution Act

FIFO (first-in, first-out) inventory method, 269–275, 282, 283

Finance:

accounting careers in, 11

internal users in, 5–6

Finance directors, 5

Finance leases, H4–H5, H8–H9

Financial accounting:

abuses of, 96–97

defined, 29

Financial Accounting Standards Board (FASB), 8. See also Generally accepted accounting principles

accounting for financial instruments, 382

adjusting accounts, 153–154

defined, 29

equity, 578

financial statement analysis, 734

financial statement definitions, 93

and financial statement structure, 259

receivables, 406

single set of standards, 47

Financial calculators, E16–E18

Financial crisis, 541

Financial position statements, see Statements of financial position

Financial pressure, 316

Financial ratings organizations, 688

Financial ratios, 385

Financial scandals:

accounting opportunities following, 29–30

and ethics, 6–7

Financial statements. See also specific statements

in accounting cycle, 161–163

and adjusting accounts, 118–120

communication with, 4

consolidated, 588–589, 599–603, A1–A6, B1–B6, C1–C4, D1–D4

currency signs in, 72

and GAAP/IFRS, 153–154

and inventories, 273, 277–280

for merchandising operations, 226–230

prepaid expenses in, 102

structure of, 259

and timing, 98

Financial statement analysis, 686–713. See also Ratio analysis

of earning power, 706–709

horizontal analysis, 688–692

need for, 688

of quality of earnings, 709–711

standards for, 732–734

terminology, 712–713

vertical analysis, 688–689, 692–694

Financing activities:

classification of, 624–627

defined, 643

recording of, 636–637, 655–656

Financing charges (credit cards), 369

Finished goods inventory, 264, 282

First-in, first-out inventory method, see FIFO method

Fiscal year, 98, 122

Fixed assets, see Plant assets; Property, plant, and equipment

Fixed-rate mortgages, 477

Flowcharts, 326–327

Flow of costs, 213–215

FOB destination, see Free on board destination

FOB shipping point, see Free on board shipping point

Forensic accounting, 30–31

For-profit corporations, 520

Franchises, 429–430, 435

Fraud. See also Internal control

in accounting for receivables, 370

case studies, 318–323

debt-financed acquisitions, 423

defined, 316, 344

exercising share options, 532

factors contributing to, 316

in hiring, 466–467

inventory, 268, 277

overstating assets/understating liabilities, 637

payroll, F12

Ponzi schemes, 340

standards, 154, 362–364

terminology, 343–344

theft of merchandise, 220–221

using numeric relationships, 695

Fraud triangle, 316, 344

Free cash flow, 640–641, 643

Free on board (FOB) destination:

defined, 282

and inventory, 266

in merchandising operations, 216, 233

Free on board (FOB) shipping point:

defined, 282

and inventory, 266

in merchandising operations, 216, 233

Freight costs, 215–217, 235, 412

Freight-out account, 217

Fringe benefits, F8–F9, H6–H8

Full-disclosure principle, 128, H3

FUTA (Federal Unemployment Tax Act), F9

Future value:

of an annuity, E4–E6, E19

of a single amount, E2–E5, E19

FVPL (fair value through profit or loss) securities, 599

G

GAAP, see Generally accepted accounting principles

Gain on sale, 424–425

Geneen, Harold, 2

General journals, 58, 76, G16–G17. See also Journals and journalizing

General ledgers, 60, 76, G1–G3, G5, G9, G10. See also Ledgers

Generally accepted accounting principles (GAAP), 8, 29, 47–48

accounting cycle, 206–207

adjusting accounts, 153–154

effective-interest method, 492

equity, 577–578

financial statement analysis, 733–734

fraud, 362–364

internal controls, 362–364

inventory, 311–312

merchandising operations, 259–260

property, plant, and equipment, 456–457

receivables, 405–406

recording process, 93–94

Gift cards, 108

Going concern assumption, 127, 414, 435

Goods in transit, 266–267

Goodwill, 174, 428, 430, 435

Government:

accounting careers in, 30

regulation of corporations by, 521–522, F1

and sales taxes, 463

Government grants, 428

Government securities, 582, 583

Green marketing, 223

Gross earnings, F1–F5, F10, F13

Gross profit, 227, 233

Gross profit method:

defined, 287

for estimating inventory, 285–286

Gross profit rate, 227, 233

H

Health care, H6–H8

Held-for-collection securities, 599

Hiring of employees, 66, 466–467, F12

Historical cost principle, 127, 531

defined, 29

in IFRS, 8

Hong Kong, accounting standards of, 9

Honor of notes receivable, 382–383

Horizontal analysis, 688–692, 713

Human resources:

internal controls in, 323, 325–326, 329

internal users in, 5–6

I

IAASB (International Auditing and Assurance Standards Board), 364

IASB, see International Accounting Standards Board

Identification, 4, 5

IFRS, see International Financial Reporting Standards

Illiquidity, 179

Impairment losses, 457

Imprest system, 329

Improper recognition of revenue, 710

Improvements, 422, 435

Income. See also Revenue(s)

