Financial Accounting, 15th Edition PDF by Carl S Warren, James M Reeve and Jonathan E Duchac

By

Financial Accounting, 15th Edition

By Carl S. Warren, James M. Reeve and  Jonathan E. Duchac

Financial Accounting, 15th Edition

Contents:

Chapter 1 Introduction to

Accounting and Business 2

Nature of Business and Accounting 5

Types of Businesses 5

Role of Accounting in Business 6

Role of Ethics in Accounting and Business 6

Integrity, Objectivity, and Ethics in Business: Bernie Madoff 9

Opportunities for Accountants 9

Business Connection: Pathways Commission 10

Generally Accepted Accounting Principles 10

Business Entity Concept 11

International Connection: International Financial Reporting Standards (IFRS) 11

Cost Concept 12

The Accounting Equation 13

Business Connection: The Accounting Equation 13

Business Transactions and the Accounting Equation 14

Summary 18

Financial Statements 19

Income Statement 20

Statement of Owner’s Equity 21

Balance Sheet 21

Statement of Cash Flows 24

Interrelationships Among Financial Statements 25

Financial Analysis and Interpretation:

Ratio of Liabilities to Owner’s Equity 26

Chapter 2 Analyzing Transactions 56

Using Accounts to Record Transactions 59

Chart of Accounts 61

Business Connection: The Hijacking Receivable 61

Double-Entry Accounting System 62

Balance Sheet Accounts 62

Income Statement Accounts 63

Owner Withdrawals 63

Normal Balances 63

Journalizing 64

Integrity, Objectivity, and Ethics in Business: Will Journalizing Prevent Fraud? 67

Journalizing and Posting to Accounts 68

Business Connection: Microsoft’s Unearned Revenue 70

Business Connection: Computerized Accounting Systems 72

Trial Balance 77

Errors Affecting the Trial Balance 78

Errors Not Affecting the Trial Balance 79

Financial Analysis and Interpretation:

Horizontal Analysis 80

Chapter 3 The Adjusting Process 110

Nature of the Adjusting Process 113

Accrual and Cash Basis of Accounting 113

Revenue and Expense Recognition 114

The Adjusting Process 114

Types of Accounts Requiring Adjustment 115

Adjusting Entries for Accruals 116

Accrued Revenues 117

Accrued Expenses 118

Business Connection: Earning Revenues from

Season Tickets 120

Adjusting Entries for Deferrals 120

Unearned Revenues 121

Prepaid Expenses 122

Business Connection: Sports Signing Bonus 122

Integrity, Objectivity, and Ethics in Business: Free Issue 123

Adjusting Entries for Depreciation 124

Summary of Adjusting Process 126

Business Connection: Microsoft’s Deferred Revenues 126

Adjusted Trial Balance 130

Financial Analysis and Interpretation: Vertical Analysis 131

Chapter 4 Completing the Accounting Cycle 160

Flow of Accounting Information 163

Financial Statements 165

Income Statement 165

Integrity, Objectivity, and Ethics in Business:

CEO’s Health? 167

Statement of Owner’s Equity 167

Balance Sheet 168

International Connection: International Differences 169

Closing Entries 169

Journalizing and Posting Closing Entries 170

Post-Closing Trial Balance 174

Accounting Cycle 174

Illustration of the Accounting Cycle 177

Step 1. Analyzing and Recording Transactions

in the Journal 177

Step 2. Posting Transactions to the Ledger 179

Step 3. Preparing an Unadjusted Trial Balance 179

Step 4. Assembling and Analyzing Adjustment Data 180

Step 5. Preparing an Optional End-of-Period Spreadsheet 180

Step 6. Journalizing and Posting Adjusting Entries 180

Step 7. Preparing an Adjusted Trial Balance 182

Step 8. Preparing the Financial Statements 182

Step 9. Journalizing and Posting Closing Entries 184

Step 10. Preparing a Post-Closing Trial Balance 184

Fiscal Year 187

Business Connection: Choosing a Fiscal Year 188

Financial Analysis and Interpretation:

Working Capital and Current Ratio 188

End-of-Period Spreadsheet 189

Step 1. Enter the Title 190

Step 2. Enter the Unadjusted Trial Balance 190

Step 3. Enter the Adjustments 191

Step 4. Enter the Adjusted Trial Balance 192

Step 5. Extend the Accounts to the Income

Statement and Balance Sheet Columns 193

Step 6. Total the Income Statement and Balance Sheet Columns, Compute the Net Income or Net Loss, and Complete the Spreadsheet 193

