ABC, see Activity-based costing
Absorption costing, 1055
Accelerated-depreciation method, 480
Accounts payable, 13
as current liabilities, 524
for statement of cash flows, 810
transaction analysis for, 19
Accounts payable (creditors’) subsidiary ledger, 332–335
for statement of cash flows, 809
Accounts receivable (customers’) subsidiary ledger, 332–335
Accounts receivable turnover, 447, 852
accrual- vs. cash-basis, 100
career opportunities in, 29–31
cost, 940
financial, 894
generally accepted accounting principles, 8–9
managerial, 30. See also Managerial accounting
as recruiting tool, 6
responsibility, see Responsibility accounting
Accounting cycle, 174–177, 573. See also specific steps in cycle
Accounting equation, see Basic accounting equation
Accounting information, in budgeting process, 1076
Accounting reports, 4, 5. See also Financial statements
Accounting systems (accounting information systems), 330–349
cash payments journal, 344–347
cash receipts journal, 339–342
manual, 332
Accruals, 103
adjusting entries for, 110–116
liabilities, 524
Accrual-basis accounting, 100, 114
Accumulated depreciation, 180
Accuracy, in financial reporting, 75
Activity base, 949
Activity-based costing (ABC), 910, 1000–1001, 1006–1008
Activity index (CVP), 1032
Additions and improvements, 483
Adjustable interest rates, 697
Adjusted trial balance, 119–123, 163, 165
in accounting cycle, 230
for deferrals, 104–11, 124–128
IFRS and GAAP for, 157
for merchandising companies, 230–232
types of, 103
on worksheet, 163–165, 246–248
from worksheets, 167
Admission of partners, 585–589
Affiliated company, 746
Agents, of corporations, 608–609
Aggregated data, 4
Aging schedule, 437
Aging the accounts receivable, 437
Airlines, costs and profits of, 909
Allowances:
Alternative accounting methods, 865
Amortization, 489
effective-interest method, 711–714
Analysis of information, 4
Annual rate of return, 1241–1242
Annuities, present value of, 707–709, G5–G7, H2
Appel, Jennifer, 572
Arm's-length transactions, 430
Articles of co-partnership, 571–572
Articles of incorporation, 611
Assets:
on classified balance sheet, 177–179
fixed, 180
IASB definition, 50
pension, 547
property, plant, and equipment, see Plant assets
Associate investments, 773
Assumptions in accounting, 10–11, 129
Auditing, 29
Auditors, internal, 383
Audit trail, 331
Authorized stock, 613
Available-for-sale securities, 271, 748, 750–751
Average collection period, 448–449, 852
Average-cost method, 281, 282, 285–286, 298–299
Background checks, 384
Bad debts, see Uncollectible accounts
Balanced scorecard, 910–911, 1194–1197
Balanced Scorecard Institute, 1223
effect of cost flow methods on, 288
and errors in inventory accounting, 291–292
horizontal analysis of, 843–844
merchandising and manufacturing costs on, 905–906
for partnerships, 577
recovery of bad debts on, 434
stockholders’ equity section of, 626–627
transfer to worksheet, 246
unpaid notes payable on, 697
vertical analysis of, 846, 847
write-off of bad debts on, 434
Balsam, Craig, 556
for internal control, 394
reconciling bank account, 397–400
Bank reconciliations, 375, 432.
See also Reconciling bank accounts
Barnum, P.T., 7
Basic accounting equation, 12–21
assets and liabilities in, 12–13
in transaction analysis, 15–21
Batch jobs, 940
Bearer bonds, 687
Benford's Law, 849
Best-efforts contracts, 613n.2
Bezos, Jeff, 1030
Blank, Arthur, 4
Board of directors, 896
converting into common stock, 695–696
issued for credit, 790
long-term, 689
present value of, 705–711, G7–G9
recording transactions with, 741–743
redeeming, 695
types of, 687
Bond amortization:
effective interest method, 711–714
Bond indentures, 687
Bonding of employees, 383
Bond interest expense, 693
Bonuses:
on admission of a partner, 587–588
as fringe benefits, 533
on withdrawal of a partner, 590–591
Bookkeeping, 5
Book (carrying) value, 107, 476, 479–480, 692
Bowerman, Bill, 606
Bowline, Lyle, 1074
Break-even analysis, 1043–1047
Break-even point, 1043
Brock, Paula, 1134
Budgets, 1076
continuous 12-month, 1077
standards vs., 1178
Budgetary optimism, 1082
accounting information in, 1076
budget balance sheet, 1093–1094
budget income statement, 1089–1090
direct labor budget, 1086–1087
direct materials budget, 1084
length of budget period, 1077
and long-range planning, 1079
manufacturing overhead budget, 1087
in non-manufacturing companies, 1095–1097
for not-for-profit organizations, 1096–1097
sales and administrative expense budget, 1087–1088
for service enterprises, 1096, 1097
Budgetary slack, 1079
Budget balance sheet, 1093–1094
Budget committee, 1078
Budget income statement, 1089–1090
Budget period, length of, 1077
Budget reforecasting, 1134
Budget reports, 1124, 1126, 1133–1135
Budget shortfalls, 1097
Business transactions, 15. See also Transaction analysis
in partnerships, 573
By-laws of corporations, 611
Calendar years, 100
Callable bonds, 687
Capital:
corporate acquisition of, 609
owner's, 13
working, 528
annual rate of return, 1241–1242
discounted cash flow, 1245–1249
evaluation process in, 1240–1241
Capital deficiency (partnership liquidation), 581–583
Capital expenditures, 483, 1241
Capital ratios, for partnerships, 575
Capital stock, 626
Carrying value, see Book value
Carrying (book) value method, 696
Cash, 402
and fraud, 386
IFRS definition, 426
for statement of cash flows, 811
Cash-basis accounting, 100
Cash bonuses, 533
Cash disbursements, internal controls for, 389–392
Cash discounts, 431
Cash dividends, 650
Cash equivalents, 402, 426, 838
Cash flows. See also Statement of cash flows
ability to generate, 778
Cash management, 1093
Cash payments:
Cash payments (cash disbursements) journal, 344–347
Cash purchases, transaction analysis for, 16–17
Cash (net) realizable value, 434, 443
Cash receipts:
in direct method, 800
internal controls for, 386–389
transaction analysis for, 19
Cash receipts journal, 339–342
Cash register tapes, 226
Cash withdrawals, transaction analysis for, 19–20
Castle, Ted, 160
CEO (chief executive officer), 609, 896
Certified public accountants (CPAs), 29, 30
CFO (chief financial officer), 897
Changes in accounting principle, 863–864
Channel stuffing, 866
Checks:
altered, 380
Check register, 389
Chenfield, Cliff, 556
Chief executive officer (CEO), 609, 896
Chief financial officer (CFO), 897
Claims, fictitious, 378
Classified balance sheet, 177–184
for merchandising companies, 232, 236
Closely held corporations, 608.
