Accounting : tools for business decision making

Introduction To Financial Statements:

Knowing the numbers

Forms of business organization

Internal users

External users

Ethics in financial reporting

Business activities

Financing activities

Investing activities

Operating activities

Communicating with users

Income statement

Retained earnings statement

Balance sheet

Statement of cash flows

Interrelationships of statements

Other elements of an annual report

Look at IFRS

Further Look At Financial Statements:

Just fooling around?

Classified balance sheet

Current assets

Long-term investments

Property, plant, and equipment

Intangible assets

Current liabilities

Long-term liabilities

Stockholders' equity

Using the financial statements

Ratio analysis

Using the income statement

Using the statement of stockholders' equity

Using a classified balance sheet

Keeping an eye on cash

Financial reporting concepts

Standard-setting environment

Qualities of useful information

Assumptions in financial reporting

Constraints in financial reporting

Look at IFRS

Accounting Information System:

Accidents happen

Accounting information system

Accounting transactions

Analyzing transactions

Summary of transactions

Account

Debits and credits

Debit and credit procedures

Stockholders' equity relationships

Summary of debit/credit rules

Steps in the recording process

Journal

Ledger

Chart of accounts

Posting

Recording process illustrated

Summary illustration of journalizing and posting

Trial balance

Limitations of a trial balance

Keeping an eye on cash

Look at IFRS

Accrual Accounting Concepts:

What was your profit?

Timing issues

Revenue recognition principle

Expense recognition principle

Accrual versus cash basis of accounting

Basics of adjusting entries

Types of adjusting entries

Adjusting entries for deferrals

Adjusting entries for accruals

Summary of basic relationships

Adjusted trial balance and financial statements

Preparing the adjusted trial balance

Preparing financial statements

Closing the books

Preparing closing entries

Preparing a post-closing trial balance

Summary of the accounting cycle

Quality of earnings

Keeping an eye on cash

Appendix 4A: Adjusting entries in an automated world-using a worksheet

Look at IFTS

Merchandising Operations And The Multiple-Step Income Statement:

Who doesn't shop at Wal-Mart?

Merchandising operations

Operating cycles

Flow of costs

Recording purchases of merchandise

Freight costs

Purchase returns and allowances

Purchase discounts

Summary of purchasing transactions

Recording sales of merchandise

Sales returns and allowances

Sales discounts

Income statement presentation

Sales revenues

Gross profit

Operating expenses

Nonoperating expenses

Determining cost of goods sold

Under a periodic system

Evaluating profitability

Gross profit rate

Profit margin ratio

Keeping an eye on cash

Appendix 5A: Periodic inventory system

Recording merchandise transactions

Recording purchases of merchandise

Freight costs

Recording sales of merchandise

Comparison of entries-perpetual vs periodic

Look at IFRS

Reporting And Analyzing Inventory:

Where is that spare bulldozer blade?

Classifying inventory

Determining inventory quantities

Taking a physical inventory

Determining ownership of goods

Inventory costing

Specific identification

Cost flow assumptions

Financial statement and tax effects of cost flow methods

Keeping an eye on cash

Using inventory cost flow methods consistently

Lower-of-cost-or-market

Analysis of inventory

Inventory turnover ratio

Analysts' adjustments for LIFO reserve

Appendix 6A: Inventory cost flow methods in perpetual inventory system

First-in, first-out (FIFO)

Last-in, first-out (LIFO)

Average cost

Appendix 6B: Inventory errors

Income statement effects

Balance sheet effects

Look at IFRS

Fraud, Internal Control, And Cash:

Minding the money in moose jaw

Fraud and internal control

Fraud

Sarbanes-Oxley act

Internal control

Principles of internal control activities

Limitations of internal control

Cash controls

Cash receipts controls

Cash disbursements controls

Control features: use of a bank

Bank statements

Reconciling the bank account

Reporting cash

Cash equivalents

Restricted cash

Managing and monitoring cash

Basic principles of cash management

Keeping an eye on cash

Appendix 7A: Operation of the petty cash fund

Establishing the petty cash fund

Making payments from petty cash

Replenishing the petty cash fund

Look at IFRS

Reporting And Analyzing Receivables:

Dose of careful management keeps receivables healthy

Types of receivables

Accounts receivable

Recognizing accounts receivable

Valuing accounts receivable

Notes receivable

Determining the maturity date

Computing interest

Recognizing notes receivable

Valuing notes receivable

Disposing of notes receivable

Financial statement presentation of receivables

Managing receivables

Extending credit

Establishing a payment period

Monitoring collections

Evaluating liquidity of receivables

Accelerating cash receipts

Keeping an eye on cash

Look at IFRS

Reporting And Analyzing Long-Lived Assets:

Tale of two airlines

Section 1: Plant Assets:

Determining the cost of plant assets

Land

Land improvements

Buildings

Equipment

To buy or lease?

