1 Accounting in Action 1-1

Knowing the Numbers 1-1

1.1 Accounting Activities and Users 1-3

Who Uses Accounting Data 1-4

Data Analytics 1-5

1.2 The Building Blocks of Accounting 1-7

Ethics in Financial Reporting 1-7

Accounting Standards 1-8

Measurement Principles 1-9

Assumptions 1-9

1.3 The Accounting Equation 1-12

Assets 1-12

Liabilities 1-13

Equity 1-13

1.4 Analyzing Business Transactions 1-14

Accounting Transactions 1-15

Transaction Analysis 1-16

Summary of Transactions 1-21

1.5 Financial Statements 1-22

Income Statement 1-24

Retained Earnings Statement 1-24

Statement of Financial Position 1-24

Statement of Cash Flows 1-25

Comprehensive Income Statement 1-25

Appendix 1A: Career Opportunities in Accounting 1-27

Public Accounting 1-27

Private Accounting 1-28

Governmental Accounting 1-28

Forensic Accounting 1-28

A Look at U.S. GAAP 1-48

2 The Recording Process 2-1

Accidents Happen: Bank of Taiwan 2-1

2.1 Accounts, Debits, and Credits 2-2

The Account 2-2

Debits and Credits 2-3

Equity Relationships 2-7

Summary of Debit/Credit Rules 2-7

2.2 The Journal 2-8

The Recording Process 2-8

The Journal 2-9

2.3 The Ledger and Posting 2-11

The Ledger 2-11

Posting 2-13

Chart of Accounts 2-14

The Recording Process Illustrated 2-14

Summary Illustration of Journalizing and Posting 2-20

2.4 The Trial Balance 2-22

Limitations of a Trial Balance 2-23

Locating Errors 2-23

Currency Signs and Underlining 2-23

A Look at U.S. GAAP 2-47

3 Adjusting the Accounts 3-1

What Was Your Profit? 3-1

3.1 Accrual-Basis Accounting and Adjusting Entries 3-2

Fiscal and Calendar Years 3-3

Accrual- versus Cash-Basis Accounting 3-3

Recognizing Revenues and Expenses 3-3

The Need for Adjusting Entries 3-6

Types of Adjusting Entries 3-6

3.2 Adjusting Entries for Deferrals 3-7

Prepaid Expenses 3-7

Unearned Revenues 3-11

3.3 Adjusting Entries for Accruals 3-14

Accrued Revenues 3-14

Accrued Expenses 3-16

Summary of Basic Relationships 3-19

3.4 Adjusted Trial Balance and Financial Statements 3-22

Preparing the Adjusted Trial Balance 3-23

Preparing Financial Statements 3-23

Appendix 3A: Alternative Treatment of Deferrals 3-26

Prepaid Expenses 3-27

Unearned Revenues 3-28

Summary of Additional Adjustment Relationships 3-29

Appendix 3B: Financial Reporting Concepts 3-30

Qualities of Useful Information 3-30

Assumptions in Financial Reporting 3-31

Principles in Financial Reporting 3-31

Cost Constraint 3-32

A Look at U.S. GAAP 3-58

4 Completing the Accounting Cycle 4-1

Speaking the Same Language: IASB 4-1

4.1 The Worksheet 4-3

Steps in Preparing a Worksheet 4-3

Preparing Financial Statements from a Worksheet 4-11

Preparing Adjusting Entries from a Worksheet 4-12

4.2 Closing the Books 4-13

Preparing Closing Entries 4-13

Posting Closing Entries 4-15

Preparing a Post-Closing Trial Balance 4-17

4.3 The Accounting Cycle and Correcting Entries 4-20

Summary of the Accounting Cycle 4-20

Reversing Entries-An Optional Step 4-20

Correcting Entries-An Avoidable Step 4-20

4.4 Classified Statement of Financial Position 4-24

Intangible Assets 4-25

Property, Plant, and Equipment 4-26

Long-Term Investments 4-26

Current Assets 4-26

Equity 4-27

Non-Current Liabilities 4-27

Current Liabilities 4-28

Appendix 4A: Reversing Entries 4-30

Reversing Entries Example 4-30

A Look at U.S. GAAP 4-59

5 Accounting for Merchandise Operations 5-1

Who Doesn't Shop?: Carrefour 5-1

5.1 Merchandising Operations and Inventory Systems 5-3

Operating Cycles 5-3

Flow of Costs 5-4

5.2 Recording Purchases Under a Perpetual System 5-7

Freight Costs 5-8

Purchase Returns and Allowances 5-9

Purchase Discounts 5-10

Summary of Purchasing Transactions 5-11

5.3 Recording Sales Under a Perpetual System 5-11

Sales Returns and Allowances 5-13

Sales Discounts 5-14

Data Analytics and Credit Sales 5-15

5.4 The Accounting Cycle for a Merchandising Company 5-16

Adjusting Entries 5-16

Closing Entries 5-17

Summary of Merchandising Entries 5-17

5.5 Financial Statements for a Merchandiser 5-19

Income Statement 5-19

Classified Statement of Financial Position 5-23

Appendix 5A: Worksheet for a Merchandising Company 5-25

Using a Worksheet 5-25

Appendix 5B: Periodic Inventory System 5-26

Determining Cost of Goods Sold Under a Periodic System 5-27

Recording Merchandise Transactions 5-28

Recording Purchases of Merchandise 5-28

Recording Sales of Merchandise 5-29

Journalizing and Posting Closing Entries 5-29

Using a Worksheet 5-31

Appendix 5C: Adjusting Entries for Credit Sales with Returns and Allowances 5-33

Data Analytics in Action 5-54

A Look at U.S. GAAP 5-58

6 Inventories 6-1

"Where Is That Spare Bulldozer Blade?":