See also Privately held corporations
Closing entries:
for merchandising companies, 230–231, 245–246
post-closing trial balance, 172–174
posting closing entries, 170–171
preparing closing entries, 168–170
with virtual closes, 171
CM (credit memorandum), 397
Code of ethics, 898
Collaboration, 1137
Collusion, 385
Commercial substance (exchanges), 497
Common-size analysis, 846.
See also Vertical analysis
allocating cash dividends to, 652–653
converting bonds into, 695–696
earnings per share for, 664
par value, 618
for services or noncash assets, 618–619
for statement of cash flows, 804, 810l
Comparability, 129
Competitive environment, 909
Component depreciation, 517
Components, make-or-buy decisions for, 1232–1234
Compound interest, H2
Comprehensive income, 753, 864
Computerized accounting systems, 330–332
Computer recycling, 116
Computer-system tampering, 331
Conservatism, 289
Consigned goods, ownership of, 279
Consistency principle, 129, 288
Consolidated financial statements, 746–747
Constraints, theory of, 910
Construction of buildings, 473
Consumer cooperatives (co-ops), 216–217
Contingent liabilities, 529–531, 564
Continuous 12-month budgets, 1077
Contra accounts:
for assets, 106
for bonds at a discount, 692
for revenue, 228
for stockholders’ equity, 621–622
Contractual interest rate, 687, 691
Contributed capital, 626. See also Paid-in capital
Contribution margin per unit
(CVP analysis), 1041–1042, 1048, 1239
Contribution margin ratio (CVP analysis), 1042–1043, 1048
Control, internal, see Internal control
Control environment, 377
Controllability of items, 1138
Controllable margin, 1144, 1147–1148
Controllable revenues/costs, 1137
Controllable variance (overhead), 1191, 1203–1205
Controlling interest, 746
Convergence, 9
Convertible bonds, 687, 695–696
Co-ownership of property, 568–569
Corporate social responsibility, 25, 181, 617, 911, 1192
forming, 611
multinational, 48
owner's equity accounts in, 183
ownership rights of stockholders, 612
reasons for investing, 740–741
stock issues, 612–615. See also Stock
subchapter S, 570
Correcting entries, 176–177, 398–399
Cost(s):
in computation of depreciation, 476–477
controllable vs. noncontrollable, 1137
depreciable, 477
fixed, see Fixed costs
in incremental analysis, 1230–1232
inventoriable, 901
labor, 900, 901, 943, 947–948, 985–987
in managerial accounting, 899
manufacturing, see Manufacturing costs
in noncash transactions, 619
non-recurring, 863
organization, 611
of patents, 489
period, 901
research and development, 491–492
standard, see Standard costs
unit production, 995
variable, 1032–1033, 1087, 1130
warranty, 529
Cost accounting systems, 940–941
Cost behavior analysis, 1032–1039
Cost constraints, 130
Cost drivers, 1000
Cost flows:
in merchandising companies, 219–221
in process vs. job order cost systems, 985
Cost flow assumptions/methods:
in perpetual inventory systems, 297–300
Costing:
absorption, 1055
activity-based, 910, 1000–1001, 1006–1008
full, 1055
inventory, see Inventory costing
job order, see Job order costing
operations, 998
for service industries, 908–909
Cost method:
for stock investments, 743
Cost of goods manufactured, 903–905
Cost of goods manufactured schedule, 904–905
Cost of goods purchased, 902
Cost of goods sold, 218–219, 242, 243, 953
Cost-plus contracts, 956
Cost principle (historical cost principle), 9, 472
Cost reconciliation schedule, 995–996
Cost-volume-profit (CVP) analysis, 1040–1053
break-even analysis, 1043–1047
and changes in business environment, 1050–1051
CVP income statement, 1040–1043
Cost-volume-profit (CVP) graph, 1045–1046, 1048
Cost-volume-profit (CVP) relationships, 1032–1039
cost behavior analysis, 1032–1039
fixed costs, 1033
identifying cost types in, 1076–1077
Coupon bonds, 687
Covenants, 702
CPAs (certified public accountants), 29, 30
Credit agreements, 431
Credit balance, 54
Credit crisis, 446
Credit memorandum (CM), 397
Creditors, 13
Creditors’ subsidiary ledger, 333
Credit terms, 223
Cross-footing a journal, 341
Cumulative dividends, 625
Current assets, 178–179, 786–787
bond interest payable, 691
on classified balance sheet, 182
current maturities of long-term debt, 526–527
leases, 700
order of listing, 527
sales taxes payable, 525
statement presentation and analysis, 527–528
unearned revenues, 526
Current replacement cost, 289
Customers, as external users, 7
Customers’ subsidiary ledger, 333
