Contents
Chapter 1
Chapter 3
Accounting in Action 2
Adjusting the Accounts 8 4
Feature Story: Knowing the Numbers 2
What Is Accounting? 4
Three Activities 4
W h o Uses Accounting Data? 5
The Building Blocks of Accounting 7
Ethics in Financial Reporting 7
Generally Accepted Accounting Principles 8
Measurement Principles 9
Assumptions 10
The Basic Accounting Equation 12
Assets 12
Liabilities 13
Owner's Equity 13
Using the Accounting Equation 14
Transaction Analysis 15
Summary of Transactions 19
Financial Statements 20
Income Statement 22
Owner's Equity Statement 22
Balance Sheet 23
Statement of Cash Flows 23
Feature Story: Keeping Track of Groupons 84
Timing Issues 86
Fiscal and Calendar Years 86
Accrual- vs. Cash-Basis Accounting 86
Recognizing Revenues and Expenses 86
The Basics of Adjusting Entries 88
Types of Adjusting Entries 88
Adjusting Entries for Deferrals 89
Adjusting Entries for Accruals 95
Summary of Basic Relationships 101
The Adjusted Trial Balance and Financial
Statements 103
Preparing the Adjusted Trial Balance 103
Preparing Financial Statements 103
APPENDIX 3A Alternative Treatment of Prepa
Expenses and Unearned Revenues 106
Prepaid Expenses 106
Unearned Revenues 108
Summary of Additional Adjustment
Relationships 109
ALookatlFRS 133
APPENDIX 1A Accounting Career Opportunities 26
Public Accounting 26
Private Accounting 26
Governmental Accounting 27
Forensic Accounting 27
"Show M e the Money" 27
A Look at IFRS 42
Chapter 2
The Recording Process 46
Feature Story: Accidents Happen 46
The Account 48
Debits and Credits 48
Summary of Debit/Credit Rules 51
Steps in the Recording Process 52
The Journal 53
The Ledger 55
The Recording Process Illustrated 58
Summary Illustration of Journalizing and
Posting 63
The Trial Balance 65
Limitations of a Trial Balance 65
Locating Errors 66
Use of Dollar Signs 66
A Look at IFRS 81 '
Chapter 4
Completing the Accounting Cycle 136
Feature Story: Everyone Likes to Win 136
Using a Worksheet 138
Steps in Preparing a Worksheet 139
Preparing Financial Statements from
a Worksheet 145
Preparing Adjusting Entries from a
Worksheet 147
Closing the Books 147
Preparing Closing Entries 148
Posting Closing Entries 150
Preparing a Post-Closing Trial Balance 151
Summary of the Accounting Cycle 153
Reversing Entries—An Optional Step 154
Correcting Entries—An Avoidable Step 155
The Classified Balance Sheet 156
Current Assets 157
Long-Term Investments 158
Property, Plant, and Equipment 159
Intangible Assets 159
Current Liabilities 160
Long-Term Liabilities 161
Owner's Equity 161
• ••
XIII
APPENDIX 4A Reversing Entries 163
Reversing Entries Example 163
A Look at IFRS 183
Chapter 5
Accounting for Merchandising
Operations 1 8 8
Feature Story: Buy Now, Vote Later 188
Merchandising Operations 190
Operating Cycles 190
Flow of Costs 191
Recording Purchases of Merchandise 193
Freight Costs 194
Purchase Returns and Allowances 195
Purchase Discounts 196
Summary of Purchasing Transactions 197
Recording Sales of Merchandise 197
Sales Returns and Allowances 199
Sales Discounts 200
Completing the Accounting Cycle 201
Adjusting Entries 201
Closing Entries 202
Summary of Merchandising Entries 202
Forms of Financial Statements 203
Multiple-Step Income Statement 203
Single-Step Income Statement 206
Classified Balance Sheet 207
APPENDIX 5A Worksheet for a Merchandising
Company—Perpetual Inventory 208
Using a Worksheet 208
APPENDIX 5B Periodic Inventory System 210
Determining Cost of Goods Sold Under a
Periodic System 210
Recording Merchandise Transactions 211
Recording Purchases of Merchandise 212
Recording Sales of Merchandise 213
Journalizing and Posting Closing Entries 213
Using a Worksheet 215
A Look at IFRS 235
Chapter 6
Inventories 238
Feature Story: "Where Is That Spare
Bulldozer Blade?" 238
Classifying and Determining Inventory 240
Classifying Inventory 240
Determining Inventory Quantities 241
Inventory Costing 244
Specific Identification 244
Cost Flow Assumptions 245
Financial Statement and Tax Effects of Cost
