Table of Contents:

1

Accounting and the Business Environment

Vignette: Sherman Lawn Service and DeFilippo Catering

Accounting: The Language of Business

Decision Makers: The Users of Accounting Information

Financial Accounting and Management Accounting

The Accounting Profession

Governing Organizations

Ethics in Accounting and Business

Standards of Professional Conduct

Types of Business Organizations

Accounting Concepts and Principles

The Entity Concept

The Reliability (Objectivity) Principle

The Cost Principle

The Going-Concern Concept

The Stable-Monetary-Unit Concept

The Accounting Equation

Assets and Liabilities

Owner?s Equity

Accounting for Business Transactions

Evaluating Business Transactions?The User Perspective of Accounting

The Financial Statements

Financial Statement Headings

Relationships Among the Financial Statements

j Decision Guidelines

c Summary Problem

Review: Accounting and the Business Environment, Quick Check/Accounting Vocabulary |

Assess Your Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B) |

Apply Your Knowledge, Decision Cases/Ethical Issues/Financial Statement Case/Team Projects



2

Recording Business Transactions

Vignette: Sherman Lawn Service and DeFilippo Catering

The Account, the Ledger, and the Journal

Assets

Liabilities

Owner?s Equity

Chart of Accounts

Double-Entry Accounting

The T-Account

Increases and Decreases in the Accounts

Recording Transactions in the Journal

Posting (Copying Information) from the Journal to the Ledger

Expanding the Rules of Debit and Credit: Revenues and Expenses

The Normal Balance of an Account

The Flow of Accounting Data

Source Documents

Journalizing Transactions and Posting to the Ledger

7e_FMsamp_0132439603.QXD 6/29/06 3:16 PM Page iii

The Ledger Accounts After Posting

The Trial Balance

Details of Journals and Ledgers

Details in the Ledger

Correcting Trial Balance Errors

The Four-Column Account: An Alternative to the T-Account

Recording Transactions From Actual Business Documents

j Decision Guidelines

c Summary Problem

Review: Recording Business Transactions, Quick Check/Accounting Vocabulary | Assess Your

Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B)/Continuing

Problem | Apply Your Knowledge, Decision Cases/Ethical Issue/Financial Statement

Case/Team Project

c Demo Doc: Debit/Credit Transaction Analysis

c Demo Doc Solutions



3

The Adjusting Process

Vignette: Cookie Lapp Travel

Accounting Concepts and Principles

Accrual Accounting versus Cash-Basis Accounting

The Accounting Period

The Revenue Principle

The Matching Principle

The Time-Period Concept

Adjusting the Accounts

Prepaids and Accruals

Prepaid Expenses

Depreciation

Accrued Expenses

Accrued Revenues

Unearned Revenues

Summary of the Adjusting Process

The Adjusted Trial Balance

The Financial Statements

Preparing the Statements

Relationships Among the Financial Statements

Ethical Issues in Accrual Accounting

j Decision Guidelines

c Summary Problem

Review: The Adjusting Process, Quick Check/Accounting Vocabulary | Assess Your Progress,

Short Exercises/Exercises/Problems (Group A)/Problems (Group B) | Apply Your Knowledge,

Decision Cases/Ethical Issue/Financial Statement Case/Team Project

APPENDIX TO CHAPTER 3: Alternative Treatment of Prepaid Expenses and Unearned

Revenues



4

Completing the Accounting Cycle

Vignette: Sherman Lawn Service and DeFilippo Catering

The Accounting Cycle

The Work Sheet

Summary Problem 1

iv Contents

Completing the Accounting Cycle

Preparing the Financial Statements

Recording the Adjusting Entries

Closing the Accounts

Postclosing Trial Balance

Classifying Assets and Liabilities

Assets

Liabilities

The Classified Balance Sheet

Balance Sheet Forms

Accounting Ratios

Current Ratio

Debt Ratio

j Decision Guidelines

c Summary Problem 2

Review: Completing the Accounting Cycle, Quick Check/Accounting Vocabulary | Assess

Your Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B)/Continuing

Problem | Apply Your Knowledge, Decision Case/Ethical Issue/Financial Statement Case/

Team Project

APPENDIX TO CHAPTER 4: Reversing Entries: An Optional Step



5

Merchandising Operations

Vignette: Austin Sound

What Are Merchandising Operations?

