Introductory Financial Accounting for Business, 2nd Edition
Learning Financial Accounting can often feel like learning a foreign language to students. Before students even grasp the underlying concepts of Accounting, they are immersed in unfamiliar terms, and before students fully realize the purpose of financial statements, they are asked to make detailed recording procedures. This early emphasis on terminology and recording can be a struggle for non-accounting majors to see the relevancy, leading to increased dropouts and higher failure rates. This creates a challenge for Financial Accounting instructors, who must balance the need to engage and retain non-majors while fully preparing Accounting majors for the next level. The authors of Introductory Financial Accounting for Business offer a solution emphasizing an analytical approach to Accounting – teaching students to think like business professionals and speak in terms of bottom-line consequences: How will a given transaction impact my overall business? How can I make better business decisions whether I’m an accountant, manager, or entrepreneur? Business leaders are demanding that new graduates have these critical thinking skills in order to handle a rapidly changing modern business environment. Today’s students will encounter new technological advances in automated data capture, data analytics, and artificial intelligence – processes that are automating traditional recording procedures. Rather than tallying transactions, students will be required to analyze and interpret data, making decisions early and often and thinking like business professionals. The Edmonds/Olds team’s fresh approach and modern pedagogy helps prepare students for their business careers.
Cover Title Page Copyright Page Dedication About The Authors Acknowledgments Brief Contents Contents Chapter 1 An Introduction to Accounting SECTION 1: Collecting and Organizing Information Role of Accounting in Society Using Free Markets to Set Resource Priorities Accounting Provides Information Types of Accounting Information Nonbusiness Resource Usage Careers in Accounting Measurement Rules Reporting Entities Creating an Accounting Equation Types of Transactions Recording Business Events under the Accounting Equation Asset Source Transactions Asset Exchange Transactions Another Asset Source Transaction Asset Use Transactions Summary of Transactions Preparing a Balance Sheet Second Accounting Cycle Interpreting Information Shown in a Balance Sheet Two Views of the Liabilities and Stockholders’ Equity Sections of the Balance Sheet SECTION 2: Reporting Information Preparing an Income Statement Income Statement and the Matching Concept Statement of Changes in Stockholders’ Equity Preparing a Statement of Cash Flows Financial Statement Articulation The Financial Analyst Reporting Order Real-World Financial Reports Annual Report for Target Corporation Special Terms in Real-World Reports A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Section 1 Exercises–Series A Section 2 Exercises–Series A Sections 1 and 2 Problems–Series A Section 1 Exercises–Series B Section 2 Exercises–Series B Sections 1 and 2 Problems–Series B Analyze, Think,Communicate Chapter 2 Accounting for Accruals Chapter Opening The Horizontal Financial Statements Model Accounting for Receivables Accounting for Accounts Receivable Other Events Accounting for Payables Summary of Events and Their Effects on the Accounting Equation Preparing Financial Statements Balance Sheet Income Statement Statement of Changes in Stockholders’ Equity Statement of Cash Flows Comparing Cash Flow from Operating Activities with Net Income The Matching Concept Accounting for Notes Payable Accounting Events for Notes Payable at Maturity Date Causal Factors for Changes in Account Balances The Financial Analyst Corporate Governance Importance of Ethics The Sarbanes–Oxley Act Common Features of Criminal and Ethical Misconduct A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises–Series A Problems–Series A Exercises–Series B Problems–Series B Analyze, Think, Communicate Chapter 3 Accounting for Deferrals Chapter Opening Alvarado Advisory Services Illustration for Year 1 Accounting for Supplies Accounting for Prepaid Items Accounting for Unearned Revenue Prepare Financial Statements Deferral Accounts on the Balance Sheet Comparing the Income Statement with the Statement of Cash Flows Alvarado Advisory Services Illustration for Year 2 Accounting for Depreciation Other Year 2 Events Prepare Financial Statements Effect of Depreciation on Financial Statements The Financial Analyst Assessing the Effective Use of Assets Assessing Debt Risk Real-World Data A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 4 Accounting for Merchandising Businesses Chapter Opening Accounting for Inventory Transactions Allocating Inventory Cost between Asset and Expense Accounts Perpetual Inventory System Effects of Year 1 Events on Financial Statements Financial Statements for Year 1 Transportation Cost, Purchase Returns and Allowances, and Cash Discounts