Flow Methods 249
xiv
Using Inventory Cost Flow Methods
Consistently 251
Lower-of-Cost-or-Market 252
Inventory Errors 253
Income Statement Effects 253
Balance Sheet Effects 254
Statement Presentation and Analysis 254
Presentation 254
Analysis 255
APPENDIX 6A Inventory Cost Flow Methods in
Perpetual Inventory Systems 257
First-ln, First-Out (FIFO) 258
Last-In, First-Out (LIFO) 258
Average-Cost 259
APPENDIX 6B Estimating Inventories 260
Gross Profit Method 260
Retail Inventory Method 261
A Look at IFRS 278
Chapter 7
Accounting Information Systems 282
Feature Story: QuickBooks® Helps
This Retailer Sell Guitars 282
Basic Concepts of Accounting Information
Systems 284
Computerized Accounting Systems 284
Manual Accounting Systems 286
Subsidiary Ledgers 286
Subsidiary Ledger Example 287
Advantages of Subsidiary Ledgers 288
Special Journals 289
Sales Journal 290
Cash Receipts Journal 291
Purchases Journal 296
Cash Payments Journal 298
Effects of Special Journals on the General
Journal 301
A Look at IFRS 320
Chapter 8
Fraud, Internal Control,
and Cash 3 2 4
Feature Story: Minding the Money in Moose Jaw 324
Fraud and Internal Control 326
Fraud 326
The Sarbanes-Oxley Act 326
Internal Control 327
Principles of Internal Control Activities 328
Limitations of Internal Control 335
Cash Controls 335
Cash Receipts Controls 335
Cash Disbursements Controls 338
Petty Cash Fund 339
Control Features: Use of a Bank 342
Making Bank Deposits 343
Writing Checks 343
Bank Statements 343
Reconciling the Bank Account 345
Electronic Funds Transfer (EFT) System 349
Reporting Cash 350
Cash Equivalents 350
Restricted Cash 351
A Look at IFRS 367
Chapter 9
Accounting for Receivables 372
Feature Story: A Dose of Careful Management
Keeps Receivables Healthy 372
Types of Receivables 374
Accounts Receivable 374
Recognizing Accounts Receivable 375
Valuing Accounts Receivable 376
Disposing of Accounts Receivable 382
Notes Receivable 384
Determining the Maturity Date 385
Computing Interest 386
Recognizing Notes Receivable 387
Valuing Notes Receivable 387
Disposing of Notes Receivable 387
Statement Presentation and Analysis 390
Presentation 390
Analysis 390
A Look at IFRS 405
Chapter 10
Plant Assets, Natural Resources,
and Intangible Assets 4 0 8
Feature Story: How Much for a
Ride to the Beach? 408
Plant Assets 410
Determining the Cost of Plant Assets 410
Depreciation 413
Expenditures During Useful Life 420
Plant Asset Disposals 421
Natural Resources 423
Depletion 423
Presentation 424
Intangible Assets 424
Accounting for Intangible Assets 425
Research and Development Costs 428
Statement Presentation and Analysis 428
Presentation 428
Analysis 429
APPENDIX 10A Exchange of Plant Assets 431
Loss Treatment 431
Gain Treatment 432
A Look at IFRS 447
Chapter 11
Current Liabilities and Payroll
Accounting 4 5 2
Feature Story: Financing His Dreams 452
Current Liabilities 454
Notes Payable 454
Sales Taxes Payable 455
Unearned Revenues 456
Current Maturities of Long-Term Debt 456
Statement Presentation and Analysis 457
Contingent Liabilities 458
Recording a Contingent Liability 459
Disclosure of Contingent Liabilities 460
Payroll Accounting 461
Determining the Payroll 461
Recording the Payroll 465
Employer Payroll Taxes 468
Filing and Remitting Payroll Taxes 470
Internal Control for Payroll 470
APPENDIX 11A Additional Fringe Benefits 473
Paid Absences 473
Postretirement Benefits 474
A Look at IFRS 488
Chapter 12
Accounting for Partnerships 492
Feature Story: From Trials to the Top Ten 492
Partnership Form of Organization 494
Characteristics of Partnerships 494
Organizations with Partnership Characteristics 495
Advantages and Disadvantages of
Partnerships 497
The Partnership Agreement 497
Basic Partnership Accounting 498
Forming a Partnership 498
Dividing Net Income or Net Loss 499
Partnership Financial Statements 502
Liquidation of a Partnership 503
N o Capital Deficiency 504
Capital Deficiency 505
APPENDIX 12A Admission and Withdrawal of
Partners 508