CVP analysis, see Cost-volume-profit
analysis
CVP income statement, 1040–1043, 1052–1053
CVP relationships, see Cost-volume-profit relationships
Debenture bonds, 687
Debit balance, 54
Debit memorandum (DM), 397
Debt covenants, 702
Debt to assets ratio, 701, 857–858
Decentralized companies, 1136
Decision-making, see Management decision-making
Declaration date (cash dividends), 651
Declining-balance depreciation, 479–481
adjusting entries for, 104–110, 124–128
alternative treatment of, 124–127
basic relationships for, 127
Defined-benefit plans, 548
Defined-contribution plans, 547–548
Depletion (natural resources), 487
Depreciable cost, 477
Depreciation:
accumulated, 180
adjusting entries for, 106–107
declining-balance method, 479–481
indirect method, 802
recognizing, 476
revising estimates of, 482
for statement of cash flows, 810
straight-line method, 477–478, 481
units-of-activity method, 478–479, 481
Depreciation expense, 785
Depreciation schedule, 478
Differential analysis, 1228. See also Incremental analysis
Direct labor, 900
Direct labor budget, 1086–1087
Direct labor price standard, 1181
Direct labor quantity, 1181
Direct labor variances, 1188–1190
Direct materials, 900
Direct materials budget, 1084
Direct materials price standard, 1180
Direct materials quantity standard, 1180–1181
Direct materials variances, 1185–1187
Direct method (statement of cash flows), 782–783, 798–804
investing and financing activities, 803–804
net change in cash, 805
Direct write-off method, 432–433
Disbursements journal, 344–347
clarity of financial, 234
of contingent liabilities, 530–532
Discontinued operations, 861–862
Discounts:
bond, 691–693, 711–713, 715–716
cash, 431
Discounted cash flow method, 1245–1249
Discount rate, 1245
Dishonored notes, 445
Disposal:
of accounts receivable, 438–440
Divestments, owner's drawings as, 20
ability to pay, 778
IFRS and GAAP for, 682
on preferred stock, 625
from stock investments, 743–746
Dividends in arrears, 625
DM (debit memorandum), 397
Documentation procedures, 380–381, 484
Dollar signs, use of, 75
Double-declining-balance method, 480
Double taxation, 610
Drawings (by owners), 14, 20, 56
Dual posting, 347
Duties:
Earnings per share (EPS), 664, 856
Earnings statement, 23. See also Income statement
Earning power, 861
Ebbers, Bernie, 483
Economic entity assumption, 10–11, 129
Effective-interest amortization, 711–714
Electronic funds transfers (EFTs), 401
Electronic spreadsheets, 162.
See also Worksheets
“Employee Benefits” (IAS 19), 564
Employee compensation, see Payroll accounting
Employee earnings record, 536
Employee theft, 385
Employer (pension plans), 546–547
Employer payroll taxes, 539–541
Enterprise resource planning (ERP)
Envelope budgeting, 1174
EPS (earnings per share), 664, 856
Equal Employment Opportunity
Act, 1178
Equipment:
retaining vs. replacing, 1235–1236
for statement of cash flows, 802, 809–810
Equity, 50
Equity method (stock investments), 744–745
ERP (enterprise resource planning)
Errors:
correcting entries for, 176–177
irregularities vs., 75
in trial balances, 75
Estimating:
depreciation, 482
uncollectible accounts, 434
Ethics issues:
appearance of liquidity, 182
arm's-length transactions, 430
available-for-sale securities, 750
changes in accounting principle, 864
comparing cash from operations to net income, 778
computer-system tampering, 332
credit agreements, 431
disclosure of details, 235
discounted future cash flows, 1246
documentation control, 946
and economic entity assumption, 10
employee theft, 393
errors in statements, 176
expectations for EPS, 664
in financial reporting, 7–8, 226
fraudulent disbursements, 393
fraudulent documents, 59
inventory fraud, 290
lease accounting, 700
in managerial accounting, 897–899
manipulating current ratio/cash balance, 849
meeting standards, 1179
minimizing debt reported, 687
motivating employees, 533
non-owner managers, 609
overstating market value, 751
partnership agreements, 571–572
partnership liquidations, 578
purchase price allocation, 476
software for fraud control, 331–332
specific identification method, 281
standards of conduct for management accountants, I1–I2
telecommunications to remote areas, 908
temporary employees, 910
treasury stock purchase, 622
unrealistic budgets, 1079
Eurich, Beecher, 982
Europe, accounting in, 55
European Union, 9
Evaluation of companies, 793–795.
