A
Accelerated-depreciation method, 418, 435
Account(s). See also specific accounts
defined, 76
separate, 220
Accounting, 2–31. See also specific headings
defined, 28
standards for, 8
completion of, 206–207, 224–226
correcting entries in, 171–173
and equity, 178
financial statements in, 161–163
post-closing trial balance in, 168–170
reversing entries in, 171, 183–185
statements of financial position in, 173–180
terminology, 183
Accounting principle, 708, 713, 733
Accounting reports, 4
Accounts payable:
decrease in, 653
as liabilities, 12
in merchandising operations, 215
payment of, 19
Accounts Payable account, 633, 653, G2
Accounts payable subsidiary ledgers, G1, G19
in accrual accounting process, 632
decreases in, 632–633, 645, 647
in merchandising operations, 219–222
recognition of, 369
Accounts Receivable account, 632–633, G1, G3, G5
Accounts receivable subsidiary ledgers, G1, G19
Accounts receivable turnover ratio, 385, 388, 697–698, 712
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
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
Adjustable-rate notes, 477
Adjusted trial balance, 117–119, 239, 628
adjusted trial balance in, 117–119
and adjustments on worksheets, 159
and financial statements, 118–120
in merchandising operations, 238–239
terminology, 122
and unearned revenues, 124–125
worksheets for, 159
for accruals, 100–102, 109–114
and bank reconciliation, 338–339
correcting vs., 172
defined, 122
journalizing and posting of, 115–116
in merchandising operations, 224
in special journals, G4
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:
Allowance for Doubtful Accounts, 372–376, 383, 385, 388
Allowance method (uncollectible amounts), 372–376, 388
Amortization:
defined, 435
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
Annual depletion expense, 426–427
Annual interest rates, 381, 486, E1, E11
defined, E19
present value of, E9–E11, E14, E17
Articles of incorporation, 523. See also Charters
Assets, 12
legal claim to, 380
and liabilities, 462
non-cash, 531
overstatement of, 102
plant, see Plant assets
purchasing of, 626
in recording process, 53–54, 56
return on, 700
on statements of financial positions, 24, 173–176, 692
Asset turnover ratio, 432, 435, 699–700, 704, 713
time period, 98, 122, 127, 153
Auditing:
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
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
Bank reconciliation, 333, 336–339, 343
Bank service charges, 335, 339, 343
Bar coding, 269
Basic accounting equation, 12–14, 28
Benefits:
Best-efforts contracts, 526n.2
Billing, by credit card companies, 377
for corporation management, 521
retained earnings restrictions created by, 547
Bonds:
borrowing with notes vs., 478
conversion of, 626
discounts on, see Bond discounts
premiums on, see Bond premiums
trading of, 470
types of, 468
Bond certificates, 469–470, 482
Bond discounts:
amortization of, 488–490, 492–493
issuance of bonds at discount, 473–474
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
issuance of bonds at premium, 474–475
Bonus plans, 533
Book error, 339
Book of original entry, 58. See also Journals and journalizing
Book value:
defined, 122
fair value vs., 105
of plant assets, 414, 416–418, 423, 436–437
Buffett, Warren, 545
Buildings, 411, 422, 636, 647, 655
Business transactions, see Transactions
By-laws, 523
C
CAs (chartered accountants), 30
Capital:
share, see Share capital
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
as current asset, 176
defined, 343
disbursement of, 328–332, 339, G13
issuance of par value ordinary shares for, 530
liquidity of, 697
purchase of inventory with, 215
recording increases and decreases in, 53
restricted, 341
in transaction analysis, 16–20
Cash-basis accounting:
accrual-basis accounting vs., 98
defined, 122
and GAAP, 153
and bank deposits, 333
with electronic funds transfer systems, 339
with petty cash funds, 329–332
for receipt transactions, 325–328
reconciling bank account as, 336–339
Cash discounts, 369
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 (net) realizable value:
of accounts receivable, 371, 372
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
Checks:
and debit memorandum, 335
mail receipts in form of, 327
Check register, 327
China, accounting standards of, 9
of expenses, 259
on income statements, 733
Classified statements of financial position, see Statements of financial position
Closing costs, 410
Closing entries:
defined, 183
in merchandising operations, 224–225
in special journals, G4
Collection (credit cards), 377
Collection agents, 463
Commercial substance, 436
Common-size analysis, see Vertical analysis
Common stock, 94. See also Share capital
Communication:
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 tables, E3–E4
Compound journal entries, 59, 76
and financial statements, 595, 708–709
under IFRS, 733
Computers, 51
Confirmatory value, of information, 126
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
Contingent liabilities, H1–H3, H8
Contra asset accounts, 105, 122, 164
Contractual agreements, 428
Contractual interest rate:
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