Admission of a Partner 509
Withdrawal of a Partner 512
Chapter 13
Corporations: Organization and
Capital Stock Transactions 5 2 6
Feature Story: What's Cooking? 526
The Corporate Form of Organization 528
Characteristics of a Corporation 528
Forming a Corporation 530
xv
Stockholder Rights 532
Stock Issue Considerations 532
Corporate Capital 535
Accounting for Issues of C o m m o n Stock 536
Issuing Par Value C o m m o n Stock for Cash 537
Issuing No-Par C o m m o n Stock for Cash 537
Issuing C o m m o n Stock for Services or Noncash
Assets 538
Accounting for Treasury Stock 539
Purchase of Treasury Stock 540
Disposal of Treasury Stock 541
Accounting for Preferred Stock 542
Dividend Preferences 543
Liquidation Preference 544
Statement Presentation 544
A Look at IFRS 557
Chapter 14
Corporations: Dividends,
Retained Earnings, and Income
Reporting 5 6 0
Feature Story: Owning a Piece of the Action 560
Dividends 562
Cash Dividends 562
Stock Dividends 565
Stock Splits 567
Retained Earnings 569
Retained Earnings Restrictions 570
Prior Period Adjustments 571
Retained Earnings Statement 572
Statement Presentation and Analysis 572
Presentation 572
Analysis 573
Income Statement Presentation 574
Income Statement Analysis 574
A Look at IFRS 588
Chapter 15
Long-Term Liabilities 590
Feature Story: And Then There Were Two 590
Bond Basics 592
Types of Bonds 593
Issuing Procedures 593
Determining the Market Price
of a Bond 594
Accounting for Bond Issues 596
Issuing Bonds at Face Value 596
Discount or Premium on Bonds 597
Issuing Bonds at a Discount 597
Issuing Bonds at a Premium 598
Accounting for Bond Redemptions 599
Redeeming Bonds at Maturity 599
Redeeming Bonds before Maturity 600
Converting Bonds into C o m m o n
Stock 600
xvi
Accounting for Other Long-Term Liabilities 601
Long-Term Notes Payable 601
Lease Liabilities 602
Statement Presentation and Analysis 604
Presentation 604
Analysis 605
APPENDIX 15A Present Value Concepts
Related to Bond Pricing 607
Present Value of a Single Amount 609
Present Value of Interest Payments
(Annuities) 609
Time Periods and Discounting 610
Computing the Present Value of a Bond 610
APPENDIX 15B Effective-Interest Method of
Bond Amortization 612
Amortizing Bond Discount 613
Amortizing Bond Premium 615
APPENDIX 15C Straight-Line Amortization 616
Amortizing Bond Discount 616
Amortizing Bond Premium 617
A Look at IFRS 633
Chapter 16
Investments 636
Feature Story: "Is There Anything
Else We Can Buy?" 636
W h y Corporations Invest 638
Accounting for Debt Investments 639
Recording Acquisition of Bonds 639
Recording Bond Interest 639
Recording Sale of Bonds 640
Accounting for Stock Investments 640
Holdings of Less than 2 0 % 641
Holdings Between 2 0 % and 5 0 % 642
Holdings of More than 5 0 % 643
Valuing and Reporting Investments 644
Categories of Securities 645
Balance Sheet Presentation 648
Presentation of Realized and Unrealized
Gain or Loss 648
Classified Balance Sheet 649
A Look at IFRS 663
Chapter 17
Statement of Cash Flows 666
Feature Story: Got Cash? 666
The Statement of Cash Flows: Usefulness
and Format 668
Usefulness of the Statement of
Cash Flows 668
Classification of Cash Flows 668
Significant Noncash Activities 670
Format of the Statement of Cash Flows 670
Preparing the Statement of Cash Flows 671
Indirect and Direct Methods 672
Preparing the Statement of Cash Flows—Indirect
Method 672
Step 1: Operating Activities 674
Summary of Conversion to Net Cash Provided
by Operating Activities—Indirect Method 677
Step 2: Investing and Financing Activities 678
Step 3: Net Change in Cash 679
Using Cash Flows to Evaluate a Company 680
Free Cash. Flow 680
APPENDIX 17A Statement of Cash Flows—Direct
Method 682
Step 1: Operating Activities 684
Step 2: Investing and Financing Activities 688
Step 3: Net Change in Cash 689
APPENDIX 17B Using a Worksheet to Prepare the
Statement of Cash Flows—Indirect Method 690
Preparing the Worksheet 691
APPENDIX 17C Statement of Cash
Flows—T-Account Approach 696
A Look at IFRS 715