See also Financial statement analysis
Exchange of plant assets, 497–498
Exotic Newcastle Disease, 1134
Expenses:
in double-entry system, 57
IASB definition, 50
owner's equity decrease from, 14
payroll, 537
prepaid, 104–107, 125–126, 809
on single-step income statement, 234
transaction analysis for, 18–19
Expense recognition principle, 101, 130
Expense reports, fraudulent, 382–383
External transactions, 15
Face value:
of notes, 443
Factors, 439
Factory labor costs, 943
Factory overhead, 900
Fair Labor Standards Act, 1178
Faithful representation, of financial information, 9
FASB, see Financial Accounting Standards Board
Federal Bureau of Investigation (FBI), 30
Federal Insurance Contribution Act (FICA), 533–534
Federal Trade Commission, 7
Federal unemployment taxes, 539
Federal Unemployment Tax Act (FUTA), 539
Fees, 532
FICA (Federal Insurance Contribution Act), 533–534
FIFO, see First-in, first-out
Financial accounting, managerial accounting vs., 894
Financial Accounting Standards Board (FASB), 9, 49, 50
definitional structure of, 96
on financial instrument accounting, 444, 468, 736, 774
financial statement presentation project of, 213–214, 682–683, 838
financial statement structure project of, 271, 890
framework for accounting standards of, 372–373, 736
revenue recognition project of, 158
Financial budgets, 1079–1080, 1090–1095
Financial instruments, 444
Financial markets, 48
Financials (Oracle), 331
Financial statements, 4, 21–27.
See also individual statements
accuracy of, 75
from adjusted trial balance, 119–122
of Amazon.com, Inc., D1–D4
of The Coca-Cola Company, C1–C4
current liabilities on, 527–528
effect of cost flow methods on, 286–288
going beyond, 25
long-term liabilities on, 700–702
manufacturing costs in, 902–909
for merchandising companies, 233–238
monthly, 944
owner's equity statement, 21–24
partners’ capital statement, 575–576
statement of cash flows, 21–24
stockholders’ equity on, 626–627, 661–665
time periods for, 100
of Wal-Mart Stores, Inc., E1–E4
Financial statement analysis, 842–866
changes in accounting principle, 863–864
comprehensive income, 864
earning power, 861
need for, 842
Financing activities, 779, 789–790, 803–804
Finished goods inventory, 276, 952–953
First-in, first-out (FIFO), 282–283, 286–288, 297, 865
First-in, still here (FISH), 284
Fiscal year, 100
FISH (first-in, still here), 284
Fixed assets, 180, 472. See also Plant assets
Fixed costs:
in CVP, 1033
in flexible budget, 1130
in manufacturing overhead budget, 1087
static budget reports for, 1126
Fixed interest rates, 697
Fixed ratios (income), 575
and management by exception, 1137–1138
and manufacturing, 1139
Flexible budget reports, 1133–1135
FOB destination, 222–223, 278–279
FOB shipping point, 222–223, 278–279
Food production, 1034
Footing a journal, 341
Forensic accounting, 30
For-profit corporations, 608
401(k) plans, 547
Franchises, 490
Fraud, 376
altered checks, 380
cash as susceptible to, 386
employee theft, 385
fake invoices, 380
fictitious claims, 378
and forensic accounting, 30
in hotel housekeeping, 384
net income, 483
and numeric relationships, 849
and payroll accounting, 541
reimbursement requests, 381
sales commissions, 382
software controls for, 331–332
statement of cash flow, 788
and stock options, 620
theft of merchandise, 227
Fraud triangle, 376
Freight-in, 243
Fringe benefits, 539, 545–546.
See also Payroll accounting
Full costing, 1055
Full disclosure principle, 130, 531, 780
FUTA (Federal Unemployment Tax Act), 539
GAAP, see Generally accepted accounting
principles
Gains, 485, 578, 749, 753, 861
Geneen, Harold, 2
effects of special journals on, 347
control account in, 333
and post-closing trial balance, 172–174
standard form of account in, 74
General ledger accounting systems, 330–331
Generally accepted accounting principles (GAAP), 8, 9
for accounting systems, 371–372
for adjusting accounts, 157–158
for allowance method, 433
for classified balance sheet, 212
for dividends, 682
for financial statement analysis, 889–890
financial statements required by, 21
and inventory write-downs, 289
for merchandising operations, 271
for plant, property, and equipment, 517–519
and quality of earnings, 865
recording process for, 96
for revenue/expense recognition, 101
for statement of cash flows, 837, 838
and stockholders’ equity, 644–645
General partners, 570
Gift cards, accounting for, 109
Going concern assumption, 129
Goods in transit, ownership of, 278–279
Goodwill, 180, 181, 488, 490–491
Government accounting careers, 30
Governmental budgets, 1096–1097
Graham, Benjamin, 840
Green, selling, 229
Greenhouses, 1034
Gross earnings, 532
Gross profit, 233
Health insurance, 546
Held-to-maturity securities, 748
High-low method (CVP), 1037–1038
Historical cost principle, 9, 130
Honored notes, 444
Human behavior:
and budgetary planning, 1078–1079
and performance evaluation, 1138–1139
Human resource controls, 227, 384, 541
IAASB (International Auditing and Assurance Standards Board), 426
IAS 1 (standard), 271, 564, 735, 889
IAS 19 (standard), 564
IASB, see International Accounting Standards Board
Ideal standards, 1179
Identification of economic events, 4–5
IFRS, see International Financial Reporting Standards
Ig Nobel Prize, 426
IMA, see Institute of Management Accountants
IMA Statement of Ethical Professional Practice, 898
Imprest system, 390