Accounting for plant assets

Depreciation

Factors in computing depreciation

Depreciation methods

Revising periodic depreciation

Expenditures during useful life

Impairments

Plant asset disposals

Analyzing plant assets

Return on assets ratio

Asset turnover ratio

Profit margin ratio revisited

Section 2: Intangible Assets:

Accounting for intangible assets

Types of intangible assets

Patents

Research and development costs

Copyrights

Trademarks and trade names

Franchise and licenses

Goodwill

Financial statement presentation of long-lived assets

Keeping an eye on cash

Appendix 9A: Calculation of depreciation using other methods

Declining-balance

Units-of-activity

Look at IFRS. Reporting And Analyzing Liabilities:

And then there were two

Current liabilities

What is a current liability?

Notes payable

Sales taxes payable

Unearned revenues

Current maturities of long-term debt

Payroll and payroll taxes payable

Bonds: long-term liabilities

Types of bonds

Issuing procedures

Determining the market value of bonds

Accounting for bond issues

Issuing bonds at face value

Discount or premium on bonds

Issuing bonds at a discount

Issuing bonds at a premium

Accounting for bond retirements

Redeeming bonds at maturity

Redeeming bonds before maturity

Financials statement presentation and analysis

Balance sheet presentation

Keeping an eye on cash

Analysis

Off-balance-sheet financing

Appendix 10A: Straight-line amortization

Amortizing bond discount

Amortizing bond premium

Appendix 10B: Effective-interest amortization

Amortizing bond discount

Amortizing bond premium

Appendix 10C: Accounting for long-term notes payable

Look at IFTS

Reporting And Analyzing Stockholders' Equity:

What's cooking?

Corporate form of organization

Characteristics of a corporation

Forming a corporation

Stockholder rights

Stock issue considerations

Authorized stock

Issuance of stock

Par and no-par value stocks

Accounting for common stock issues

Accounting for treasury stock

Purchase of treasury stock

Preferred stock

Dividend preferences

Liquidation preference

Dividends

Cash dividends

Stock dividends

Stock splits

Retained earnings

Retained earnings restrictions

Financial statement presentation of stockholders' equity

Balance sheet presentation

Keeping an eye on cash

Measuring corporate performance

Dividend record

Earnings performance

Debt versus equity decision

Appendix 11A: Entries for stock dividends

Look at IFTS

Statement Of Cash Flows:

Got cash?

Statement of cash flows: usefulness and format

Usefulness of the statement of cash flows

Classification of cash flows

Significant noncash activities

Format of the statement of cash flows

Corporate life cycle

Preparing the statement of cash flows

Indirect and direct methods

Preparation of the statement of cash flows-indirect method

Step 1: Operating activities

Summary of conversion to net cash provided by operating activities-indirect methods

Step 2: Investing and financing activities

Step 3: Net change in cash

Using cash flows to evaluate a company

Free cash flow

Keeping an eye on cash

Assessing liquidity and solvency using cash flows

Appendix 12A: Statement of cash flows-direct method

Step 1: Operating activities

Step 2: Investing and financing activities

Step 3: Net change in cash

Appendix 12B: Statement of cash flows-T-account approach

Financial Analysis: The Big Picture:

It pays to be patient

Sustainable income

Irregular items

Changes in accounting principle

Comprehensive income

Concluding remarks

Comparative analysis

Horizontal analysis

Vertical analysis

Ratio analysis

Liquidity ratios

Solvency ratios

Profitability ratios

Quality of earnings

Alternative accounting methods

Pro Forma income

Improper recognition

Price-earnings ratio

Appendix 13A: Comprehensive illustration of ratio analysis

Liquidity ratios

Solvency ratios

Profitability ratios

Look at IFTS

Managerial Accounting:

Think fast

Managerial accounting basics

Comparing managerial and financial accounting

Management functions

Organization structure

Business ethics

Managerial cost concepts

Manufacturing costs

Product versus period costs

Manufacturing costs in financial statements

Income statement

Balance sheet

Cost concepts-a review

Product costing for service industries

Managerial accounting today

Value chain

Technological change

Just-in-time inventory methods

Quality

Activity-based costing

Theory of constraints

Balanced scorecard

Appendix 11A: Accounting cycle for a manufacturing company

Worksheet

Closing entries

Job Order Costing:

And we'd like it in red

Cost accounting systems

Job order cost system

Process cost system

Job order cost flow

Accumulating manufacturing costs

Assigning manufacturing costs to work in process

Assigning costs to finished goods

Assigning costs to cost of goods sold

Job order costing for service companies

Summary of job order cost flows

Advantages and disadvantage of job order costing

Reporting job cost data

Under- or overapplied manufacturing overhead

Process Costing:

Ben & Jerry's tracks it mix-ups

Nature of process cost systems

Uses of process cost systems

Process costing for service companies

Similarities and differences between job order cost and process cost systems

Process cost flow

Assigning manufacturing costs

Journal entries

Equivalent units

Weighted-average method

Refinements on the weighted-average method

Production cost report

Comprehensive example of process costing

Compute the physical unit flow (Step 1)

Compute equivalent units of production (Step 2)

Compute unit production costs (Step 3)

Prepare a cost reconciliation schedule (Step 4)

Preparing the production cost report

Costing systems-final comments

Appendix 16A: FIFO method

Equivalent units under FIFO

Comprehensive example

FIFO and weighted-average

Activity-Based Costing:

ABCs of doughnut making-virtual-reality style

Traditional costing and activity-based costing

Traditional costing systems

Need for a new approach

Activity-based costing

Example of traditional costing versus ABC

Identify and classify activities and allocate overhead to cost pools (Step 1)

Identify cost drivers (Step 2)

Compute overhead rates (Step 3)

Assign overhead costs to products

Comparing unit costs

Activity-based costing: a closer look

Benefits of ABC

Limitations of ABC

When to use ABC

Value-added versus non-value-added activities

Classification of activity levels

Activity-based costing in service industries

Traditional costing example

Activity-based costing example

Appendix 17A: Just-in-time processing

Objective JIT processing

Elements of JIT processing

Benefits of JIT processing

Cost-Volume-Profit:

Understanding medical costs might lead to better health care

Cost behavior analysis

Variable costs

Fixed costs

Relevant range

Mixed costs

Importance of identifying variable and fixed costs

Cost-volume-profit analysis

Basic components

CVP income statement

Break-even analysis

Target net income

Margin of safety

Cost-Volume-Profit Analysis: Additional Issues:

What goes up (fast), must come down (fast)

Cost-volume-profit (CVP) review

Basic concepts

Basic computations

CVP and changes in the business environment

Sales mix

Break-even sales in units

Break-even sales in dollars

Determining sales mix with limited resources

Cost structure and operating leverage

Effect on contribution margin ratio

Effect on break-even point

Effect on margin of safety ration

Operating leverage

Appendix 19A: Absorption costing versus variable costing

Example: Comparing absorption costing with variable costing

Extended example

Decision-marking concerns

Potential advantages of variable costing. Budgetary Planning:

Next Amazon.com? not quite

Budgeting basics

Budgeting and accounting

Benefits of budgeting

Essentials of effective budgeting

Length of the budge period

Budgeting process

Budgeting and human behavior

Budgeting and long-range planning

Master budget

Preparing the operating budgets

Sales budget

Production budget

Direct materials budget

Direct labor budget

Manufacturing overhead budget

Selling and administrative expense budget

Budget income statement

Preparing the financial budgets

Cash budget

Budgeted balance sheet

Budgeting in nonmanufacturing companies

Merchandisers

Service companies

Not-for-profit organizations

Budgetary Control And Responsibility Accounting:

Turning trash into treasure

Concept of budgetary control

Static budget reports

Examples

Uses and limitations

Flexible budgets

Why flexible budgets?

Developing the flexible budget

Flexible budget-a case study

Flexible budget reports

Management by exception

Concept of responsibility accounting

Controllable versus noncontrollable revenues and costs

Responsibility reporting system

Types of responsibility centers

Responsibility accounting for cost centers

Responsibility accounting for profit centers

Responsibility accounting for investment centers

Principles of performance evaluation

Appendix 21A: Residual income-another performance measurement

Residual income compared to ROI

Residual income weakness

Standard Costs And Balanced Scorecard:

Highlighting performance efficiency

Need for standards

Distinguishing between standards and budgets

Why standard costs?