Preparing the Financial Statements from the Spreadsheet 194

Reversing Entries 196

Chapter 5 Accounting Systems 230

Basic Accounting Systems 232

Manual Accounting Systems 233

Subsidiary Ledgers 233

Special Journals 233

Revenue Journal 235

Cash Receipts Journal 238

Accounts Receivable Control Account and Subsidiary Ledger 240

Purchases Journal 240

Cash Payments Journal 243

Accounts Payable Control Account and Subsidiary Ledger 245

Business Connection: Accounting Systems and Profit Measurement 246

Computerized Accounting Systems 247

Business Connection: TurboTax 249

E-Commerce 249

Integrity, Objectivity, and Ethics in Business:

Online Fraud 250

Financial Analysis and Interpretation: Segment Analysis 250

Chapter 6 Accounting for

Merchandising Businesses 280

Nature of Merchandising Businesses 282

Operating Cycle 282

Financial Statements 283

Business Connection: Comcast Versus Lowe’s 284

Merchandising Transactions 284

Chart of Accounts for a Merchandising

Business 284

Purchases Transactions 285

Sales Transactions 290

Integrity, Objectivity, and Ethics in Business: The Case

of the Fraudulent Price Tags 294

Freight 295

Summary: Recording Merchandise Inventory

Transactions 297

Dual Nature of Merchandise Transactions 297

Sales Taxes and Trade Discounts 299

Business Connection: Sales Taxes 300

The Adjusting Process 300

Adjusting Entry for Inventory Shrinkage 300

Integrity, Objectivity, and Ethics in Business:

The Cost of Employee Theft 301

Adjusting Entries for Customer Refunds,

Allowances, and Returns 301

Financial Statements for

a Merchandising Business 303

Multiple-Step Income Statement 303

Single-Step Income Statement 305

Statement of Owner’s Equity 305

Balance Sheet 305

The Closing Process 306

Financial Analysis and Interpretation:

Asset Turnover 307

The Periodic Inventory System 309

Chart of Accounts Under the Periodic Inventory

System 309

Recording Merchandise Transactions Under the

Periodic Inventory System 310

Adjusting Process Under the Periodic Inventory

System 310

Financial Statements Under the Periodic Inventory

System 311

Closing Entries Under the Periodic Inventory

System 312

Practice Set: Lawn Ranger Landscaping

This set covers the complete accounting cycle for a

service business operated as a sole proprietorship.

Students follow a narrative of transactions to make

general journal entries. Includes instructions for an

optional solution with no debits and credits. This

set can be completed manually or with the General

Ledger software.

