Accounting Principles: A Business Perspective Volume 1 ...

Accounting Principles: A Business Perspective Volume 1 Financial Accounting

Accounting Principles: A Business Perspective

First Global Text Edition, Volume 1 Financial Accounting

James Don Edwards, PhD, D.H.C.

J.M. Tull Professor Emeritus of Accounting Terry College of Business University of Georgia

Roger H. Hermanson, PhD

Regents Professor Emeritus of Accounting Ernst & Young-J. W. Holloway Memorial Professor Emeritus

Georgia State University

Funding for the first Global Text edition was provided by Endeavour International Corporation, Houston, Texas, USA.

The Global Text Project is funded by the Jacobs Foundation, Zurich, Switzerland. This book is licensed under a Creative Commons Attribution 3.0 License

Acknowledgments for the Global Text First Edition:

Revision Editor: Donald J. McCubbrey, PhD Clinical Professor, Daniels College of Business University of Denver

Life member, American Institute of Certified Public Accountants

Revision Assistants Emily Anderson Kyle Block

Assistant Editor Jackie Sharman

Associate Editor Marisa Drexel

Conversion Specialist Varun Sharma

This book is licensed under a Creative Commons Attribution 3.0 License

Table of Contents

Accounting principles:A business perspective.................................................................................................6 The accounting environment..........................................................................................................................18 Accounting defined.........................................................................................................................................19 Financial accounting versus managerial accounting.....................................................................................23 Development of financial accounting standards............................................................................................25 Ethical behavior of accountants.....................................................................................................................27

1. Accounting and its use in business decisions.......................................................................30

Forms of business organizations....................................................................................................................31 Types of activities performed by business organizations..............................................................................33 Financial statements of business organizations............................................................................................33 The financial accounting process...................................................................................................................37 Analyzing and using the financial results--the equity ratio...........................................................................47

2. Recording business transactions..........................................................................................68

The account and rules of debit and credit......................................................................................................69 The accounting cycle.......................................................................................................................................75 The journal......................................................................................................................................................76 The ledger........................................................................................................................................................79 The accounting process in operation.............................................................................................................80

3. Adjustments for financial reporting....................................................................................123

Cash versus accrual basis accounting...........................................................................................................124 Classes and types of adjusting entries..........................................................................................................127 Adjustments for deferred items....................................................................................................................129 Adjustments for accrued items.....................................................................................................................137

4. Completing the accounting cycle.........................................................................................159

The accounting cycle summarized................................................................................................................160 The work sheet..............................................................................................................................................160 Preparing financial statements from the work sheet...................................................................................166 Journalizing adjusting entries......................................................................................................................167 The closing process.......................................................................................................................................168 Accounting systems: From manual to computerized...................................................................................174 A classified balance sheet..............................................................................................................................179 Analyzing and using the financial results -- the current ratio.....................................................................185

5. Accounting theory................................................................................................................210

Traditional accounting theory.......................................................................................................................211 Other basic concepts.....................................................................................................................................213 The measurement process in accounting.....................................................................................................214 The major principles.....................................................................................................................................215 Modifying conventions (or constraints).......................................................................................................221 The financial accounting standards board's conceptual framework project...............................................224 Objectives of financial reporting..................................................................................................................224 Qualitative characteristics............................................................................................................................226 Recognition and measurement in financial statements...............................................................................231

6. Merchandising transactions................................................................................................250

Introduction to inventories and the classified income statement...............................................................250 Two income statements compared-- Service company and merchandising company...............................251

Accounting Principles: A Business Perspective

4

A Global Text

Sales revenues...............................................................................................................................................252 Cost of goods sold.........................................................................................................................................258 Classified income statement.........................................................................................................................267 Analyzing and using the financial results--Gross margin percentage.........................................................271

7. Measuring and reporting inventories.................................................................................296

Inventories and cost of goods sold...............................................................................................................297 Determining inventory cost.........................................................................................................................300 Departures from cost basis of inventory measurement..............................................................................320 Analyzing and using financial results--inventory turnover ratio................................................................325

8. Control of cash.....................................................................................................................353

Internal control.............................................................................................................................................354 Controlling cash............................................................................................................................................361 The bank checking account..........................................................................................................................364 Bank reconciliation.......................................................................................................................................369 Petty cash funds............................................................................................................................................374 Analyzing and using the financial results--The quick ratio.........................................................................377

9. Receivables and payables....................................................................................................395

Accounts receivable......................................................................................................................................396 Current liabilities..........................................................................................................................................405 Notes receivable and notes payable..............................................................................................................412 Short-term financing through notes payable...............................................................................................417 Analyzing and using the financial results--Accounts receivable turnover and number of days' sales in accounts receivable............................................................................................................................................420

10. Property, plant, and equipment........................................................................................437

Nature of plant assets...................................................................................................................................438 Initial recording of plant assets....................................................................................................................439 Depreciation of plant assets.........................................................................................................................443 Subsequent expenditures (capital and revenue) on assets..........................................................................456 Subsidiary records used to control plant assets...........................................................................................459 Analyzing and using the financial results--Rate of return on operating assets..........................................461

11. Plant asset disposals, natural resources, and intangible assets........................................478

Disposal of plant assets................................................................................................................................479 Intangible assets............................................................................................................................................491 Analyzing and using the financial results--Total assets turnover...............................................................499

12. Stockholders' equity: Classes of capital stock....................................................................519

The corporation............................................................................................................................................520 Documents, books, and records relating to capital stock............................................................................524 Par value and no-par capital stock...............................................................................................................525 Other values commonly associated with capital stock.................................................................................526 Capital stock authorized and outstanding....................................................................................................527 Classes of capital stock.................................................................................................................................528 Types of preferred stock...............................................................................................................................528 Balance sheet presentation of stock..............................................................................................................531 Stock issuances for cash...............................................................................................................................532 Capital stock issued for property or services................................................................................................533 Balance sheet presentation of paid-in capital in excess of par (or stated) value--Common or preferred..534 Analyzing and using the financial results--Return on average common stockholders' equity..................536

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download