and bonds, 467

comprehensive, see Comprehensive income

net, see Net income

profitability ratios for measuring, 699–703

pro forma, 710, 713

statements of, see Income statements

Income measurement process, 212

Income statements, 22–23

adjusting entry for accruals and, 109

classification on, 733

comprehensive income on, 708

consolidated, 603, A3, B1, B6, C1

defined, 29

depreciation on, 414

function of, 22

and GAAP, 259

horizontal analysis of, 690–691

and inventory, 273, 276–277

investments on, 587, 592

of merchandising companies, 220, 226–230, 239

net income on, 118

receivables on, 385

and statements of cash flow, 624, 628

uncollectible amounts on, 371–373

vertical analysis of, 692–694

on worksheet, 161

Income Summary accounts, 164–166, 183, 546

Income taxes:

and depreciation, 420

and discontinued operations, 707

and payroll accounting, F3–F5, F10

on statements of cash flows, 634, 646, 654–655

Income Tax Payable account, 634, 646

Independent internal verification:

in bank reconciliation, 336

in cash controls, 326, 329

in internal control, 322–323

India:

accounting standards of, 9

merchandisers in, 230

Indirect issuance of shares, 525–526

Indirect method (statements of cash flows), 628–639, 644–649

Industry averages, 688, 694

Inflation, 274

Information (internal control), 317

Insurance:

for employee theft, 323

on equipment, 412

life, H6–H8

payment of, 65

as prepaid expense, 102–104

Intangible assets, 428–432

and accounting cycle, 174–175

analysis of, 432

defined, 183, 428, 435

life of, 428

R&D costs, 430–431

standards for, 456–457

statement presentation of, 432

terminology, 435–436

types of, 428–430

Intent to convert (investments), 594

Intercompany comparisons (analysis), 688, 694

Intercompany eliminations, 599, 600, 603

Intercompany transactions, 599, 603

Interest:

accrued, 111, 382–383

on bonds, 469–475, 488–495, 584

cash flows from, 625

cash payments for, 654

compound, E2–E4, E19

on credit cards, 369

defined, E1, E19

on notes payable, 462

on notes receivable, 380, 381

and passing up discounts, 218

on plant assets, 411

present value of payments, 458–487

simple, E1, E3, E19

on statements of financial position, 595

Interest coverage, see Times interest earned

Interest expense, 229, 474, 488

Interest payable account, 111

Interest rates:

annual, 381, 486, E1, E11

on bonds, 469, 472–473

market, 470, 473, 482

and time value of money, E1, E5, E7, E9, E11

Interim periods, 98, 122

Internal audits, 30

Internal auditors, 322–323, 344

Internal control, 316–325. See also Cash control(s)

and adjusting accounts, 154

components of, 316–317

defined, 344

documentation procedures for, 320

establishment of responsibility in, 317–318

and human resource controls, 323

independent internal verification in, 322–323

limitations of, 324

and payroll accounting, F12

physical controls in, 321

segregation of duties in, 318–319, 322–323

standards for, 362–363

terminology, 343–344

Internal reports, 6

Internal Revenue Service (IRS), F3–F4, F10, F11, F20

Internal transactions, 14

Internal users, 5–6

International Accounting Standards Board (IASB), 8. See also International Financial Reporting Standards

accounting for financial instruments, 382

adjusting accounts, 153–154

defined, 29

equity, 578

financial statements, 47–48, 259, 734

objectives of, 156–157

preference for direct method, 628

prohibition of LIFO method, 288

receivables, 371n.1, 406

single set of standards, 47

International Auditing and Assurance Standards Board (IAASB), 364

International Financial Reporting Standards (IFRS), 8, 156

accounting cycle, 206–207

accrual basis of accounting, 630–631

adjusting accounts, 153–154

cash-basis accounting, 98

classification of cash flows, 625n.1, 626

comprehensive income, 595

defined, 29

depreciation methods, 415, 418n.1, 420

effective-interest method, 492

financial statement analysis, 732–734

fraud, 362–364

global use of, 47–48

internal controls, 362–364

inventory, 273n.2, 311–312

leases, H4

liabilities, H1

merchandising operations, 259–260

natural resources, 426

pro forma income, 710

property, plant, and equipment, 456–457

receivables, 405–406

recording process, 93–94

reserves, 551, 577–578

revaluation of plant assets, 421

revenue and expense recognition, 99

Interpretation, of reported information, 4

Intracompany comparisons (analysis), 688, 694

Inventory(-ies), 262–282, 322. See also Merchandise Inventory account

average-cost method for, 272–274, 283–284

classification of, 264

as current assets, 176

determining quantities in, 265–267

errors in accounting for, 276–278

estimation of, 285–287

falsifying, 266

FIFO method for, 270–275, 283

and financial statements, 273, 277–280

increases in, 633

LIFO method for, 273n.2, 275, 288–289, 311–312

in merchandising operations, 213–215, 224, 233

periodic systems for, see Periodic inventory systems

perpetual systems for, see Perpetual inventory systems

purchase of, 215

specific identification for costing of, 269, 311, 710

standards, 273n.2, 311–312

and taxes, 274

terminology, 282

value of, 275–276

verification of, 322

Inventory account, 633, 647

Inventory turnover, 279, 282, 698–699, 704, 713

Investing activities:

classification of, 624, 626–627

defined, 643

recording of, 636–637, 655–656

Investments, 580–599

advantages of, 582–583

debt, 583–585

long-term, see Long-term investments

non-trading securities, 592–593

share, 585–589

short-term, see Short-term investments

statement presentation of, 594–597, 599–603

and statements of cash flows, 637

terminology, 588–599

value of, 590–593

Investment portfolios, 585, 599

Investors:

and earning power, 699

as external users, 6

Invoices:

credit card, 377

prenumbered, 320

purchase, 215, 233

sales, 219, 233

Irregularities, 71

IRS, see Internal Revenue Service

J

Japan, accounting standards of, 9

Jean, Wyclef, 7

JIT (just-in-time) inventory method, 264–265, 282

Journals and journalizing:

in accounting cycle, 164

for adjusting entries, 115–116

bank reconciliation, 338–339

bonds, 470, 472

cash payments journals, G11, G13–G15

cash receipts journals, G7–G11

definitions of, 76

general journals, 58, 76, G16–G17

illustration of transactions in, 69

in merchandising operations, 224–225

purchases journals, G11–G13

in recording process, 58–59

sales journals, G4–G7

terminology, G19

and unearned revenues, 106

for write-offs, 373

Just-in-time (JIT) inventory method, 264–265, 282

K

Keying, 159

Korean discount, 9

L

Labor unions, 6

Land:

increase in, 636, 647, 655

as plant asset, 410–411

Land account, 636

Land improvements, 411

Last-in, last-out inventory method, see LIFO inventory method

Lawsuits, H1

LCNRV (lower-of-cost-or-net-realizable value), 275–276, 282

Leases, 413, 468, H3–H5, H9

Ledgers:

adjusting entries in, 115–116

closing entries in, 164

defined, 76

illustration of transactions in, 69

posting to, 61–62

for recording process, 60–61

subsidiary, G1–G3, G10, G19

temporary accounts in, 170

write-offs in, 372–373

Left side (accounts), 52. See also Debit(s)

Legal issues:

with intangible assets, 428–429

with retained earnings, 547

Legal title (ownership of goods), 266, 267

Leveraging, 701, 713

Liability(-ies), 12. See also specific liabilities

with accrued expenses, 111

contingent, H1–H3

defined, 12, 29, 48

for employee fringe benefits, H6–H8

lease, H3–H5

long-term, 183

payroll-related, 495–497, F6–F7

in recording process, 53–54, 56

on statements of financial positions, 24, 174

terminology, 482–483, H8–H9

with unearned revenues, 106–107

Licenses, 429–430, 435, 523

Life, of corporation, 521

Life insurance, H6–H8

LIFO (last-in, last-out) inventory method, 273n.2, 275, 288–289, 311–312

Li Ka-shing, 686–687

Limited liability, 10, 520

Liquidating dividend, 538, 554

Liquidation, 12

Liquidation preference, 537–538

Liquidity:

analysis of, 466, 688

defined, 183

evaluation of, 179

excess, 179

of receivables, 368, 385

of short-term investments, 594

Liquidity ratios, 695–699, 704, 713. See also specific ratios

Loans:

accounting standards for, 382

after global financial crisis, 384

doubtful, 366–367

as financial asset, 406

and financial calculators, C18

and promissory notes, 380

short-term vs. long-term, 471

Long-term creditors, 688, 703

Long-term debt, 464, 478

Long-term investments:

and accounting cycle, 175–176

defined, 183, 599

short-term vs., 471

on statements of financial position, 594–596

Long-term liabilities, 183, 479. See also Non-current liability(-ies)

Long-term notes, E11–E13

Long-term notes payable, 477–478

Loss on sale, 425

Lower-of-cost-or-net-realizable value (LCNRV), 275–276, 282

M

Madoff, Bernard, 340

Magazine subscriptions, 106

Mail receipts, 327

Makers (promissory notes), 379, 382, 388

Management:

accounting careers in, 11

corporation, 521

internal users in, 5–6

of publicly traded companies, 97

Management consulting, 30, 31

Managerial accounting:

activities in, 30

defined, 29

purpose of, 6

Manufacturing companies:

classification of inventory in, 264

and discounts, 369

productivity of, 415

Marketing:

accounting careers in, 11

green, 223

internal users in, 5–6

Marketing managers, 5

Market interest rate, 470, 473, 482

Market value:

of bonds, 470

book value vs., 556–557

of shares, 526

Materiality, 126

Maturities, 464, 479

Maturity dates, 469

on bonds, 476

on notes receivable, 380, 382

Measurement principles, 127

Medicare, F3

Merchandise Inventory account, G5, G11

Merchandising operations, 210–233

accounting cycle completion in, 224–226

financial statements for, 226–230

flow of costs in, 213–215

freight costs in, 215–217

inventory classification in, 264

operating cycles in, 212–213

purchase discounts in, 218

purchase returns and allowances in, 217

recording purchases in, 215–219

recording sales in, 219–223, G4–G6

standards for, 259–260

statements of financial position for, 230–231

terminology, 233

types of, 212

Merchandising profit, 227

Mintenko, Stephanie, 314–315

Minus signs (financial calculators), E17

Monetary unit assumption, 9, 29, 127

Monitoring (internal control), 317

Monopolies, 428

Monthly rent, 65

Monthly time periods, 98

Mortgage bonds, 468, 482

Mortgage loans, C18

Mortgage notes payable, 477, 482

Moving-average method, 283. See also Average-cost inventory method

Murdock, Wilbert, 460–461

Mutual funds, 582

N

Natural resources, 426–427, 432, 435, 456–457

Net cash, 628, 630–634, 651

Net change in cash, 637–639, 656–657

Net income:

and bonds, 468

conversion to net cash, 628–634

defined, 29

difference between net cash and, 624

earning power vs., 706

earnings per share as measure of, 702

formal recognition of, 164, 165

on income statements, 22, 118, 274, 693

maximization of, 420

retained earnings as, 54, 528, 546

and timing, 98

volatility of, 595

on worksheets, 161

Net income available to ordinary shareholders, 551

Net income per share, 702

Net losses:

defined, 29

on income statements, 22

on worksheets, 161

Net pay, F5, F13

Net realizable value, 275–276, 282, 311, 371

Net sales, 226, 227, 233, 692, 693

Neutral information, 126

Nominal accounts, 164. See also Temporary accounts

Non-cash current assets, 632–634

Non-current assets, 207, 592

Non-current liability(-ies), 467–480. See also Bonds

in accounting cycle, 178

analysis of, 479

defined, 482

long-term notes payable, 477

postretirement benefits as, H8

statement presentation of, 479

Non-monetary assets, 457

“Non-recurring” events, 708

Non-trading securities, 590, 592–595, 599

No-par value shares, 527, 530, 536, 554

Normal balance, 53

defined, 76

and liabilities, 53–54

Notes payable. See also Bonds

and accrued interest, 111

borrowing with bonds vs., 478

corporation funding from, 468

defined, 482

as liability, 12, 462–463

long-term, 477

and present value, E7

Notes receivable, 338, 368, 379–384, 388

Not-for-profit organizations:

careers in, 30

classification of corporations as, 520

ethics in accounting practices, 7

NSF (not sufficient funds) checks, 335, 339, 344

O

Obsolescence, 414, 418, 420, 429

Off-balance-sheet financing, H5

Operating activities, 624–626, 630–635, 643, 651–655

Operating cycles:

cash-to-cash, 377

defined, 176, 183

in merchandising operations, 212–213

temporary investments in, 582

Operating expenses, 227–228

cash payments for, 653–654

defined, 233

in franchise agreements, 429–430

improper capitalization of, 710

Operating leases, H3–H4, H9

Opportunity, 316

Ordinary repairs, 422, 435

Ordinary shares. See also No-par value shares; Par value shares

book value of, 555

and cash dividends, 540–541

direct issuance of, 626

and ownership rights, 524

on statements of financial position, 549–550

Ordinary share capital, 54, 163

Organizational charts, 324

Organization costs, 523, 554

Outstanding checks, 336, 344

Outstanding shares, 534, 550, 554

Over-the-counter receipts, 325–327

Overtime pay, F2

Owens, Jesse, 518

Ownership:

corporation classification by, 520

of goods, 266, 267

with leases, H4

separation of management and, 521

share certificates for proof of, 524, 525

Ownership claims, 12–13

Ownership rights:

of shareholders, 524–525

transferable, 521

P

Pacioli, Luca, 5n.2

Paid absences, H6

Parent companies, 588, 599

Parking lots, 411

Partnerships:

corporations vs., 520, 522

defined, 10, 29

equity in, 178

international differences in, 48

Partnership agreements, 10

Par value, see Face value

Par value shares, 527, 530, 536, 550, 554

Patents, 428–431, 435

Payees (promissory notes), 379, 382, 388

Payments:

of payroll, F7–F8

with petty cash fund, 330–331

in recording process, 65

and statements of cash flow, 628, 651–655

Payment date (cash dividends), 539, 554

Payout ratio, 702–704, 713

Payroll accounting, F1–F14

determining payroll in, F1–F5

and internal control, F12

recording payroll in, F5–F8

taxes in, 496, F2–F6, F8–F11

terminology, F1, F13–F14

Payroll bank accounts, 333

Payroll deductions, F2–F5, F13

Payroll register, F6–F9, F13

Payroll-related liabilities, 495–497

Payroll tax expense, F8–F9

PCAOB (Public Company Oversight Board), 363

Pension plans, H7–H8

People, planet, and profit, see Corporate social responsibility (CSR)