The Operating Cycle of a Merchandising Business

Inventory Systems: Perpetual and Periodic

Perpetual Inventory Systems

Accounting for Inventory in the Perpetual System

Purchase of Inventory

Sale of Inventory

Sales Revenue, Cost of Goods Sold, and Gross Profit

Summary Problem 1

Adjusting and Closing the Accounts of a Merchandiser

Adjusting Inventory Based on a Physical Count

Closing the Accounts of a Merchandiser

Preparing a Merchandiser?s Financial Statements

Income Statement Formats: Multi-Step and Single-Step

Two Ratios for Decision Making

The Gross Profit Percentage

The Rate of Inventory Turnover

Cost of Goods Sold in a Periodic Inventory System

j Decision Guidelines

c Summary Problem 2

APPENDIX A TO CHAPTER 5: Work Sheet for a Merchandising Business

Review: Merchandising Operations, Quick Check/Accounting Vocabulary | Assess Your

Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B)/Continuing

Problem | Apply Your Knowledge, Decision Cases/Ethical Issue/Financial Statement

Case/Team Project

APPENDIX B TO CHAPTER 5: Accounting for Merchandise in a Periodic

Inventory System

Comprehensive Problem for Chapters 1?5



6

Merchandise Inventory

Vignette: Rocky Mountain Sportswear Company

Inventory Costing Methods

Inventory Costing in a Perpetual System

First-In, First-Out (FIFO) Method

Journal Entries Under FIFO

Last-In, First-Out (LIFO) Method

Journal Entries Under LIFO

Average-Cost Method

Journal Entries Under Average Costing

Comparing FIFO, LIFO, and Average Cost

Summary Problem 1

Accounting Principles and Inventories

Other Inventory Issues

Lower-of-Cost-or-Market Rule

Effects of Inventory Errors

Ethical Issues

Estimating Ending Inventory

j Decision Guidelines

c Summary Problem 2

Review: Accounting for Merchandise Inventory, Quick Check/Accounting Vocabulary | Assess

Your Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B) | Apply

Your Knowledge, Decision Cases/Ethical Issue/Financial Statement Case/Team Project

APPENDIX TO CHAPTER 6: Accounting for Inventory in a Periodic System



7

Accounting Information Systems

Vignette: InMotion

An Effective Accounting Information System

Components of a Computerized System

How Computerized and Manual Systems Work

Designing a System: The Chart of Accounts

Processing Transactions: Manual and Menu-Driven Systems

Enterprise Resource Planning (ERP) Systems

Integrated Accounting Software: Spreadsheets

Special Journals

Special Journals in a Manual System

The Sales Journal

Using Documents as Journals

The Cash Receipts Journal

The Purchases Journal

The Cash Payments Journal

The Role of the General Journal

The Credit Memo?Recording Sales Returns and Allowances

The Debit Memo?Recording Purchase Returns and Allowances

Balancing the Ledgers

Blending Computers and Special Journals

j Decision Guidelines

c Summary Problem

Review: Accounting Information Systems, Quick Check/Accounting Vocabulary | Assess Your

Progress, Short Exercises/Exercises/Problems (Group A) | Apply Your Knowledge, Decision

Cases/Ethical Issue/Team Projects

Comprehensive Problem for Chapters 1?7



8

Internal Control and Cash

Vignette: InMotion

Internal Control

The Sarbanes-Oxley Account (SOX)