Chapter 18
Financial Statement Analysis 718
Feature Story: It Pays to Be Patient 718
Basics of Financial Statement Analysis 720
Need for Comparative Analysis 720
Tools of Analysis 720
Horizontal Analysis 721
Balance Sheet 722
Income Statement 722
Retained Earnings Statement 723
Vertical Analysis 724
Balance Sheet 724
Income Statement 725
Ratio Analysis 726
Liquidity Ratios 727
Profitability Ratios 730
Solvency Ratios 734
Summary of Ratios 736
Earning Power and Irregular Items 737
Discontinued Operations 737
Extraordinary Items 738
Changes in Accounting Principle 739
Comprehensive Income 740
Quality of Earnings 740
Alternative Accounting Methods 740
Pro Forma Income 741
Improper Recognition 741
A Look at IFRS 761
Management Functions 766
Organizational Structure 768
Business Ethics 769
Managerial Cost Concepts 770
Manufacturing Costs 771
Product versus Period Costs 772
Manufacturing Costs in Financial
Statements 773
Income Statement 773
Cost of Goods Manufactured 774
Cost of Goods Manufactured Schedule 775
Balance Sheet 775
Cost Concepts—A Review 776
Product Costing for Service Industries 778
Managerial Accounting Today 779
Focus on the Value Chain 779
Balanced Scorecard 780
Corporate Social Responsibility 781
Chapter 20
Job Order Costing 800
Feature Story: She Succeeds Where
Others Have Failed 800
Cost Accounting Systems 802
Job Order Cost System 802
Process Cost System 802
Job Order Cost Flow 803
Accumulating Manufacturing Costs 804
Assigning Manufacturing Costs to Work in
Process 806
Manufacturing Overhead Costs 810
Assigning Costs to Finished Goods 813
Assigning Costs to Cost of Goods Sold 814
Summary of Job Order Cost Flows 814
Job Order Costing for Service Companies 815
Advantages and Disadvantages of Job Order
Costing 817
Reporting Job Cost Data 818
Under- or Overapplied Manufacturing
Overhead 819
Chapter 21
Process Costing 836
Feature Story: Ben & Jerry's Tracks Its Mix-Ups 836
The Nature of Process Cost Systems 838
Uses of Process Cost Systems 838
Process Costing for Service Companies 839
Similarities and Differences Between Job Order
Cost and Process Cost Systems 839
Process
Cost Flow 840
Chapter 19
Assigning Manufacturing Costs—Journal
Managerial Accounting 764
Entries 841
Feature Story: Just Add Water . . . and Paddle 764Equivalent Units 843
Managerial Accounting Basics 766
Weighted-Average Method 843
Comparing Managerial and Financial
Refinements on the Weighted-Average
Accounting 766
Method 844
xvii
Production Cost Report 845
Compute the Physical Unit Flow (Step 1) 846
Compute Equivalent Units of Production
(Step 2) 847
Compute Unit Production Costs (Step 3) 847
Prepare a Cost Reconciliation Schedule
(Step 4) 848
Preparing the Production Cost Report 849
Costing Systems—Final Comments 850
Contemporary Developments 850
Just-in-Time Processing 850
Activity-Based Costing 852
APPENDIX 21A Example of Traditional Costing
versus Activity-Based Costing 855
Production and Cost Data 855
Unit Costs Under Traditional Costing 855
Unit Costs Under A B C 856
Comparing Unit Costs 857
Benefits of A B C 857
Limitations of A B C 858
Chapter 22
Cost-Volume-Profit 874
Feature Story: Don't Worry—Just Get Big 874
Cost Behavior Analysis 876
Variable Costs 876
Fixed Costs 877
Relevant Range 878
Mixed Costs 879
Importance of Identifying Variable and Fixed
Costs 882
Cost-Volume-Profit Analysis 883
Basic Components 883
CVP Income Statement 883
Break-Even Analysis 886
Target Net Income 890
Margin of Safety 891
CVP and Changes in the Business
Environment 892
CVP Income Statement Revisited 894
APPENDIX 22A Variable Costing 896
Example Comparing Absorption Costing with
Variable Costing 896
Absorption Costing Example 897
Variable Costing Example 897
Rationale for Variable Costing 899
Length of the Budget Period 915
The Budgeting Process 915
Budgeting and Human Behavior 916
Budgeting and Long-Range Planning 917
The Master Budget 917
Preparing the Operating Budgets 918
Sales Budget 918
Production Budget 920
Direct Materials Budget 921 .