Chapter 7 Inventories 344

Control of Inventory 346

Safeguarding Inventory 346

Reporting Inventory 347

Inventory Cost Flow Assumptions 347

Business Connection: Pawn Stars and Specific

Identification 349

Inventory Costing Methods Under

a Perpetual Inventory System 350

First-In, First-Out Method 350

Last-In, First-Out Method 351

International Connection: International Financial

Reporting Standards (IFRS) 353

Weighted Average Cost Method 353

Business Connection: Computerized Perpetual

Inventory Systems 355

Inventory Costing Methods Under

a Periodic Inventory System 355

First-In, First-Out Method 355

Last-In, First-Out Method 356

Weighted Average Cost Method 357

Comparing Inventory Costing Methods 358

Integrity, Objectivity, and Ethics in Business: Where’s

the Bonus? 359

Reporting Merchandise Inventory

in the Financial Statements 359

Valuation at Lower of Cost or Market 359

Business Connection: Good Samaritan 361

Merchandise Inventory on the Balance Sheet 361

Effect of Inventory Errors on the Financial

Statements

362

Financial Analysis and Interpretation: Inventory

Turnover and Days’ Sales in Inventory 365

Business Connection: Rapid Inventory at Costco 365

Estimating Inventory Cost 368

Retail Method of Inventory Costing 368

Gross Profit Method of Inventory Costing 369

Chapter 8 Internal Control

and Cash 394

Sarbanes-Oxley Act 396

Internal Control 398

Objectives of Internal Control 398

Business Connection: Employee Fraud 398

Elements of Internal Control 398

Control Environment 399

Risk Assessment 400

Control Procedures 400

Integrity, Objectivity, and Ethics in Business: Tips on

Preventing Employee Fraud in Small Companies 401

Monitoring 402

Information and Communication 402

Limitations of Internal Control 403

Cash Controls over Receipts and Payments 403

Control of Cash Receipts 404

Control of Cash Payments 406

Business Connection: Mobile Payments 406

Bank Accounts 407

Bank Statement 407

Using the Bank Statement as a Control

over Cash 409

Bank Reconciliation 410

Integrity, Objectivity, and Ethics in Business: Bank

Error in Your Favor (or Maybe Not) 413

Special-Purpose Cash Funds 413

Financial Statement Reporting of Cash 415

Business Connection: Managing Apple’s Cash 415

Financial Analysis and Interpretation:

Ratio of Cash to Monthly Cash Expenses 415

Business Connection: Microsoft Corporation 417

Chapter 9 Receivables 440

Classification of Receivables 442

Accounts Receivable 442

Notes Receivable 442

Other Receivables 443

Uncollectible Receivables 443

Business Connection: Warning Signs 444

Direct Write-Off Method

for Uncollectible Accounts 444

Allowance Method for Uncollectible Accounts 445

Integrity, Objectivity, and Ethics in Business:

Collecting Past Due Accounts 446

Write-Offs to the Allowance Account 446

Business Connection: Failure to Collect 448

Estimating Uncollectibles 448

Business Connection: Allowance Percentages Across

Companies 453

Comparing Direct Write-Off

and Allowance Methods 453

Notes Receivable 454

Characteristics of Notes Receivable 454

Accounting for Notes Receivable 456

Reporting Receivables on the Balance Sheet 458

Business Connection: Delta Air Lines 458

Financial Analysis and Interpretation:

Accounts Receivable Turnover and

Days’ Sales in Receivables 459

Chapter 10 Long-Term Assets:

Fixed and Intangible 486

Nature of Fixed Assets 488

Classifying Costs 488

Business Connection: Fixed Assets 489

The Cost of Fixed Assets 490

Leasing Fixed Assets 491

Accounting for Depreciation 492

Factors in Computing Depreciation Expense 492

Straight-Line Method 493

Units-of-Activity Method 495

Double-Declining-Balance Method 497

Comparing Depreciation Methods 499

Partial-Year Depreciation 499

Business Connection: Depreciating Animals 500

Revising Depreciation Estimates 501

Repair and Improvements 502

Integrity, Objectivity, and Ethics in Business:

Capital Crime 503

Disposal of Fixed Assets 504

Discarding Fixed Assets 504

Selling Fixed Assets 505

Business Connection: Downsizing 506

Natural Resources 507

Intangible Assets 508

Patents 508

Copyrights and Trademarks 509

Goodwill 509

International Connection: International Financial

Reporting Standards (IFRS) 511

Financial Reporting for Long-Term Assets: Fixed

and Intangible 511

Financial Analysis and Interpretation:

Fixed Asset Turnover Ratio 512

Fixed Asset Turnover Ratio 512

Business Connection: Hub-and-Spoke or

Point-to-Point? 513

Exchanging Similar Fixed Assets 514

Gain on Exchange 514

Loss on Exchange 515

Chapter 11 Current Liabilities

and Payroll 536

Current Liabilities 538

Accounts Payable 538

Current Portion of Long-Term Debt 538

Short-Term Notes Payable 539

Payroll and Payroll Taxes 541

Liability for Employee Earnings 541

Deductions from Employee Earnings 541

Computing Employee Net Pay 544

Liability for Employer’s Payroll Taxes 545

Business Connection: The Most You Will Ever Pay 545

Accounting Systems for Payroll

and Payroll Taxes 545

Payroll Register 546

Employee’s Earnings Record 549

Payroll Checks 550

Computerized Payroll System 551

Internal Controls for Payroll Systems 551

Integrity, Objectivity, and Ethics in Business:

Overbilling Clients 552

Employees’ Fringe Benefits 552

Vacation Pay 552

Pensions 553

Postretirement Benefits Other Than Pensions 554

Current Liabilities on the Balance Sheet 554

Business Connection: State Pension Obligations 555

Contingent Liabilities 555

Probable and Estimable 555

Probable and Not Estimable 556

Reasonably Possible 556

Remote 557

Financial Analysis and Interpretation:

Quick Ratio 557

Practice Set: Fit & Fashionable

This set is a merchandising business operated as a

sole proprietorship. It includes a general journal, special

journals, and source documents and can be completed

manually or with the General Ledger software.