The Component of Internal Control

Internal Control Procedures

Internal Controls for E-Commerce

The Limitations of Internal Control

The Bank Account as a Control Device

The Bank Reconciliation

Preparing the Bank Reconciliation

Online Banking

Summary Problem 1

Internal Control over Cash Receipts

Internal Control over Cash Payments

Controls over Payment by Check

Controlling Petty Cash Payments

Reporting Cash on the Balance Sheet

Ethics and Accounting

Corporate and Professional Codes of Ethics

Ethical Issues in Accounting

j Decision Guidelines

c Summary Problem 2

Review: Internal Control and Cash, Quick Check/Accounting Vocabulary | Assess Your

Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B) | Apply Your

Knowledge, Decision Cases/Ethical Issue/Financial Statement Case/Team Project



9

Receivables

Vignette: InMotion

Receivables: An Introduction

Types of Receivables

Establishing Internal Control over Collection of Receivables

Managing the Collection of Receivables: The Credit Department

Decision Guidelines

Accounting for Uncollectibles (Bad Debts)

The Allowance Method

Estimating Uncollectibles

Writing Off Uncollectible Accounts

The Direct Write-Off Method

Recovery of Accounts Previously Written Off

Credit-Card, Bankcard, and Debit-Card Sales

Credit-Card Sales

Bankcard Sales

Debit-Card Sales

Summary Problem !

Notes Receivable: An Overview

Identifying Maturity Date

Computing Interest on a Note

Accounting for Notes Receivable

Recording Notes Receivable

Accruing Interest Revenue

Contents vii

Dishonored Notes Receivable

Reporting Receivables on the Balance Sheet

Computers and Accounts Receivable

Using Accounting Information for Decision Making

Acid-Test (or Quick) Ratio

Days? Sales in Receivables

j Decision Guidelines

c Summary Problem 2

Review: Receivables, Quick Check/Accounting Vocabulary | Assess Your Progress, Short

Exercises/Exercises/Problems (Group A) | Apply Your Knowledge, Decision Cases/Ethical

Issue/Financial Statement Case/Team Project

APPENDIX TO CHAPTER 9: Discounting a Note Receivable



10

Plant Assets and Intangibles

Vignette: InMotion

Measuring the Cost of a Plant Asset

Land and Land Improvements

Buildings

Machinery and Equipment

Furniture and Fixtures

A Lump-Sum (Basket) Purchase of Assets

Capital Expenditures

Depreciation

Causes of Depreciation

Measuring Depreciation

Depreciation Methods

Comparing Depreciation Methods

Summary Problem 1

Other Issues in Accounting for Plant Assets

Depreciation and Income Taxes

Depreciation for Partial Years

Changing the Useful Life of a Depreciable Asset

Using Fully-Depreciated Assets

Disposing of a Plant Asset

Accounting for Natural Resources

Accounting for Intangible Assets

Specific Intangibles

Accounting for Research and Development Costs

Ethical Issues

j Decision Guidelines

c Summary Problem 2

Review: Plant Assets and Intangibles, Quick Check/Accounting Vocabulary | Assess Your

Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B) | Apply Your

Knowledge, Decision Cases/Ethical Issue/Financial Statement Case/Team Project



11

Current Liabilities and Payroll

Vignette: General Motors

Current Liabilities of Known Amount

Accounts Payable

Short-Term Notes Payable

Sales Tax Payable

Current Portion of Long-Term Notes Payable

7e_FMsamp_0132439603.QXD 6/29/06 3:16 PM Page viii

Accrued Expenses (Accrued Liabilities)

Unearned Revenues

Current Liabilities That Must Be Estimated

Estimated Warranty Payable

Contingent Liabilities

Decision Guidelines

Summary Problem 1

Accounting for Payroll

Gross Pay and Net (Take-Home) Pay

Payroll Withholding Deductions

Employer Payroll Taxes

Payroll Accounting

The Payroll System

Payroll Record

Payroll Checks

Earnings Record

Paying the Payroll

Internal Control over Payroll

Reporting Current Liabilities

Ethical Issues in Reporting Liabilities

j Decision Guidelines

c Summary Problem 2

Review: Current Liabilities and Payroll, Quick Check/Accounting Vocabulary | Assess Your