Corporate social responsibility (CSR), 25
creating value, 177
selling green, 223
shareholder proposals for, 529
sustainability reporting, 317, 427
and book value per share, 555–557
classification of, 520
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
share issue considerations in, 524–527
terminology, 554
Correcting entries:
defined, 183
in special journals, G4
Cost(s):
depreciable, 415
of inventory, 268
of research and development, 430–431
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 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.):
accrued expenses, 111
accrued revenues, 109
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
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
Creditors’ subsidiary ledgers, G1
Credit terms, 218
CSR, see Corporate social responsibility
Currencies:
countries and regions associated with, 9
and liquidity, 466
Currency signs, 72
Current assets:
defined, 183
on statements of financial position, 176–177, 207, 264, 592
Current liability(-ies), 462–467. See also specific current liabilities
analysis of, 466
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
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
Date of transaction, 58
Days in inventory (ratio), 279, 282, 699
Debit(s) (Dr.):
accrued expenses, 111
accrued revenues, 109
in allowance accounts, 376
defined, 76
in ledgers, 60
in recording process, 52–54, 58
Debit balance, 52
Debiting accounts, 52
Debts. See also Liability(-ies)
and current ratio, 696
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
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
Deposit slips, 333
as allocation concept vs. valuation concept, 104, 105
and income taxes, 420
and increase in equipment, 655–656
and operating expenses, 654
and plant asset disposal, 423–425
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
Discounting the future amount, E7
Discount period, 218
Dishonored notes receivable, 383, 388
ability to pay, 624
cash, see Cash dividends
cash flows from, 625
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
from share investments, 587–588, 691
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:
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:
from investment income, 582
retained, see Retained earnings
Earnings per share (EPS), 701–702, 704, 713
Ebbers, Bernie, 423
Economic entity(-ies):
basic accounting equation for, 12
defined, 10
Economic entity assumption, 10, 29, 127
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
salaries of, 112
Employee earnings record, F5, F13
Employee's Withholding Allowance Certificate (Form W-4), F4, F13
The End of Work (Jeremy Rifkin), 210
Environmental responsibility, 25
EPS, see Earnings per share
Equipment:
in accounting cycle, 175
exchange of, 436
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
and issuance of shares, 525, 527
and retained earnings, 15–16, 546, 547
shareholders’, 94
on statements of financial position, 24, 174, 527, 549–551
Equity accounts, 543, 546, 554
Equity transactions, 534
and bank reconciliation, 336–339
internal controls for detecting, 154
in merchandising operations, 224
transposition, 71
trial balance for uncovering, 70–72
abuse of revenue recognition principle, 100
acquisitions, 414
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
falsifying inventory, 266
financial statement analysis, 708
fraudulent disbursements, 332
internal control, 331
irregularities, 71
lease accounting, H5
natural resources, 426
not-for-profit organizations, 7
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
Expenses:
accrued, 110–114, 122, 184, 654
classification of, 259
on income statements, 22
matching of revenues with, 375
operating, see Operating expenses
payment of, 19
prepaid, see Prepaid expenses
in recording process, 55
and retained earnings, 13
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
Fair trade practices, 25
Fair value:
defined, 599
fluctuations in, 708
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
FICA, see Federal Insurance Contribution Act
FIFO (first-in, first-out) inventory method, 269–275, 282, 283
Finance:
accounting careers in, 11
Finance directors, 5
Financial accounting:
defined, 29
Financial Accounting Standards Board (FASB), 8. See also Generally accepted accounting principles
accounting for financial instruments, 382
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
Financial statements. See also specific statements
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
for merchandising operations, 226–230
prepaid expenses in, 102
structure of, 259
and timing, 98
Financial statement analysis, 686–713. See also Ratio analysis
need for, 688
of quality of earnings, 709–711
vertical analysis, 688–689, 692–694
Financing activities:
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
Fixed assets, see Plant assets; Property, plant, and equipment
Fixed-rate mortgages, 477
FOB destination, see Free on board destination
FOB shipping point, see Free on board shipping point
For-profit corporations, 520
Fraud. See also Internal control
in accounting for receivables, 370
debt-financed acquisitions, 423