Related to Inventory Purchases Effects of the Year 2 Events on Financial Statements Accounting for Purchase Returns and Allowances Purchase Discounts The Cost of Financing Inventory Accounting for Transportation Costs FOB Shipping Point FOB Destination Adjustment for Lost, Damaged, or Stolen Inventory Gains, Losses, and a Multistep Income Statement Events Affecting Sales Accounting for Sales Returns and Allowances Accounting for Sales Discounts The Financial Analyst Common Size Financial Statements Ratio Analysis Real-World Data A Look Back A Look Forward Appendix Periodic Inventory System Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 5 Accounting for Inventories Chapter Opening Inventory Cost Flow Methods Specific Identification First-In, First-Out (FIFO) Last-In, First-Out (LIFO) Weighted Average Physical Flow Effect of Cost Flow on Financial Statements Multiple Layers with Multiple Quantities Allocating Cost of Goods Available for Sale Financial Statements Multiple Layers Inventory Cost Flow When Sales and Purchases Occur Intermittently Lower-of-Cost-or-Market Rule Avoiding Fraud in Merchandising Businesses Estimating the Ending Inventory Balance The Financial Analyst Average Number of Days to Sell Inventory Is It a Marketing or an Accounting Decision? The Wallet Company Illustration Real-World Data Effects of Cost Flow on Ratio Analysis A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 6 Internal Control and Accounting for Cash Chapter Opening Key Features of Internal Control Systems Segregation of Duties Quality of Employees Bonded Employees Required Absences Procedures Manual Authority and Responsibility Prenumbered Documents Physical Control Performance Evaluations Limitations Accounting for Cash Controlling Cash Checking Account Documents Reconciling the Bank Account Determining True Cash Balance Adjustments to the Bank Balance Adjustments to the Book Balance Correction of Errors Certified Checks Illustrating a Bank Reconciliation Updating GSRI’s Accounting Records Cash Short and Over Using Petty Cash Funds Establishing a Petty Cash Fund Disbursing Petty Cash Funds Recognizing Petty Cash Expenses Replenishing the Petty Cash Fund Alternative Approach to Petty Cash Expense Recognition and Replenishment The Financial Analyst Notes to the Financial Statements Management’s Discussion and Analysis Role of the Independent Auditor The Securities and Exchange Commission A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 7 Accounting for Receivables Chapter Opening Estimating Uncollectible Accounts Expense Using the Percent of Revenue Method Accounting Events Affecting the Year 1 Period Analysis of the Year 1 Financial Statements Accounting Events Affecting the Year 2 Period Analysis of the Year 2 Financial Statements Estimating Uncollectible Accounts Expense Using the Percent of Receivables Method Aging Accounts Receivable Matching Revenues and Expenses versus Asset Measurement Recognizing Uncollectible Accounts Expense Using the Direct Write-Off Method Accounting for Notes Receivable Reporting Transactions Related to Notes Receivable Financial Statements Accounting for Credit Card Sales The Financial Analyst Average Number of Days to Collect Accounts Receivable Real-World Data A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 8 Accounting for Long-Term Operational Assets Chapter Opening Tangible versus Intangible Assets Tangible Long-Term Assets Intangible Assets Determining the Cost of Long-Term Assets Basket Purchase Allocation Methods of Recognizing Depreciation Expense Dryden Enterprises Illustration Straight-Line Depreciation Financial Statements Double-Declining-Balance Depreciation Effects on the Financial Statements Units-of-Production Depreciation Accounting for the Disposal of Long-Term Operational Assets Comparing the Depreciation Methods Income Tax Considerations Revision of Estimates Revision of Life Revision of Salvage Continuing Expenditures for Plant Assets Costs That Are Expensed Costs That Are Capitalized Natural Resources Intangible Assets Trademarks Patents Copyrights Franchises Goodwill Expense Recognition for Intangible Assets Balance Sheet Presentation The Financial Analyst Effect of Judgment and Estimation A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 9 Accounting for Current Liabilities and Payroll Chapter Opening Accounting for Notes Payable Accounting for Sales Tax Contingent Liabilities Warranty Obligations Financial Statements Accounting for Payroll Identifying Employees Employees’ Gross Earnings Deductions from Employees’ Gross Earnings Federal Income Taxes Federal Income Tax Documents Social Security and Medicare Taxes (FICA) Voluntary Withholdings (Deductions) Computing Employee Net Pay Employer Payroll Taxes Recording and Reporting Payroll Taxes Employee Fringe Benefits The Financial Analyst Preparing a Classified Balance Sheet Liquidity versus Solvency Real-World Data A Look Back A Look Forward Appendix Accounting for Discount Notes Accounting Events Affecting Year 2 Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 