Direct Labor Budget 922
Manufacturing Overhead Budget 923
Selling and Administrative Expense Budget 923
Budgeted Income Statement 924
Preparing the Financial Budgets 925
Cash Budget 925
Budgeted Balance Sheet 928
Budgeting in Nonmanufacturing
Companies 929
Merchandisers 929
Service Enterprises 930
Not-for-Profit Organizations 931
Chapter 24
Budgetary Control and
Responsibility Accounting
950
Feature Story: Turning Trash into Treasure 950
Budgetary Control 952
Static Budget Reports 953
Examples 953
Uses and Limitations 954
Flexible Budgets 954
W h y Flexible Budgets? 955
Developing the Flexible Budget 956
Flexible Budget—A Case Study 958
Flexible Budget Reports 959
Responsibility Accounting 961
Controllable versus Noncontrollable Revenues
and Costs 963
Principles of Performance Evaluation 963
Responsibility Reporting System 965
Types of Responsibility Centers 968
Responsibility Accounting for Cost Centers 969
Responsibility Accounting for Profit Centers 969
Responsibility Accounting for Investment
Centers 971
Chapter 25
Chapter 23
Budgetary Planning 912
Standard Costs and Balanced
Scorecard 9 9 4
Feature Story: Was This the Next Amazon.com?
Not Quite 912
Budgeting Basics 914
Budgeting and Accounting 914
The Benefits of Budgeting 914
Essentials of Effective Budgeting 914
Feature Story: 80,000 Different Caffeinated
Combinations 994
The Need for Standards 996
Distinguishing Between Standards and
Budgets 996
W h y Standard Costs? 996
xviii
Setting Standard Costs 996
Ideal versus Normal Standards 997
A Case Study 998
Analyzing and Reporting Variances from
Standards 1001
Direct Materials Variances 1002
Direct Labor Variances 1005
Manufacturing Overhead Variances 1007
Reporting Variances 1009
Statement Presentation of Variances 1010
Balanced Scorecard 1010
APPENDIX 25A Standard Cost Accounting
System 1015
Journal Entries 1015
Ledger Accounts 1017
APPENDIX 25B A Closer Look at Overhead
Variances 1018
Overhead Controllable Variance 1018
Overhead Volume Variance 1019
Chapter 26
Incremental Analysis and Capital
Budgeting 1 0 3 8
Feature Story: Make It or Buy It? 1038
Incremental Analysis 1040
Management's Decision-Making Process 1040
Incremental Analysis Approach 1040
H o w Incremental Analysis Works 1041
Accept an Order at a Special Price 1042
Make or Buy 1044
Sell or Process Further 1045
Repair, Retain, or Replace Equipment 1046
Eliminate an Unprofitable Segment
or Product 1047
Allocate Limited Resources 1048
Capital Budgeting 1050
Evaluation Process 1050
Annual Rate of Return 1052
Cash Payback 1052
Discounted Cash Flow 1054
Comparing Discounted Cash Flow Methods 1058
Appendix A
Specimen Financial Statements:
Apple Inc. A1
Appendix B
Specimen Financial Statements:
PepsiCo, Inc. B1
Appendix C
Specimen Financial Statements:
The Coca-Cola C o m p a n y C1
Appendix D
Specimen Financial Statements:
Amazon.com, Inc. D1
Appendix E
Specimen Financial Statements:
Wal-Mart Stores, Inc. E1
Appendix F
Specimen Financial Statements:
Zetar pic F1
Appendix G
Time Value of Money G1
Nature of Interest G1
Simple Interest G1
Compound Interest G 2
Present Value Variables G 3
Present Value of a Single Amount G 3
Present Value of an Annuity G 5
Time Periods and Discounting G 7
Computing the Present Value of a
Long-Term Note or Bond G 7
Appendix H (available online at
www. wiley. com/college/weygandt)
Using Financial Calculators H1
Present Value of a Single S u m H1
Plus and Minus H2
Compounding Periods H2
Rounding H2
Present Value of an Annuity H2
Useful Applications of the Financial
Calculator H3
Auto Loan H3
Mortgage Loan Amount H3
Appendix I (available online at
www. wiley. com/college/weygandt)
Standards of Ethical Conduct for
Management Accountants 11
IMA Statement of Ethical Professional Practice 11
Principles 11
Standards 11
Resolution of Ethical Conflict 12
company index IN-1
subject index IN-3