exercising share options, 532
factors contributing to, 316
overstating assets/understating liabilities, 637
payroll, F12
Ponzi schemes, 340
using numeric relationships, 695
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
Full-disclosure principle, 128, H3
FUTA (Federal Unemployment Tax Act), F9
Future value:
of a single amount, E2–E5, E19
FVPL (fair value through profit or loss) securities, 599
G
GAAP, see Generally accepted accounting principles
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
effective-interest method, 492
financial statement analysis, 733–734
merchandising operations, 259–260
property, plant, and equipment, 456–457
Gift cards, 108
Going concern assumption, 127, 414, 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 method:
defined, 287
for estimating inventory, 285–286
H
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
I
IAASB (International Auditing and Assurance Standards Board), 364
IASB, see International Accounting Standards Board
IFRS, see International Financial Reporting Standards
Illiquidity, 179
Impairment losses, 457
Imprest system, 329
Improper recognition of revenue, 710
Income. See also Revenue(s)
and bonds, 467
comprehensive, see Comprehensive income
net, see Net income
profitability ratios for measuring, 699–703
statements of, see Income statements
Income measurement process, 212
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
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
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
India:
accounting standards of, 9
merchandisers in, 230
Indirect issuance of shares, 525–526
Indirect method (statements of cash flows), 628–639, 644–649
Inflation, 274
Information (internal control), 317
Insurance:
for employee theft, 323
on equipment, 412
payment of, 65
analysis of, 432
life of, 428
statement presentation of, 432
Intent to convert (investments), 594
Intercompany comparisons (analysis), 688, 694
Intercompany eliminations, 599, 600, 603
Intercompany transactions, 599, 603
Interest:
on bonds, 469–475, 488–495, 584
cash flows from, 625
cash payments for, 654
on credit cards, 369
on notes payable, 462
and passing up discounts, 218
on plant assets, 411
present value of payments, 458–487
on statements of financial position, 595
Interest coverage, see Times interest earned
Interest expense, 229, 474, 488
Interest payable account, 111
Interest rates:
and time value of money, E1, E5, E7, E9, E11
Internal audits, 30
Internal auditors, 322–323, 344
Internal control, 316–325. See also Cash control(s)
and adjusting accounts, 154
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
Internal reports, 6
Internal Revenue Service (IRS), F3–F4, F10, F11, F20
Internal transactions, 14
International Accounting Standards Board (IASB), 8. See also International Financial Reporting Standards
accounting for financial instruments, 382
defined, 29
equity, 578
financial statements, 47–48, 259, 734
preference for direct method, 628
prohibition of LIFO method, 288
single set of standards, 47
International Auditing and Assurance Standards Board (IAASB), 364
International Financial Reporting Standards (IFRS), 8, 156
accrual basis of accounting, 630–631
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
leases, H4
liabilities, H1
merchandising operations, 259–260
natural resources, 426
pro forma income, 710
property, plant, and equipment, 456–457
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
falsifying, 266
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
and taxes, 274
terminology, 282
verification of, 322
Inventory turnover, 279, 282, 698–699, 704, 713
Investing activities:
classification of, 624, 626–627
defined, 643
recording of, 636–637, 655–656
long-term, see Long-term investments
non-trading securities, 592–593
short-term, see Short-term investments
statement presentation of, 594–597, 599–603
and statements of cash flows, 637
Investment portfolios, 585, 599
Investors:
and earning power, 699
as external users, 6
Invoices:
credit card, 377
prenumbered, 320
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
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
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:
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
Ledgers:
closing entries in, 164
defined, 76
illustration of transactions in, 69
temporary accounts in, 170
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
Liability(-ies), 12. See also specific liabilities
with accrued expenses, 111
for employee fringe benefits, H6–H8
long-term, 183
payroll-related, 495–497, F6–F7
in recording process, 53–54, 56
on statements of financial positions, 24, 174
with unearned revenues, 106–107
Life, of corporation, 521
LIFO (last-in, last-out) inventory method, 273n.2, 275, 288–289, 311–312
Liquidating dividend, 538, 554
Liquidation, 12
Liquidation preference, 537–538
Liquidity:
defined, 183
evaluation of, 179
excess, 179
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
as financial asset, 406
and financial calculators, C18
and promissory notes, 380
short-term vs. long-term, 471
Long-term investments:
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 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
of publicly traded companies, 97
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
Marketing managers, 5
Market interest rate, 470, 473, 482
Market value:
of bonds, 470
of shares, 526
Materiality, 126
Maturity dates, 469
on bonds, 476
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
inventory classification in, 264
purchase discounts in, 218
purchase returns and allowances in, 217
recording purchases in, 215–219
recording sales in, 219–223, G4–G6
statements of financial position for, 230–231
terminology, 233
types of, 212
Merchandising profit, 227
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 loans, C18
Mortgage notes payable, 477, 482
Moving-average method, 283. See also Average-cost inventory method
Mutual funds, 582
N
Natural resources, 426–427, 432, 435, 456–457
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 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 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
Notes payable. See also Bonds
and accrued interest, 111
borrowing with bonds vs., 478
corporation funding from, 468
defined, 482
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
in merchandising operations, 212–213
temporary investments in, 582
defined, 233
in franchise agreements, 429–430
improper capitalization of, 710
Opportunity, 316
Ordinary shares. See also No-par value shares; Par value shares
book value of, 555
direct issuance of, 626
and ownership rights, 524
on statements of financial position, 549–550
Ordinary share capital, 54, 163
Organizational charts, 324
Outstanding shares, 534, 550, 554
Over-the-counter receipts, 325–327
Overtime pay, F2
Owens, Jesse, 518
Ownership:
corporation classification by, 520
with leases, H4
separation of management and, 521
share certificates for proof of, 524, 525
Ownership rights:
transferable, 521
P
Pacioli, Luca, 5n.2
Paid absences, H6
Parking lots, 411
Partnerships:
equity in, 178
international differences in, 48
Partnership agreements, 10
Par value, see Face value
Par value shares, 527, 530, 536, 550, 554
Payees (promissory notes), 379, 382, 388
Payments:
in recording process, 65
and statements of cash flow, 628, 651–655
Payment date (cash dividends), 539, 554
and internal control, F12
Payroll bank accounts, 333
Payroll deductions, F2–F5, F13
Payroll-related liabilities, 495–497
PCAOB (Public Company Oversight Board), 363
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
verification of, 322
Petty cash funds:
defined, 344
Physical controls, 321, 326, 329
Physical inventory, 265, 285, 287, 322
in accounting cycle, 175
buildings, 411, 422, 636, 647, 655
characteristics of, 410
defined, 435
depreciation of, see Depreciation
disposal of, 423
land improvements, 411
retirement of, 424
on statements of cash flow, 632
on statements of financial position, 692
Plus signs (financial calculators), E17
Ponzi schemes, 340
Post-closing trial balance:
defined, 183
Posting:
in accounting cycle, 164
in cash receipts journals, G10
defined, 76
in general journals, G16
Postretirement benefits, H6–H9
Predictive value, of information, 126
Preference shares:
of corporations, 536–537, 540–541
defined, 554
on statements of financial position, 550
Premium(s):
bond, see Bond premiums
Prenumbered documents, 320, G5, G13
Prepaid expenses:
adjusting entries for, 102–106, 122–124
as current assets, 176
as deferrals, 102
defined, 122
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
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
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
Profit. See also Revenue
merchandising, 227
Profitability, 688
Profitability ratios, 695, 699–704, 713. See also specific ratios
Promissory notes, 379–380, 388, 462. See also Notes payable
Property, plant, and equipment, 410. See also Plant assets
defined, 183
and free cash flow, 641
revaluation of, 577
on statements of financial position, 432, 624
Property taxes, 410
Proprietorships:
equity in, 178
international differences in, 48
Pro rata, 538
Provisions (liabilities), H1, H9
Public Company Accounting Oversight Board (PCAOB), 363
Publicly held corporations, 520–522, 554, 710
Public property, 429
Purchase allowances, 217, 233, 235–236
Purchase discounts, 218, 233, 236
Purchase incentives, 218
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
corporate profitability, 551
intangible assets, 432
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
Receivables, 366–388. See also Accounts receivable
accounting standards for, 382
analysis of, 385
as current assets, 176
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
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
for merchandise operations, 235–237
terminology, 76
use of currency signs in, 72
Record-keeping, 319
Reference column:
in ledgers, 62
Regulation:
and consolidated financial statements, 589
of financial disclosures, 97
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 dividends, 538
exchange requirements for, 521–522
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
social, 25
Retailers:
and credit card sales, 377