10 Accounting for Long-Term Debt Chapter Opening Installment Notes Payable Line of Credit Bond Liabilities Advantages of Issuing Bonds Security of Bonds Timing of Maturity Special Features Bond Ratings Restrictive Covenants Bonds Issued at Face Value Financial Statement Effects Financial Statements Amortization Using the Straight-Line Method Bonds Issued at a Discount Bonds Issued at a Premium Bond Redemptions Amortization Using the Effective Interest Rate Method Amortizing Bond Discounts Amortizing Bond Premiums The Financial Analyst Financial Leverage and Tax Advantage of Debt Financing EBIT and Ratio Analysis Times-Interest-Earned Ratio A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 11 Proprietorships, Partnerships, and Corporations Chapter Opening Forms of Business Organizations Regulation Double Taxation Limited Liability Continuity Transferability of Ownership Management Structure Ability to Raise Capital Appearance of Capital Structure in Financial Statements Accounting for Capital Stock Par Value Stated Value Stock: Authorized, Issued, and Outstanding Other Valuation Terminology Common versus Preferred Stock Common Stock Preferred Stock Other Classes of Stock Accounting for Stock Transactions on the Day of Issue Issuing Par Value Stock Stock Classification Stock Issued at Stated Value Stock Issued with No Par Value Financial Statement Presentation Treasury Stock Cash Dividends Declaration Date Date of Record Payment Date Stock Dividends and Splits Stock Dividends Stock Splits Appropriation of Retained Earnings Financial Statement Presentation The Financial Analyst Stock Investment Decisions Receiving Dividends Increasing the Price of Stock Price-Earnings Ratio Exercising Control through Stock Ownership Business Liquidations Business Liquidations Resulting from Net Losses Business Liquidations Resulting from the Mismanagement of Assets A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 12 Statement of Cash Flows Chapter Opening An Overview of the Statement of Cash Flows Operating Activities Investing Activities Financing Activities Noncash Investing and Financing Activities Reporting Format for the Statement of Cash Flows Preparing a Statement of Cash Flows Preparing the Operating Activities Section of a Statement of Cash Flows Using the Indirect Method Indirect Method—Reconciliation Approach Indirect Method—Rule-Based Approach Preparing the Operating Activities Section of a Statement of Cash Flows Using the Direct Method Preparing the Investing Activities Section of a Statement of Cash Flows Reconciliation of Investment Securities Reconciliation of Store Fixtures Reconciliation of Land Preparing the Financing Activities Section of a Statement of Cash Flows Reconciliation of Mortgage Payable Reconciliation of Bonds Payable Reconciliation of Common Stock Reconciliation of Retained Earnings Reconciliation of Treasury Stock Preparing the Schedule of Noncash Investing and Financing Activities The Financial Analyst Real-World Data A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Chapter 13 The Double-Entry Accounting System Chapter Opening Debit/Credit Terminology Rules for Debits and Credits Recording Transactions in T-Accounts Asset Source Transactions Asset Exchange Transactions Asset Use Transactions Claims Exchange Transactions Adjusting the Accounts The General Journal Trial Balance and Financial Statements Permanent versus Temporary Accounts Closing Entries Post-Closing Trial Balance Recording Debits and Credits in T-Accounts for Other Events T-Account Entries for the Purchase and Sale of Merchandise Inventory T-Account Entries for Long-Term Assets and Depreciation Journal Entries for Notes Payable and Interest Expense General Ledger and Adjusted Trial Balance Adjusted Trial Balance Financial Statements Closing Entries A Look Back A Look Forward Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Chapter 14 Financial Statement Analysis Chapter Opening Factors in Communicating Useful Information The Users The Types of Decisions Information Analysis Methods of Analysis Horizontal Analysis Vertical Analysis Ratio Analysis Objectives of Ratio Analysis Measures of Debt-Paying Ability Liquidity Ratios Solvency Ratios Measures of Profitability Measures of Managerial Effectiveness Stock Market Ratios Limitations of Financial Statement Analysis Different Industries Changing Economic Environment Accounting Principles A Look Back Self-Study Review Problem Key Terms Questions Exercises—Series A Problems—Series A Exercises—Series B Problems—Series B Analyze, Think, Communicate Appendix A Accessing the EDGAR Database through the Internet Appendix B Portion of the Form 10-K for Target Corporation Appendix C Summary of Financial Ratios Appendix D General Ledger Capstone Project Appendix E Capstone Financial Statement Analysis and Annual Report Projects Appendix F Accounting for Investment Securities Appendix G Time Value of Money Appendix H Big Data and Data Visualizations Overview Appendix I Chart of Accounts Glossary Index
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