Improper recognition, 866
Incentives, creating, 898
Income from operations, 234
effect of cost flow methods on, 286–288
and errors in inventory accounting, 290–291
horizontal analysis of, 844–845
merchandising and manufacturing costs in, 902–905
for merchandising companies, 232–236
stockholders’ equity on, 663
transfer to worksheet, 248
variances on, 1194
Income taxes:
on corporation income statements, 663
for corporations, 611
and depreciation, 463
payroll deductions for, 533
Income taxes payable, 787, 810
Incremental analysis, 1228–1239
for accepting an order at a special price, 1230–1232
for allocating limited resources, 1239
for eliminating unprofitable segments, 1236–1238
for making vs. buying, 1232–1234
management decision-making process in, 1228
for retaining vs. replacing equipment, 1235–1236
for selling vs. processing further, 1234–1235
types of decisions involving, 1230
Indefinite life, 489
Independent contractors, 532
IN-10 Subject Index
Independent internal verification, 382–383
of bank reconciliations, 432
and inventory fraud, 279
of net income, 484
of payroll expenses, 541
of statement of cash flows, 788
of write-offs, 849
Indirect fixed costs, 1144
Indirect labor, 900
Indirect manufacturing costs, 900
Indirect materials, 900
Indirect method (statement of cash flows), 782–793
investing and financing activities, 789–790
Industry averages (norms), 842
Information, for internal control, 377
Information technology, 48
Initial public offering (IPO), 611
Institute of Management Accountants (IMA), 898, 935–936, 979
Insurance:
adjusting entries for, 105–106
health, 546
on classified balance sheet, 180
and research and development costs, 491–492
statement presentation and analysis of, 492–493
Intercompany comparisons, 842
on buildings, 473
on notes receivable, 443
on partners’ capital, 575
Interest coverage, 858
Interest payments (annuities), 707–709
Interest rates:
Internal auditors, 383
with accounting software, 331–332
for bank reconciliations, 432
components of, 377
and inventory fraud, 279
for net income, 484
and Sarbanes-Oxley Act, 29, 49, 103
for statements of cash flow, 788
and theft of merchandise, 227
Internal rate of return (IRR) method, 1247–1248
Internal Revenue Service (IRS), 7, 30, 482, 541, 561
Internal transactions, 15
International Accounting Standards Board (IASB), 9, 48, 49
definitional structure of, 96
on financial instrument accounting, 444, 468, 735–736, 774
financial statement presentation project of, 213–214, 682–683, 838
financial statement structure project of, 271, 890
framework for accounting standards of, 372–373, 735–736
on liabilities, 564
revenue recognition project of, 158
International Auditing and Assurance Standards Board (IAASB), 426
International Financial Reporting Standards (IFRS), 9, 48–51
for accounting systems, 371–372
for adjusting accounts, 157
for classified balance sheet, 212–214
for dividends, 682
for financial statement analysis, 889–890
financial statements required by, 21
for merchandising operations, 271–272
for plant, property, and equipment, 517–519
for receivables, 468
recording process for, 96
for statement of cash flows, 837–838
and stockholders’ equity, 644–645
Internet, value chain and, 910
Interpretation of information, 4, 5
Intracompany comparisons, 842
Inventoriable costs, 901
determining quantities, 277–278
errors in accounting for, 290–292
excessive levels of, 293
in financial statements, 292–294
and income, 278
for manufacturing companies, 276, 905–906
for merchandising companies, 905–906
periodic system for, 220–221, 247
perpetual system for, 219–221, 297–300
for statement of cash flows, 809
consistency principle in, 288
cost flow assumptions, 281–285
lower-of-cost-or-market, 289–290
specific identification method, 280–281
Inventory turnover, 293, 294, 852–853
Investing activities:
noncash, 780
on classified balance sheet, 179
short-term, 752
valuing and reporting, 748–750
Investment centers, 1142, 1145–1148
Investment portfolio, 743
Invoices:
fake, 380
sales, 226
IPO (initial public offering), 611
Irregularities, 74
IRR (internal rate of return) method, 1247–1248
IRS, see Internal Revenue Service
Jean, Wyclef, 8
JIT (just-in-time) inventory, 276–277, 910
JIT (just-in-time) processing, 998–1000
Job cost data, reporting, 958–959
accumulating manufacturing costs, 941–944
assigning costs to cost of goods sold, 953
assigning costs to finished goods, 952–953
assigning manufacturing costs to work in process, 944–952
advantages and disadvantages, 957–958
cost accounting systems, 940–941
reporting job cost data, 958–959
for service companies, 955–956
Job order cost systems, 940, 985
process cost systems vs., 985–987
standard cost accounting system with, 1200–1202
Journals, 59–62. See also General journal cash payments (disbursements), 344–347
cross-footing, 341
footing, 341
posting to, see Posting
simple and compound entries in, 60–61
special, see Special journals
adjusting entries, 117–118, 167
cash payments transactions, 344–347
cash receipts transactions, 339–341
closing entries, 168–170, 245–246
credit purchases, 344
special journals for, 336
with standard cost accounting system, 1200–1202
Just-in-time (JIT) inventory, 276–277, 910
Just-in-time (JIT) processing, 998–1000
Knight, Philip “Phil,” 4, 606, 609
Korean discount, 10
Labor costs, 900, 943, 947–948, 985–988
Labor productivity, in auto industry, 900