defined, 212
Retail inventory method, 286–287
analysis of, 551
and cash dividends, 538
defined, 13, 76, 528, 546, 554
and prior period adjustments, 548
in recording process, 54
statement presentation of, 550–551
in summary of transactions, 20–21
terminology, 554
Retained Earnings account:
equity in, 178
and preparing financial statements, 118
and treasury shares, 535
and worksheets, 600
Retained earnings restrictions, 547, 554
Retained earnings statements, 22–24
horizontal analysis of, 691
items reported in, 546
limits of information on, 624
prior period adjustments in, 548
Retirement (assets), 424, 475–476
Returns:
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
improper recognition of, 710
on income statements, 22
matching of expenses with, 375
in recording process, 55
and retained earnings, 13
from share investments, 587–588
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
Reversing entries:
in accounting cycle, 171, 183–185
defined, 183
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
Salaries. See also Payroll accounting
in accounting field, 31
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
rate of return on, 699
Sales account, G5
Sales activities, 319
Sales agreements, 216
Sales allowances, 221, 233, 236
Sales discounts, 222, 233, 236
Sales industry, 319
Sales returns, 221, 222, 233, 236
Sales revenue, 212, 219, 226–227, 233
Sales taxes, 412
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
Securities:
held-for-collection, 599
Securities exchanges, see Exchanges (markets)
Securities regulators, 521–522
Segregation of duties:
in internal control, 318–319, 323
Separate accounts, 220
Services (transaction analysis), 17–18
Shares:
market value of, 526
ordinary, see Ordinary shares
preference, see Preference shares
Share capital:
dividends on, 691
on financial statements, 163, 549–550
and GAAP, 94
in recording process, 54
in summary of transactions, 20–21
Share Capital–Ordinary account:
cash dividends in, 538
and general ledgers, G2
par value of shares in, 530
and treasury shares, 535
and worksheets, 600
Share compensation plans, 532–533
Share dividends, 167, 542–546, 554
Shareholders:
financial statement analysis by, 688
management by, 521
and taxes on cash dividends, 522
in transaction analysis, 16
Shareholders’ equity, 94
Share investments, 585–590, 599
Share options, 532
Share Premium–Treasury account, 530, 531, 535
Share quotes, reading, 526
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 journal entries, 59, 76
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
cash payments journals, G11, G13–G15
cash receipts journals, G7–G11
terminology, G19
Specific identification method (inventory), 269, 282, 311
Spreadsheet programs, 158
Stack, Jack, 3
Standards, 8. See also specific standards
financial statement analysis, 732–734
intangible assets, 457
merchandising operations, 259–260
principles-based, 48
transaction analysis, 48
Standing timber, 426
Stated interest rate, 469
Statements of cash flows, 22–23, 622–643
classification in, 171–179, 624–626, 628
direct method for preparing, 628, 650–657
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
terminology, 643
usefulness of, 624
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 liabilities on, 178–179, 462, 465
depreciation on, 424
horizontal analysis of, 690
intangible assets on, 174–175, 432
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
reporting leases on, H5
share premium on, 550
and statements of cash flow, 624, 628
treasury shares on, 534
vertical analysis of, 692
State unemployment taxes, F9–F10, F14
State unemployment tax acts (SUTA), F9–F10
Stockholders’ equity, 94
Straight-line method:
for depreciation, 415–416, 418–419, 428, 436
Subsidiary accounts, G16
Subsidiary companies, 588, 589, 599
Subsidiary ledgers, G1–G3, G10, G19
Supplies:
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:
closing of, 164
defined, 183
in ledgers, 170
permanent vs., 164
Temporary investments, 582
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
present value concepts, E7–E17
Trademarks (trade names), 429, 436
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
Treasury shares:
defined, 554
Trend analysis, see Horizontal analysis
Trial balance:
defined, 76
under GAAP, 93
for merchandising operations, 238
Turnover ratio(s):
asset, 432, 435, 699–700, 704, 713
U
Uncollectible Accounts Expense, 370, 371
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
Useful information, 126
Useful life, 104, 122, 414–416, 422–423, 436, 457
V
Valuation:
of accounts receivable, 370–376
under IFRS, 207
Value. See also specific types of value
creating, 177
of goodwill, 430
Verifiability of information, 126
Vertical analysis, 688–689, 692–694, 713
Virtual close, 168
Voluntary restrictions, 547
Voucher register, 327
Voucher systems:
defined, 344
W
Wages, 112–113, F1, F2, F14. See also Payroll accounting
Wage and Tax Statement (Form W-2), F10, F11, F14
Walton, Sam, 60
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:
defined, 183
for income statements, 603
for merchandising operations, 237–239
for statements of cash flows, 644–649