P-E ratio, see Price-earnings ratio

Percentage of receivables basis, 374, 375, 388

Percentage of sales basis, 374, 388

Periodic depreciation, 420–421

Periodic inventory systems, 269–270

availability of goods in, 288–289

determining quantities in, 265

and income statements, 276

in merchandising operations, 233–226, 259

perpetual vs., 269–270, 283–284

Periodicity assumption, 98

Periodic payments, E4–E6, E9–E11, H4

Permanent accounts:

carrying forward balances from, 164

defined, 164

and posting closing entries, 166

proving equality of, 168

temporary vs., 164

Perpetual inventory systems:

determining quantities in, 265

inventory cost flow methods in, 282–285

in merchandising, 213–215, 224, 233, 234, 236–237, 259

periodic systems vs., 269–270

and sales journals, G4–G5

verification of, 322

Petty cash funds:

controls for, 329–332

defined, 344

Physical controls, 321, 326, 329

Physical inventory, 265, 285, 287, 322

Plant assets, 410–426

in accounting cycle, 175

buildings, 411, 422, 636, 647, 655

characteristics of, 410

defined, 435

depreciation of, see Depreciation

determining cost of, 410–413

disposal of, 423

equipment, 411–413

exchange of, 436–437

expenditures on, 422–423

land, 410–411, 636, 647, 655

land improvements, 411

retirement of, 424

revaluation of, 421–422

sale of, 424–426

standards, 456–457

on statements of cash flow, 632

on statements of financial position, 692

terminology, 435–436

Plus signs (financial calculators), E17

Ponzi schemes, 340

Post-closing trial balance:

in accounting cycle, 168–170

defined, 183

Posting:

in accounting cycle, 164

of adjusting entries, 115–116

in cash receipts journals, G10

defined, 76

in general journals, G16

in recording process, 61–62

in sales journals, G5–G6

Postretirement benefits, H6–H9

Predictive value, of information, 126

Preference shares:

of corporations, 536–537, 540–541

defined, 554

equity, 555–556

in ratio analysis, 700–701

on statements of financial position, 550

Premium(s):

bond, see Bond premiums

share, 530, 550

Prenumbered documents, 320, G5, G13

Prepaid expenses:

adjusting entries for, 102–106, 122–124

as current assets, 176

as deferrals, 102

defined, 122

increases in, 633, 647

Prepaid Insurance account, 632

Prepayments, 102

Presentation by function, 228

Presentation by nature, 228

Present value, 483–488, E7–E17

of an annuity, E9–E11, E17, E19

in capital budgeting decisions, E14–E15

defined, 470, E7, E19

and discounting, E11

of long-term notes and bonds, E11–E13

of a single amount, E7–E9, E16–E17

Present value tables, E14

Price-earnings (P-E) ratio, 702, 704, 713

Principal, E1–E3, E19

Principles-based standards, 48

Principles in financial reporting, 127–128

Prior period adjustments, 548, 554

Private accounting, 30. See also Managerial accounting

Privately held corporations, 520, 554

Production supervisors, 5

Productive life, 414

Product warranties, H1–H2

Profit. See also Revenue

gross, 227, 233

merchandising, 227

Profitability, 688

Profitability ratios, 695, 699–704, 713. See also specific ratios

Profit margin, 699, 704, 713

Pro forma income, 710, 713

Promissory notes, 379–380, 388, 462. See also Notes payable

Property, plant, and equipment, 410. See also Plant assets

in accounting cycle, 175, 207

defined, 183

and free cash flow, 641

revaluation of, 577

standards for, 456–457

on statements of financial position, 432, 624

Property taxes, 410

Proprietorships:

corporations vs., 522, 528

defined, 10, 29

equity in, 178

international differences in, 48

Pro rata, 538

Provisions (liabilities), H1, H9

Prudence, 275, 282

Public accounting, 30, 31

Public Company Accounting Oversight Board (PCAOB), 363

Publicly held corporations, 520–522, 554, 710

Public property, 429

Purchases, 215–216

Purchase allowances, 217, 233, 235–236

Purchase discounts, 218, 233, 236

Purchase incentives, 218

Purchase invoices, 215, 233

Purchases journals, G11–G13, G19

Purchase returns, 217, 233, 235–236

Purchasing activities, 318–319

Q

Quality of earnings, 709–711, 713

Quarterly time periods, 98

Quick ratio, see Acid-test ratio

R

Radio frequency identification (RFID), 279

Rate of return on sales, 699. See also Profit margin

Ratios, 713. See also specific ratios

Ratio analysis, 694–706

corporate profitability, 551

defined, 688, 713

intangible assets, 432

liabilities, 466, 479

receivables, 385

Rationalization (fraud), 316

Raw materials:

defined, 282

inventory of, 264

R&D costs, see Research and development costs

Real accounts, 164. See also Permanent accounts

Real estate:

accounting careers in, 11

mortgage bonds in, 468

Real estate brokers’ commissions, 410

Real estate taxes payable, 12

Receipt of cash on account, 19–20, 64, 68

Receipt transactions, 325–328

Receivables, 366–388. See also Accounts receivable

accounting standards for, 382

analysis of, 385

as current assets, 176

liquidity of, 368, 697

notes receivable, 379–384

standards, 405–406

statement presentation of, 385

terminology, 388

types of, 368

Receivables turnover, 697–698, 704, 713

Recession, 582

Reconciliation (banks), 333, 336–339, 343

Record date (cash dividends), 539, 554

Recording process, 4–5, 50–76

and the account, 52–57

for acquisition of investments, 586–589

for bond sales, 584

business documents for, 57

for companies that use GAAP, 93–94

debits and credits in, 52–54, 58

illustration of, 63–68

journals for, 58–59

ledgers for, 60–62

for merchandise operations, 235–237

for payroll, F5–F8

posting in, 61–62

for provisions, H1–H2

for purchases, 215–216

for sales, 219–223

terminology, 76

and trial balance, 70–73

use of currency signs in, 72

Record-keeping, 319

Recovery of debt, 373–374

Reference column:

in journals, 58, G5, G11, G17

in ledgers, 62

Registered bonds, 468, 482

Regulation:

and consolidated financial statements, 589

of financial disclosures, 97

government, 521–522, F1

Regulatory agencies, 6

Relevance:

defined, 29

in IFRS, 8

of information, 126

Remittance advice (checks), 334

Rent:

as prepaid expense, 102

as unearned revenue, 106

Repairs (plant assets), 422

Replenishing, 331

Reporting:

of cash, 340–341

of dividends, 538

exchange requirements for, 521–522

of investments, 590–596

by not-for-profit organizations, 7

of payroll taxes, F10

by South Korean companies, 9

sustainability, 317

Representation (IFRS), 8

Research and development (R&D) costs, 430–431, 435, 457

Reserves (equity), 550–551, 577–578

Residual equity, 13

Residual value, 415, 417–418, 436

Responsibility:

in cash controls, 325–326, 329

in corporation management, 521

in internal control, 317–318

social, 25

Restricted cash, 341, 344

Retailers:

and credit card sales, 377

defined, 212

Retail inventory method, 286–287

Retained earnings, 546–552

analysis of, 551

and cash dividends, 538

of corporations, 546–552

defined, 13, 76, 528, 546, 554

as part of equity, 15–16

and prior period adjustments, 548

in recording process, 54

standards, 577–578

statement presentation of, 550–551

in summary of transactions, 20–21

terminology, 554

Retained Earnings account:

and closing entries, 164, 165

equity in, 178

increase in, 636, 646, 656

and preparing financial statements, 118

and treasury shares, 535

and worksheets, 600

Retained earnings restrictions, 547, 554

Retained earnings statements, 22–24

defined, 29, 554

function of, 22, 24, 548–549

horizontal analysis of, 691

items reported in, 546

limits of information on, 624

prior period adjustments in, 548

Retirement (assets), 424, 475–476

Retirement (employee), H6–H9

Returns:

purchase, 217, 233, 235–236

sales, 221, 222, 233, 236

Return on assets, 700, 704, 713

Return on ordinary shareholders’ equity, 551, 554, 700–701, 704, 713

Revaluation, 154, 421–422, 457, 577

Revenue(s):

in accrual-basis accounting, 98

accrued, 109–110, 122, 184

defined, 29, 48

and equity, 17–18

improper recognition of, 710

on income statements, 22

matching of expenses with, 375

in recording process, 55

and retained earnings, 13

sales, 212, 219, 226–227, 233

from share investments, 587–588

shifting of, 96–97

and uncollectible amounts, 371–372

unearned, 106–108, 122, 124–125, 463–464

on worksheets, 161

Revenue expenditures, 422, 436

Revenue recognition:

principle of, 99, 100, 122, 128

standards for, 153–154

Reversing entries:

in accounting cycle, 171, 183–185

defined, 183

from write-offs, 373–374

RFID (radio frequency identification), 279

Rifkin, Jeremy, 210

Right side (accounts), 52. See also Credit(s)

Risk assessment, 316

Rounding, E17

Rules-based standards, 48

S

Salaries. See also Payroll accounting

in accounting field, 31

accrued, 112–113

defined, F1, F13

determination of, F2

payment of, 67

and statements of cash flow, 632

Salaries Payable account, 495–496, 632

Sales:

of bonds, 584

net, see Net sales

of notes receivable, 383

of plant assets, 424–426

rate of return on, 699

recording of, 219–223

Sales account, G5

Sales activities, 319

Sales agreements, 216

Sales allowances, 221, 233, 236

Sales discounts, 222, 233, 236

Sales industry, 319

Sales invoices, 219, 233

Sales journals, G4–G7, G19

Sales returns, 221, 222, 233, 236

Sales revenue, 212, 219, 226–227, 233

Sales taxes, 412

Sales taxes payable, 12, 463

Salvage value, 415. See also Residual value

Sarbanes-Oxley Act (SOX), 48, 154, 363–364

Scandals, see Financial scandals

Schauble, Wolfgang, 72

SEC (Securities and Exchange Commission), 207, 593

Secured bonds, 468, 482

Securities:

categories of, 590–595

government, 582, 583

held-for-collection, 599

non-trading, 592–595

Securities exchanges, see Exchanges (markets)