Progress, Short Exercises/Exercises/Problems (Group A) | Apply Your Knowledge, Decision

Cases/Ethical Issue/Financial Statement Case/Team Projects

Comprehensive Problem for Chapters 8?11



12

Partnerships

Vignette:

Characteristics of a Partnership

The Written Agreement

Limited Life

Mutual Agency

Unlimited Liability

Co-Ownership of Property

No Partnership Income Tax

Partners? Capital Accounts

Types of Partnerships

General Partnership

Limited Partnership

Limited Liability Company (LLC)

S Corporation

The Start-Up of a Partnership

Sharing Profits and Losses, and Partner Drawings

Sharing Based on a Stated Fraction

Sharing Based on Capital Balances and on Service

Partner Drawings of Cash and Other Assets

Admission of a Partner

Admission by Purchasing a Partner?s Interest

Admission by Investing in the Partnership

Withdrawal of a Partner

Withdrawal at Book Value

Withdrawal at Less Than Book Value

Withdrawal at More Than Book Value

Death of a Partner

Liquidation of a Partnership

Sale of Assets at a Gain

Sale of Assets at a Loss

Partnership Financial Statements

j Decision Guidelines

c Summary Problem

Review: Partnerships, Quick Check/Accounting Vocabulary | Assess Your Progress, Short

Exercises/Exercises/Problems (Group A)/Problems (Group B) | Apply Your Knowledge,

Decision Cases/Ethical Issue/Team Project



13

Corporations: Paid-In Capital and the Balance Sheet

Vignette: IHOP

Corporations: An Overview

Characteristics of a Corporation

Organizing a Corporation

Capital Stock

Stockholders? Equity Basics

Paid-In Capital Comes from the Stockholders

Retained Earnings Come from Profitable Operations

A Corporation May Pay Dividends to the Stockholders

Stockholders? Rights

Classes of Stock

Issuing Stock

Issuing Common Stock

Issuing Preferred Stock

Ethical Considerations

Review of Accounting for Paid-In Capital

Decision Guidelines

Summary Problem 1

Accounting for Cash Dividends

Dividend Dates

Declaring and Paying Dividends

Dividing Dividends Between Preferred and Common

Dividends on Cumulative and Noncumulative Preferred

Different Values of Stock

Market Value

Book Value

Evaluating Operations

Rate of Return on Total Assets

Rate of Return on Common Stockholders? Equity

Accounting for Income Taxes by Corporations

j Decision Guidelines

c Summary Problem 2

Review: Corporations: Paid-In Capital and the Balance Sheet, Quick Check/Accounting

Vocabulary | Assess Your Progress, Short Exercises/Exercises/Problems (Group A)/Problems

(Group B) | Apply Your Knowledge, Decision Cases/Ethical Issue/Financial Statement

Case/Team Project



14

Corporations: Retained Earnings and the Income Statement

Vignette: IHOP

Retained Earnings, Stock Dividends, and Stock Splits

Retained Earnings

Stock Dividends

Stock Splits

Stock Dividends and Stock Splits Compared

Treasury Stock

Purchase of Treasury Stock

Sale of Treasury Stock

Other Stockholders? Equity Issues

Retirement of Stock

Restrictions on Retained Earnings

Variations in Reporting Stockholders? Equity

Decision Guidelines

Summary Problem 1

The Corporate Income Statement

Continuing Operations

Special Items

Earnings per Share

Combined Statement of Income and Retained Earnings

Statement of Retained Earnings

Reporting Comprehensive Income

Prior-Period Adjustments

j Decision Guidelines

c Summary Problem 2

Review: Retained Earnings, Treasury Stock, and the Income Statement, Quick

Check/Accounting Vocabulary | Assess Your Progress, Short Exercises/Exercises/Problems