Practice Set: Chic Events by Jada

This set is a merchandising business operated as a

proprietorship. It includes payroll transactions and

purchases and sales with discounts, along with

source documents. It can be completed manually

or with the General Ledger software.

Chapter 12 Accounting for

Partnerships and Limited Liability

Companies 584

Proprietorships, Partnerships, and Limited

Liability Companies 586

Proprietorships 586

Partnerships 587

Business Connection: Breaking Up Is Hard To Do 587

Limited Liability Companies 588

Comparing Proprietorships, Partnerships,

and Limited Liability Companies 588

Business Connection: Organizational Forms in the

Accounting Industry 588

Forming a Partnership and Dividing Income 589

Forming a Partnership 589

Dividing Income 590

Integrity, Objectivity, and Ethics in Business:

Tyranny of the Majority 592

Partner Admission and Withdrawal 593

Admitting a Partner 593

Withdrawal of a Partner 598

Death of a Partner 598

Liquidating Partnerships 599

Gain on Realization 600

Loss on Realization 601

Loss on Realization—Capital Deficiency 603

Statement of Partnership Equity 606

Financial Analysis and Interpretation:

Revenue per Employee 606

Chapter 13 Corporations:

Organization, Stock Transactions,

and Dividends 628

Nature of a Corporation 630

Characteristics of a Corporation 630

Forming a Corporation 631

Business Connection: Alphabet (Google)’s Bylaws 632

Stockholders’ Equity 633

Paid-In Capital from Stock 634

Characteristics of Stock 634

Classes of Stock 635

Business Connection: You Have No Vote 635

Issuing Stock 636

Premium on Stock 637

No-Par Stock 638

Integrity, Objectivity, and Ethics in Business:

The Professor Who Knew Too Much 639

Accounting for Dividends 639

Cash Dividends 639

Stock Dividends 641

Stock Splits 642

Business Connection: Buffett on Stock Splits 643

Treasury Stock Transactions 644

Business Connection: Treasury Stock or Dividends? 645

Reporting Stockholders’ Equity 645

Stockholders’ Equity on the Balance Sheet 645

Reporting Retained Earnings 647

Statement of Stockholders’ Equity 648

International Connection: IFRS for SMEs 649

Reporting Stockholders’ Equity for Mornin’ Joe 649

Financial Analysis and Interpretation:

Earnings per Share 651

Practice Set: My Place, House of Décor

This set is a service and merchandising business

operated as a corporation. It includes narrative for

six months of transactions to be recorded in a general

journal. The set can be completed manually or

with the General Ledger software.

Chapter 14 Long-Term Liabilities:

Bonds and Notes 675

Financing Corporations 677

Nature of Bonds Payable 679

Bond Characteristics and Terminology 680

Proceeds from Issuing Bonds 680

Business Connection: Investor Bond Price Risk 681

Accounting for Bonds Payable 681

Bonds Issued at Face Amount 681

Bonds Issued at a Discount 682

Amortizing a Bond Discount 683

Business Connection: U.S. Government Debt 684

Bonds Issued at a Premium 685

Amortizing a Bond Premium 686

Business Connection: Bond Ratings 687

Bond Redemption 687

Installment Notes 688

Issuing an Installment Note 689

Annual Payments 689

Integrity, Objectivity, and Ethics in Business:

The Ratings Game 691

Reporting Long-Term Liabilities 691

Financial Analysis and Interpretation:

Times Interest Earned Ratio 691

Present Value Concepts and

Pricing Bonds Payable 693

Present Value Concepts 693

Pricing Bonds 696

Interest Rate Method of Amortization 697

Amortization of Discount by the Interest

Method 697

Amortization of Premium by the Interest Method 698

Chapter 15 Investments and Fair

Value Accounting 719

Why Companies Invest 721

Investing Cash in Current Operations 721

Investing Cash in Temporary Investments 722

Investing Cash in Long-Term Investments 722

Accounting for Debt Investments 722

Purchase of Bonds 723

Interest Revenue 723

Sale of Bonds 724

Accounting for Equity Investments 725

Cost Method: Less Than 20% Ownership 725

Equity Method: Between 20%–50%

Ownership 727

Consolidation: More Than 50% Ownership 729

Business Connection: More Cash Means More

Investments for Drug Companies 730

Valuing and Reporting Investments 730

Trading Securities 730

Integrity, Objectivity, and Ethics in Business:

Socially Responsible Investing 732

Available-for-Sale Securities 732

Held-to-Maturity Securities 734

Summary 734

Business Connection: Warren Buffett: The Sage of

Omaha 736

Fair Value Accounting 737

Effect of Fair Value Accounting on the

Financial Statements 737

Financial Analysis and Interpretation:

Dividend Yield 737

Comprehensive Income 739

Chapter 16 Statement of

Cash Flows 765

Reporting Cash Flows 767

Cash Flows from Operating Activities 768

Business Connection: Cash Crunch! 770

Cash Flows from (Used for) Investing Activities 770

Cash Flows from (Used for) Financing Activities 770

Noncash Investing and Financing Activities 770

Format of the Statement of Cash Flows 771

No Cash Flow per Share 771

Preparing the Statement of Cash Flows—

The Indirect Method 772

Net Income 773

Adjustments to Net Income 774

Integrity, Objectivity, and Ethics in Business: Credit

Policy and Cash Flow 777

Dividends and Dividends Payable 778

Common Stock 779

Bonds Payable 779

Building and Accumulated

Depreciation—Building 780

Land 780

Preparing the Statement of Cash Flows 781

Business Connection: Growing Pains 782

Preparing the Statement of Cash Flows—

The Direct Method 782

Cash Received from Customers 783

Cash Payments for Merchandise 783

Cash Payments for Operating Expenses 784

Gain on Sale of Land 785

Interest Expense 785

Cash Payments for Income Taxes 785

Reporting Cash Flows from Operating

Activities—Direct Method 786

International Connection: IFRS for Statement of Cash

Flows 786

Financial Analysis and Interpretation:

Free Cash Flow 787

Spreadsheet (Work Sheet) for Statement of Cash

Flows—The Indirect Method 789

Analyzing Accounts 789

Retained Earnings 789

Other Accounts 791

Preparing the Statement of Cash Flows 791

Chapter 17 Financial Statement

Analysis 823

Analyzing and Interpreting Financial

Statements 825

The Value of Financial Statement

Information 825

Techniques for Analyzing Financial Statements 826

Basic Analytical Methods 826

Horizontal Analysis 826

Vertical Analysis 829

Common-Sized Statements 830

Analyzing Liquidity 831

Current Position Analysis 832

Accounts Receivable Analysis 834

Inventory Analysis 835

Business Connection: Flying off the Shelves 837

Analyzing Solvency 837

Ratio of Fixed Assets to Long-Term Liabilities 838

Ratio of Liabilities to Stockholders’ Equity 838

Times Interest Earned 839

Business Connection: Liquidity Crunch 840

Analyzing Profitability 840

Asset Turnover 840

Return on Total Assets 841

Return on Stockholders’ Equity 842

Business Connection: Gearing for Profit 843

Return on Common Stockholders’ Equity 843

Earnings per Share on Common Stock 844

Price-Earnings Ratio 845

Dividends per Share 846

Dividend Yield 847

Business Connection: Investing for Yield 847

Summary of Analytical Measures 847

Corporate Annual Reports 849

Management Discussion and Analysis 849

Report on Internal Control 849

Integrity, Objectivity, and Ethics in Business:

Characteristics of Financial Statement Fraud 849

Report on Fairness of the Financial Statements 850

Unusual Items on the Income Statement 850

Unusual Items Affecting the Current Period’s

Income Statement 850

Unusual Items Affecting the Prior Period’s

Income Statement 852

Mornin’ Joe MJ-1

Financial Statements for Mornin’ Joe MJ-2

Financial Statements for Mornin’ Joe

International MJ-5

Appendix A: Interest Tables A-1

Appendix B: International Financial Reporting

Standards (IFRS) B-1

Appendix C: Revenue Recognition C-1

Appendix D: Nike Inc., Form 10-K for the Fiscal Year

Ended May 31, 2016 D-1

Glossary G-1

Index I-1

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