Labor quantity variance, 1189
Labor unions, as external users, 7
total, 1188
Land improvements, 473
Last-in, first-out (LIFO), 284–285
financial statement and tax effects, 287–288
and IFRS, 325
in periodic inventory systems, 281–282
in perpetual inventory systems, 298
and quality of earnings, 865
Last-in, still here (LISH), 283
LCM (lower-of-cost-or-market method), 289–290
Lean manufacturing, 909
Leasing, 475
Ledgers, 62–65. See also General ledger; Subsidiary ledgers
with standard cost accounting system, 1202
Lenders, information from, 446
Leveraging, 855
Liabilities (financial):
accrued, 112
on classified balance sheet, 177–178, 182
IASB definition, 50
IFRS and GAAP for, 564, 735–736
long-term, 183. See also Long-term liabilities
payroll, 537
pension, 547
Liability (legal), in partnerships, 569–570
Life insurance benefits, 546
Life of a corporation, 609
LIFO, see Last-in, first-out
LIFO conformity rule, 288
Limited liability, 11, 569–570, 608–609
Limited liability companies (LLCs), 569, 570
Limited liability partnerships (LLPs), 569, 570
Limited life, 489
Limited partners, 570
Limited partnerships (Ltd., LP), 569–570
Line positions, 896
Liquidating dividends, 650
Liquidation:
Liquidity:
excess, 182
listing current liabilities in order of, 527
of receivables, 447
short-term creditor interest in, 842
LISH (last-in, still here), 283
LLCs (limited liability companies), 569, 570
LLPs (limited liability partnerships), 569, 570
Loans, bad, 446
Long-range planning, budgetary planning and, 1079
Long-term bonds, 689
Long-term debt, 526–527, G7–G9
Long-term debt due within one year, 527
Long-term investments, 179, 752–753
Long-term liabilities, 686–696
on classified balance sheet, 183–184
on financial statements, 700–702
notes payable, long-term, 697–698
Losses:
from discontinued operations, 861–862
on disposal of plant assets, 485, 486
on sale of equipment, 785
Lower-of-cost-or-market method (LCM), 289–290
LPs (limited partnerships), 569–570
Ltd. (limited partnerships), 569–570
Machine time used, 988
MACRS (Modified Accelerated Cost Recovery System), 482
Madoff, Bernard, 401
Mail receipts, cash, 388
Make-or-buy decisions, 1232–1234
Maker (promissory notes), 441
Management accountants, ethical conduct for, I1–I2
Management accounting, see Managerial accounting
Management by exception, 1137–1138
Management consulting, 30
Management decision-making:
for accepting an order at a special price, 1230–1232
for allocating limited resources, 1239
for eliminating unprofitable segments, 1236–1238
financial and nonfinancial information in, 1228
incremental analysis for, 1228
for making vs. buying, 1232–1234
process for, 1228
for retaining vs. replacing equipment, 1235–1236
for selling vs. processing further, 1234–1235
Management of corporations, 609
Managers, functions of, 894–896
Managerial accounting, 30, 894–915
activities in, 894
cost concepts in, 899
financial accounting vs., 894
managers’ functions in, 894–896
manufacturing costs, 899–900, 902–909
organizational structure, 896–897
product vs. period costs, 901
Manual accounting systems, 332
Manufacturing companies, 899–900
classifying inventory in, 276–277
flexible budgets for, 1139
lean manufacturing by, 909
process cost systems for, 984
units-of-activity depreciation for, 478–479
Manufacturing costs, 899–900. See also Job order cost flow; Process cost system accumulating, 941–944
assigning, to work in process, 944–952
and costing for service industries, 908–909
cost of goods manufactured, 903–905
in job order cost system, 985
journal entries for, 988
in process cost system, 985–989
Manufacturing overhead, 900, 943–944, 948–951
under activity-based costing, 1006–1007
process vs. job order cost systems for, 985
under- or overapplied, 958–959
Manufacturing overhead budget, 1087–1088
Manufacturing overhead variance, 1190–1192
Margin of safety ratio (CVP), 1048–1050
Marketable securities, 752
Market interest rate, 691
Market positioning, 1247
Market value:
of stock, 614
Marshall, John, 608
Master budget, 1079
Matching principle, 101
Matching principle (expense recognition principle), 101
Materials, sell-vs.-processing further decisions for, 1234–1235
Materials costs, 900, 942, 945–947
process vs. job order cost systems for, 985
Materials price variance, 1186, 1187
Materials quantity variance, 1186, 1187
Materials variances, direct, 1185–1187
Materiality principle, 483
Maturity date:
for notes receivable, 442
Measurement principles, 9–10, 129
Members (LLCs), 569
Merchandise, theft of, 227
Merchandise purchases budget, 1095–1096
Merchandising companies, 218–238, 899
adjusting entries for, 230–232
budgetary planning for, 1095–1096
closing entries for, 230–231, 245–246
forms of financial statements for, 233–238
periodic inventory system for, 242–245
recording purchases of merchandise, 221–226
recording sales of merchandise, 226–229
worksheets for, 240–241, 246–248
Merchandising profit, 233
Mergers and acquisitions, 48
Mintenko, Stephanie, 374
Mixed costs, in CVP, 1035–1036
Modified Accelerated Cost Recovery System (MACRS), 482
Monetary unit assumption, 10, 129
Monitoring, for internal control, 377
Mortgage bonds, 687
Motion Picture Association of America, 1148
Moving-average method, 298–299
Multinational corporations, 48
Multiple-step income statement, 233–235
Murdock, Wilbert, 522