Komatsu 6-1

6.1 Classifying and Determining Inventory 6-2

Classifying Inventory 6-2

Determining Inventory Quantities 6-4

6.2 Inventory Methods and Financial Effects 6-7

Specific Identification 6-7

Cost Flow Assumptions 6-8

Financial Statement and Tax Effects of Cost Flow Methods 6-11

Using Inventory Cost Flow Methods Consistently 6-13

6.3 Effects of Inventory Errors 6-14

Income Statement Effects 6-14

Statement of Financial Position Effects 6-15

6.4 Inventory Statement Presentation and Analysis 6-16

Presentation 6-16

Lower of Cost or Net Realizable Value 6-16

Financial Analysis and Data Analytics 6-17

Appendix 6A: Inventory Cost Flow Methods in Perpetual Inventory Systems 6-21

First-In, First-Out (FIFO) 6-21

Average-Cost 6-22

Appendix 6B: Estimating Inventories 6-23

Gross Profit Method 6-23

Retail Inventory Method 6-24

Appendix 6C: LIFO Inventory Method 6-25

Data Analytics in Action 6-47

A Look at U.S. GAAP 6-50

7 Fraud, Internal Control, and Cash 7-1

Minding the Money at Nick's: Nick's Steakhouse and Pizza 7-1

7.1 Fraud and Internal Control 7-2

Fraud 7-3

Internal Control 7-3

Principles of Internal Control Activities 7-4

Data Analytics and Internal Controls 7-10

Limitations of Internal Control 7-10

7.2 Cash Controls 7-11

Cash Receipts Controls 7-11

Cash Disbursements Controls 7-14

Petty Cash Fund 7-16

7.3 Control Features of a Bank Account 7-19

Making Bank Deposits 7-19

Writing Checks 7-20

Electronic Banking 7-21

Bank Statements 7-21

Reconciling the Bank Account 7-22

7.4 Reporting Cash 7-27

Cash Equivalents 7-27

Restricted Cash 7-28

Data Analytics in Action 7-46

A Look at U.S. GAAP 7-49

Appendix 9A: Exchange of Plant Assets 9-26

Loss Treatment 9-27

Gain Treatment 9-27

Data Analytics in Action 9-47

A Look at U.S. GAAP 9-50

8 Accounting for Receivables 8-1

Are You Going to Pay Me-or Not?: BNP Paribas 8-1

8.1 Recognition of Accounts Receivable 8-2

Types of Receivables 8-3

Recognizing Accounts Receivable 8-3

8.2 Valuation and Disposition of Accounts Receivable 8-5

Valuing Accounts Receivable 8-5

Disposing of Accounts Receivable 8-12

8.3 Notes Receivable 8-15

Determining the Maturity Date 8-16

Computing Interest 8-16

Recognizing Notes Receivable 8-17

Valuing Notes Receivable 8-17

Disposing of Notes Receivable 8-17

8.4 Presentation and Analysis 8-20

Presentation 8-20

Analysis 8-20

Data Analytics and Receivables Management 8-21

Data Analytics in Action 8-38

A Look at U.S. GAAP 8-41

9 Plant Assets, Natural Resources, and Intangible Assets 9-1

How Much for a Ride to the Beach?: Rent-A-Wreck 9-1

9.1 Plant Asset Expenditures 9-2

Determining the Cost of Plant Assets 9-3

Expenditures During Useful Life 9-6

9.2 Depreciation Methods 9-7

Factors in Computing Depreciation 9-8

Depreciation Methods 9-9

Component Depreciation 9-13

Depreciation and Income Taxes 9-14

Revaluation of Plant Assets 9-14

Revising Periodic Depreciation 9-15

9.3 Plant Asset Disposals 9-16

Retirement of Plant Assets 9-17

Sale of Plant Assets 9-18

9.4 Natural Resources and Intangible Assets 9-19

Natural Resources and Depletion 9-20

Intangible Assets 9-21

9.5 Statement Presentation and Analysis 9-25

Presentation 9-25

Analysis 9-26

10 Current Liabilities 10-1

Financing His Dreams: Wilbert Murdock 10-1

10.1 Accounting for Current Liabilities 10-2

What Is a Current Liability? 10-2

Notes Payable 10-3

Value-Added and Sales Taxes Payable 10-4

Unearned Revenues 10-5

Salaries and Wages 10-6

Current Maturities of Long-Term Debt 10-8

10.2 Reporting and Analyzing Current Liabilities 10-8

Reporting Uncertainty 10-8

Reporting of Current Liabilities 10-10

Analysis of Current Liabilities 10-11

A Look at U.S. GAAP 10-27