Setting standard costs-a difficult task

Ideal versus normal standards

Case study

Analyzing and reporting variances from standards

Direct materials variances

Direct labor variances

Manufacturing overhead variances

Reporting variances

Statement presentation of variances

Balanced scorecard

Appendix 22A: Standard cost accounting system

Journal entries

Ledger accounts

Appendix 22B: Closer look at overhead variances

Overhead controllable variance

Overhead volume variance

Incremental Analysis And Capital Budgeting:

Soup is good food

Section 1: Incremental analysis

Management's decision-making process

Incremental analysis approach

How incremental analysis works

Types of incremental analysis

Accept an order at a special price

Make or buy

Sell or process further

Retain or replace equipment

Eliminate an unprofitable segment

Allocate limited resources

Section 2: Capital budgeting

Evaluation process

Annual rate of return

Cash payback

Discounted cash flow

Net present value method

Internal rate of return method

Comparing discounted cash flow methods

Appendix A: Specimen Financial Statements: Tootsie Roll Industries, Inc, :

Annual report

Financial highlights

Letter to the stockholders

Management discussion and analysis

Management's report on internal control and management certifications of financial statements

Financial statements and accompanying notes

Auditor's report

Supplementary financial information

Appendix B: Specimen Financial Statements: The Hershey Company:

Appendix C: Specimen Financial Statements: Zetar PLC:

Appendix D: Time Value Of Money:

Nature of interest

Simple interest

Compound interest

Section 1: Future value concepts

Future value of a single amount

Future value of an annuity

Section 2: Present value concepts

Present value of a single amount

Present value of an annuity

Time periods and discounting

Computing the present value of a long-term note or bond

Computing the present value of a capital budgeting decision

Section 3: Using financial calculators

Present value of a single sum

Plus and minus

Compound periods

Rounding

Present value of an annuity

Useful applications of the financial calculator

Auto loan

Mortgage loan amount

Appendix E: Reporting and analyzing investments

Why corporations invest

Accounting for debt investments

Recording acquisition of bonds

Recording bond interest

Recording sale of bonds

Accounting for stock investments

Holdings of less than 20%

Holdings of between 20% and 50%

Holdings of more than 50%

Valuing and reporting investments

Categories of securities

Balance sheet presentation

Presentation of realized and unrealized gain or loss

Statement of cash flows presentation

Appendix F: Payroll Accounting:

Payroll defined

Internal control of payroll

Hiring employees

Timekeeping

Preparing the payroll

Paying the payroll

Determining the payroll

Gross earnings

Payroll deductions

Net pay

Recording the payroll

Maintaining payroll department records

Recognizing payroll expenses and liabilities

Recording payment of the payroll

Employer payroll taxes

FICA taxes

Federal unemployment taxes

State unemployment taxes

Recording employer payroll taxes

Filing and remitting payroll taxes

Appendix G: (available online at www.wiley.com/college/kimmel) Subsidiary Ledgers And Special Journals:

Section 1: Expanding the ledger-subsidiary ledgers

Nature and purpose of subsidiary ledgers

Subsidiary ledger example

Advantages of subsidiary ledgers

Section 2: Expanding the journal-special journals

Journalizing credit sales

Posting the sales journal

Proving the ledgers

Advantages of the sales journal

Cash receipts journal

Journalizing cash receipts transactions

Posting the cash receipts journal

Proving the ledgers

Purchases journal

Journalizing credit purchases of merchandise

Posting the purchases journal

Expanding the purchases journal

Cash payments journal

Journalizing cash payments

Transactions

Posting the cash payments journal

Effects of special journals on general journal

Appendix H: (available online at www.wiley.com/college/kimmel) Accounting For Partnerships:

Partnership form of organization

Characteristics of partnerships

Organizations with partnership

Characteristics

Advantages and disadvantages of partnerships

Partnership agreement

Basic partnership accounting

Forming a partnership

Dividing net income or net loss

Partnership financial statements

Admission and withdrawal of partners

Liquidation of a partnership

No capital deficiency

Capital deficiency

Appendix I: (available online at www.wiley.com/college/kimmel) Accounting For Sole Proprietorships:

Owner's equity in s sole proprietorship

Increases in owner's equity

Decreases in owner's equity

Recording transactions of a proprietorship

Financial statements for a proprietorship

Closing the books of a proprietorship

Preparing a post-closing trial balance for a proprietorship

Photo credits

Company index

Subject index