Mutual agency, in partnerships, 568
Natural resources, 486–488, 492–493
Net annual cash flow, 1243–1247
Net cash from operating activities, net income vs., 780
Net change in cash:
direct method, 805
Net income, 23
converting from accrual to cash basis, 782, 784–789, 799–803
and fraud, 483
on multiple-step income statement, 234
net cash from operating activities vs., 780
on worksheet, 165
Net losses, 23
closing entry for, 658
for partnerships, 569, 574–576
on worksheet, 165
Net pay, 535
Net present value (NPV) method, 1245–1247
Net (cash) realizable value, 434
Net sales, 233
Net 30, 224
New York Stock Exchange (NYSE), 614
No capital deficiency (partnership liquidation), 579–581
Nominal accounts, 168. See also Temporary accounts
Noncash activities, 780
Noncash current assets, changes to, 785–787
Noncash current liabilities, changes to, 786–787
Noncontrollable revenues/costs, 1137
Non-manufacturing companies, budgetary planning for, 1095–1097
Nonoperating activities, on multiple-step income statement, 234–235
Non-recurring charges, 863
No-par value stocks, 615, 618–619
Normal balances, in double-entry system, 55
Normal capacity, 1182
Normal range, see Relevant range
Normal standards, 1179
Notes payable, 13
as current liabilities, 524–525
Notes receivable, 430, 441–446
computing interest on, 443
maturity date for, 442
recognizing, 443
valuing, 443
Not-for-profit corporations/organizations, 8, 608, 1096–1097, 1178
Not sufficient funds (NSF) checks, 396, 397
NPV (net present value) method, 1245–1247
NSF (not sufficient funds) checks, 397
Numeric relationships, fraud and, 849
NYSE (New York Stock Exchange), 614
Obsolescence, 476
Off-balance-sheet financing, 700
Olympic Games, 1093
Operating activities, 236
Operating cycles, 179, 218–219
Operating expenses, on multiple-step income statement, 234–235
Operating leases, 699
Operations costing, 998
Opportunity costs, 1229, 1233–1234
Order of magnitude, for current liabilities, 527
Ordinary repairs, 483
Organizational structure, 896–897
Organization costs, 611
Other comprehensive income, 271
Other expenses and losses, for merchandising companies, 234
Other receivables, 430
Other revenues and gains, for merchandising companies, 234
Overhead:
under activity-based costing, 1006–1007
manufacturing, 900, 943–944, 948–951, 958–959
process vs. job order cost systems for, 985
standard predetermined, 1181
Over-the-counter cash receipts, 386–388
Owner's equity. See also Corporate capital in accounting equation, 12–14
on classified balance sheet, 177–178, 183
decreases in, 14
Owner's equity statement, 21–24
Ownership rights:
preemptive, 612
of stockholders, 612
Pacioli, Luca, 5n.2
Paid-in capital, 616, 626, 650
Paid-in capital in excess of par value, 618
Paper (phantom) profit, 287–288
Parent company, 746
Participative budgeting, 1078–1079
Partners, 570
Partners’ capital statement, 575–576
admission/withdrawal of partners, 585–591
advantages and disadvantages of, 571
dividing net income/net loss, 574–576
financial statements for, 576–577
owner's equity account in, 183
partnership agreements, 571–572
Partnership agreements, 571–572
Partnership dissolution, 568
Partnership liquidation, 578–583
no capital deficiency, 579–581
realization for, 578
Patents, 489
Payee (promissory notes), 441
Payment date (cash dividends), 651–652
Payout ratio, 857
employer payroll taxes, 539–541
filing/remitting payroll taxes, 541–542
and fraud, 541
Payroll deductions, 533
Payroll processing centers, 539
Payroll register, 536
Payroll tax expense, 539
PCAOB (Public Company Accounting Oversight Board), 376
P/E (price/earnings) ratio, 664n.3, 856–857
Percentage of receivables basis (uncollectibles), 436–438
Percentage of sales basis (uncollectibles), 436–437
Performance evaluation, 1137–1139, 1179
Performance obligations, 101, 108
Period costs, 901
Periodic inventory systems, 220–221, 242–245, 247, 277, 281
Periodicity assumption, 100. See also Time period assumption
Permanent accounts, 167–168, 173
Perpetual inventory systems, 219–221
in cost accounting systems, 940
cost flow methods in, 231–232, 297–300
determining quantities in, 277
entries for periodic system vs., 245
merchandising entries with, 231–232
Petty cash fund controls, 390–393
Physical unit flow, 994
Physical units, 994
Pickard, Thomas, 4
Plant and equipment, 472. See also Plant assets
buildings, 473
expenditures during useful life of, 483
land improvements, 473
statement presentation and analysis of, 492–493
Ponzi schemes, 401
Post-closing trial balance, 172–174
of adjusting entries, 117–118, 167
cash payments journal, 345, 347
cash receipts journal, 341–342
of closing entries, 168, 170–171, 245–246
of correcting entries, 176
dual, 347
purchases journal, 344
special journals for, 336
Post retirement benefits, 546–548
Practical range, see Relevant range
Preferred stock, 624–626, 652–653, 855
Premium:
on bonds, 691–693, 713–714, 716–718
on stock, 618
Prenumbering documents, 381
Prepaid expenses (prepayments), 103
adjusting entries for, 104–107
alternative treatment of, 124–127
for statement of cash flows, 809
“Presentation of Financial Statements” (IAS 1), 271, 564, 735, 889–890
Present value, 689
of an annuity, 707–709, G5–G7, H2
of bonds, 689
of leases, 700
time periods in computing, 709–710
Price/earnings (P/E) ratio, 664n.3, 856–857
Price variances:
materials, 1187
Prior period adjustments, 659–660