Securities regulators, 521–522

Segregation of duties:

in cash controls, 326, 329

in internal control, 318–319, 323

Separate accounts, 220

Serial bonds, 468, 482

Services (transaction analysis), 17–18

Service enterprises, 99, 369

Service life, 414, 415

Shares:

authorized, 525, 550, 554

market value of, 526

no-par, 527, 530, 536, 554

ordinary, see Ordinary shares

outstanding, 534, 550, 554

preference, see Preference shares

treasury, 532–536, 554

Share capital:

defined, 13, 29, 528, 554

dividends on, 691

on financial statements, 163, 549–550

and GAAP, 94

increase in, 636, 646

as part of equity, 15–16

in recording process, 54

in summary of transactions, 20–21

Share Capital–Ordinary account:

cash dividends in, 538

equity in, 13, 178

and general ledgers, G2

increase in, 636, 646, 656

par value of shares in, 530

and treasury shares, 535

and worksheets, 600

Share certificates, 524, 525

Share compensation plans, 532–533

Share dividends, 167, 542–546, 554

Shareholders:

and bonds, 167, 468

financial statement analysis by, 688

limited liability of, 10, 520

management by, 521

ownership rights of, 524–525

and taxes on cash dividends, 522

in transaction analysis, 16

Shareholders’ equity, 94

Share investments, 585–590, 599

Share options, 532

Share premiums, 530, 550

Share Premium–Treasury account, 530, 531, 535

Share quotes, reading, 526

Share splits, 544–546, 554

Shipping documents, 320

Shoplifting, 324

Short-term creditors, 688, 695

Short-term investments:

by corporations, 582

as current assets, 176

defined, 599

liquidity of, 697

long-term vs., 471

on statements of financial position, 594–596

Short-term notes receivable, 381, 385

Short-term paper, 594

Simple interest, E1, E19

Simple journal entries, 59, 76

Sinking fund bonds, 468, 482

Social responsibility, see Corporate social responsibility (CSR)

Social Security Administration, F11

Social Security taxes, 496, F3

Solvency, 688

Solvency ratios, 695, 703, 713

South Korean companies, financial reports of, 9

SOX, see Sarbanes-Oxley Act

Special journals, G4–G19

cash payments journals, G11, G13–G15

cash receipts journals, G7–G11

and general journals, G16–G17

purchases journals, G11–G13

sales journals, G4–G7

terminology, G19

Specific identification method (inventory), 269, 282, 311

Spreadsheet programs, 158

Stack, Jack, 3

Standards, 8. See also specific standards

adjusting accounts, 153–154

cash controls, 362–364

for corporations, 577–578

financial statement analysis, 732–734

fraud, 362–364

intangible assets, 457

internal control, 362–364

inventory, 273n.2, 311–312

merchandising operations, 259–260

principles-based, 48

receivables, 405–406

transaction analysis, 48

Standing timber, 426

Startheregoplaces.com, 31

Stated interest rate, 469

Stated value, 527, 554

Statements of cash flows, 22–23, 622–643

classification in, 171–179, 624–626, 628

consolidated, A6, B5, C3, D4

defined, 29, 643

direct method for preparing, 628, 650–657

format of, 626–628

and free cash flow, 640–641

function of, 24–25

indirect method for preparing, 628–639, 644–649

investing and financing activities on, 624–627, 637, 655–656

net change in cash on, 637–639, 656–657

and non-cash activities, 626

operating activities on, 624–626, 630–635, 651–655

T-account approach, 659–660

terminology, 643

usefulness of, 624

worksheets for, 644–649

Statements of changes in equity, 550–551, 554–555

Statements of earnings, F7, F13

Statements of financial position, 22–24, 173–180, 406

from adjusted trial balance, 119

adjusting entry for accruals and, 109

change in cash account on, 637

consolidated, 599–603, A1–A2, D2–D3

and contra asset accounts, 105

current assets on, 176–177

current liabilities on, 178–179, 462, 465

defined, 29, 183

depreciation on, 424

dividend shares on, 543–544

equity on, 24, 174, 527

horizontal analysis of, 690

and IFRS, 206–207

intangible assets on, 174–175, 432

inventory on, 274, 277–280

investments on, 591, 592, 594–596

long-term investments on, 175–176

for merchandising operations, 230–231, 239

natural resources on, 426

non-current liabilities on, 178, 469, 474, 478, 479

property, plant, and equipment on, 175

receivables on, 370–374, 385

reporting leases on, H5

share capital on, 449–550

share premium on, 550

and statements of cash flow, 624, 628

treasury shares on, 534

vertical analysis of, 692

and worksheets, 161–163, 645

State unemployment taxes, F9–F10, F14

State unemployment tax acts (SUTA), F9–F10

Stockholders’ equity, 94

Straight-line method:

for amortization, 492–495

for depreciation, 415–416, 418–419, 428, 436

Subsidiary accounts, G16

Subsidiary companies, 588, 589, 599

Subsidiary ledgers, G1–G3, G10, G19

Supplies:

cash payments to, 651–652

as prepaid expense, 102–103

in transaction analysis, 17, 66

Sustainability reports, 317, 427

SUTA (state unemployment tax acts), F9–F10

T

T-account, 52, 60, 63, 76, 219, 636, 659–660

Taxes and taxation, 30, 31, 522

and annual tax returns, 98

income taxes, see Income taxes

incurred by corporations, 522

and inventories, 274, 289, 312

payroll taxes, 496–497, F2–F6, F8–F11

property taxes, 410

sales tax, 412

on statements of cash flows, 625n.1

Taxing authorities, 6

Technology:

and accounting mistakes, 50–51

for closing process, 168

Temporary accounts:

balances in, 166, 168

closing of, 164

defined, 183

in ledgers, 170

permanent vs., 164

Temporary investments, 582

Term bonds, 468, 482

Three-column form of account, 60, 76

Time lags, 336

Timeliness of information, 126

Time periods, 22, 98, 486, E11

Time period assumption, 98, 122, 127, 153

Times interest earned, 479, 482, 703–705, 713

Time value of money, 470, E1–E19

defined, 483

and financial calculators, E16–E18

future value concepts, E2–E6

and interest, E1–E3

present value concepts, E7–E17

Timing, 98–100, 153

Trademarks (trade names), 429, 436

Trade receivables, 368, 388

Trading:

of bonds, 470

classification of securities in, 594

of shares, 526

Trading on the equity, 701, 713

Trading securities, 590–591, 599

Transactions (business transactions):

and accounting equation, 14–21

defined, 29

documents providing evidence of, 57, 320

external and internal, 14

merchandise, 35

Transaction analysis, 15–20, 48, 63–68

Transferable ownership rights, 521

Transgression, 96

Transposition errors, 71

Treasurers, 331, 521

Treasury shares:

of corporations, 532–536

defined, 554

Trend analysis, see Horizontal analysis

Trial balance:

adjusted, 117–119, 122

defined, 76

under GAAP, 93

incomplete data in, 100–101

for merchandising operations, 238

post-closing, 168–170, 183

and recording process, 70–73

on worksheets, 159–161

Turnover ratio(s):

accounts receivable, 385, 388

asset, 432, 435, 699–700, 704, 713

U

Uncollectible Accounts Expense, 370, 371

Uncollectible debts, 370–376

Understandability of information, 126

Underwriting, 525

Unearned revenue, 102, 106–108, 122, 124–125, 463–464

Unemployment taxes, 496, F9–F10

Unexpired cost, see Book value

Unions, 6

U.S. Congress, 48, 275, 363, 541

U.S. generally accepted accounting principles, see Generally accepted accounting principles

U.S. Securities and Exchange Commission (SEC), 207, 593

Units-of-activity method (depreciation), 415–419, 426, 436

Unrealized Gain–Equity account, 593

Unrealized gains and losses, 591, 595

Unrealized Loss–Equity account, 593

Unsecured bonds, 468, 483

Useful information, 126

Useful life, 104, 122, 414–416, 422–423, 436, 457

V

Vacations, employee, 323, H6

Valuation:

of accounts receivable, 370–376

under IFRS, 207

of investments, 590–596

Value. See also specific types of value

of bonds, 469–473, 483–488

carrying, 105, 474

creating, 177

of goodwill, 430

of inventories, 275–276

of investments, 590–593

Verifiability of information, 126

Vertical analysis, 688–689, 692–694, 713

Virtual close, 168

Voluntary restrictions, 547

Voucher register, 327

Voucher systems:

cash controls with, 328–329

defined, 344

W

Wages, 112–113, F1, F2, F14. See also Payroll accounting

Wage and Tax Statement (Form W-2), F10, F11, F14

Wages payable, 12, 495–496

Walton, Sam, 60

Warranties, H1–H2

Website ad space, 96

Weight-averaged unit cost, 272, 282

W-2 form (Wage and Tax Statement), F10, F11, F14

W-4 form (Employee's Withholding Allowance Certificate), F4, F14

Wholesalers, 212

Withholding taxes, 495–496, F3–F5

Work environment, 25

Working capital, 466, 483, 696

Working capital ratio, 696

Work in process:

defined, 282

inventory of, 264

Worksheets:

in accounting cycle, 158–163

defined, 183

for income statements, 603

for merchandising operations, 237–239

for statements of cash flows, 644–649

for statements of financial position, 600–602

Write-offs (uncollectible accounts), 372–374