(Group A)/Problems (Group B) | Apply Your Knowledge, Decision Cases/Ethical

Issue/Financial Statement Case/Team Project



15

Long-Term Liabilities

Vignette: Amazon.com

Bonds: An Introduction

Types of Bonds

Bond Prices

Present Value

Bond Interest Rates

Issuing Bonds Payable to Borrow Money

Issuing Bonds Payable at Maturity (Par) Value

Issuing Bonds Payable at a Discount

Issuing Bonds Payable at a Premium

The Carrying Amount of Bonds Payable

Decision Guidelines

Summary Problem 1

Additional Bond Topics

Adjusting Entries for Bonds Payable

Issuing Bonds Payable Between Interest Dates

Retirement of Bonds Payable

Convertible Bonds Payable

Reporting Liabilities on the Balance Sheet

Advantages and Disadvantages: Bonds versus Stock

j Decision Guidelines

c Summary Problem 2

Review: Long-Term Liabilities, Quick Check/Accounting Vocabulary | Assess Your Progress,

Short Exercises/Exercises/Problems (Group A)/Problems (Group B) | Apply Your Knowledge,

Decision Cases/Ethical Issue/Financial Statement Case/Team Project

APPENDIX TO CHAPTER 15: The Time Value of Money: Present Value of a Bond

Comprehensive Problem for Chapters 13?15



16

The Statement of Cash Flows

Vignette: eBay

Introduction: The Statement of Cash Flows

Cash Equivalents

Operating, Investing, and Financing Activities

Two Formats for Operating Activities

Preparing the Statement of Cash Flows by the Indirect Method

Cash Flows from Operating Activities

Cash Flows from Investing Activities

Cash Flows from Financing Activities

Noncash Investing and Financing Activities

Measuring Cash Adequacy: Free Cash Flow

Summary Problem

j Decision Guidelines

Review: The Statement of Cash Flows, Quick Check/Accounting Vocabulary | Assess Your

Progress, Short Exercises/Exercises/Problems (Group A)

Apply Your Knowledge, Decision Cases/Ethical Issue/Financial Statement Case/Team Projects

APPENDIX A: Preparing the Statement of Cash Flows by the Direct Method

j Decision Guidelines

APPENDIX B: Preparing the Statement of Cash Flows Using a Spreadsheet



17

Financial Statement Analysis

Vignette: Google Inc.

Horizontal Analysis

Illustration: Google Inc.

Horizontal Analysis of the Income Statement

Horizontal Analysis of the Balance Sheet

Trend Percentages

Vertical Analysis

Illustration: Google Inc.

How Do We Compare One Company with Another?

Benchmarking

Benchmarking Against a Key Competitor

Benchmarking Against the Industry Average

Summary Problem 1

Using Ratios to Make Decisions

Measuring Ability to Pay Current Liabilities

Measuring Ability to Sell Inventory and Collect Receivables

Measuring Ability to Pay Long-Term Debt

Measuring Profitability

Analyzing Stock Investments

Red Flags in Financial Statement Analysis

j Decision Guidelines

c Summary Problem 2

Review: Financial Statement Analysis, Quick Check/Accounting Vocabulary | Assess Your

Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B) | Apply Your

Knowledge, Decision Cases/Ethical Issue/Financial Statement Case/Team Projects

Comprehensive Problem for Chapters 16 and 17



18

Introduction to Management Accounting

Vignette: Joe?s Delivery Service, Maria?s Birthday Cakes, Roberto?s Bakery

Management Accountability

Service Companies, Merchandising Companies, and Manufacturing Companies

Today?s Business Environment

Merchandising Companies

c Summary Problem 1

Manufacturing Companies

Ethical Standards

j Decision Guidelines

c Summary Problem 2

Review: Introduction to Management Accounting, Quick Check/Accounting Vocabulary |

Assess Your Progress, Short Exercises/Exercises/Problems (Group A)/Problems (Group B) |

Apply Your Knowledge, Decision Cases/Ethical Issue/Financial Statement Case/Team Project