Private accounting, 30. See also Managerial accounting
Privately held corporations, 608
Process cost flow, 987
Process cost system, 940–941, 984–1004
and activity-based costing, 1000–1001
assigning manufacturing costs, 987–989
job order cost systems vs., 985–987
and just-in-time processing, 998–1000
process cost flow, 987
for service companies, 985
uses of, 984
Products, sell-vs.-processing further
Production cost report, 993, 996–997
Profitability, creditor interest in, 842
Profit and loss statement, 23. See also Income statement
Profit centers, 1142, 1143–1145
Pro forma income, 865
Promissory notes, 441–442. See also Notes receivable
Property, plant, and equipment, 180, 472, 517–519. See also Plant assets
Proving ledgers, 337, 339, 342
Provisions, 564
“Provisions, Contingent Liabilities, and Contingent Assets” (IAS 37), 564, 735
Public Company Accounting Oversight Board (PCAOB), 376
Publicly held corporations, 608
Pull approach to manufacturing, 999
Purchases:
of buildings, 473
of merchandise, recording, 221–226
recording, 243
transaction analysis for, 16–17
Purchase allowances, 223–224, 243–244
Purchase discounts, 224–225, 244
Purchase of an interest (partnerships), 586
Purchase returns, 223–224, 243–244
Push approach to manufacturing, 998
Quantity variances:
materials, 1187
Quarterly tax reports, 541
Quick ratio, 850. See also Acid-test ratio
Radio frequency identification (RFID) technology, 293
Raw materials costs, 942, 945–947
R&D (research and development) costs, 491–492
Real accounts, 168. See also Permanent accounts
Real estate taxes payable, 13
Realized gain/loss, 753
Reasonable assurance concept, 384–385
on financial statements, 447–449
IFRS and GAAP for, 468
types of, 430
Reconciling bank accounts, 397–400
electronic funds transfers, 401
Reconciling items, for statement of cash flows, 809–810
Record date (cash dividends), 651–652
for contingent liabilities, 529–530
for employer payroll taxes, 539–540
with periodic inventory system, 243–245
for purchases of merchandise, 221–226
for sales of merchandise, 226–229
for special and general journals, 347
Record-keeping, segregation of physical custody and, 380, 387
Redeeming bonds, 695
Registered bonds, 687
Regular partnerships, 569
Regulations, government, 1178
for corporations, 610
as standards, 1178. See also Standard costs
Regulatory agencies, 7
Reimbursement requests, fraud involving, 381
Relevance:
of figures, 9
of financial information, 128
Relevant costs, 1229
Relevant range, 1034–1035, 1130
Repairs, ordinary, 483
Repurchase of shares, 623
Required rate of return, 1242, 1245
Research and development (R&D) costs, 491–492
Reserves, 644
Residual claims, 612
Residual equity, 13. See also Owner's equity
Residual value, 518
Resource allocation decisions, 1239
Responsibility, establishment of, 377
Responsibility accounting, 1135–1149
controllable vs. noncontrollable revenues/costs, 1137
responsibility centers, 1142–1149
responsibility reporting system, 1139–1142
Responsibility centers, 1142–1149
Responsibility reporting system, 1139–1142
Restricted cash, 403
Retailers, 218
Retail inventory method, 302–303
Retained earnings, 616, 658–661
payment of cash dividends from, 650
prior period adjustments, 659–660
for statement of cash flows, 804, 810
Retained earnings statement, 660–661, 845–846
Retirement of plant assets, 484–485
Returns:
Return on common stockholders’ equity, 662, 855
Return on investment (ROI), 1145–1148, 1195, 1196
controllable vs. noncontrollable, 1137
in double-entry system, 57
recognizing, 101
for service companies, 957
on single-step income statement, 234
from stock investments, 745–746
unearned, see Unearned revenues
Revenue expenditures, 483
Revenue recognition principle, 101, 130
Reversing entries, 175, 177, 188–189
RFID technology, 293
Risk assessment, 377
Risk levels of activities, 385
ROI, see Return on investment
Rolling Stones, 1049
Romania, 425
Rowlings, J.K., 488
Safe cash payments schedule, 580. See also Schedule of cash payments
Salaries, 532–533. See also Payroll
accounting
Sales:
of equipment, loss on, 785
of merchandise, recording, 226–229
of notes receivable, 445
of receivables, 439
of stocks, 744
Sales and administrative expense budget, 1087–1088
Sales commissions, fraud involving, 382
Sales discounts, 228–229, 244–245
Sales forecasts, 1077, 1081–1082
Sales invoices, 226
Sales returns and allowances, 227–228, 244
Sales revenue (sales), 218
SAP, 331
Sarbanes-Oxley Act (2002):
and accuracy of financial reports, 75
and corporation management, 609
and ethics, 7
and human resources, 384
and internal auditor's job, 30
and internal control, 29, 49, 103
and monitoring software, 331
Schedule of cash payments, 580–581
Scudamore, Brian, 1122
SEC, see Securities and Exchange Commission
Secured bonds, 687
Securities:
available-for-sale, 271, 748, 750–751
held-to-maturity, 748
marketable, 752
Securities and Exchange Commission (SEC), 7, 9, 30, 401, 751, 772
Segments, in responsibility accounting, 1136
Segregation of duties, 379–380, 432
Serial bonds, 687
Service companies:
budgetary planning for, 1096
industry trends for, 218
job order costing in, 950–951, 955–956
operating cycles for, 218
process cost systems for, 985
process vs. job order cost systems for, 985
revenue for, 957
Service revenue, 957
Shares, sale of, 11
Shareholders’ equity, 615. See also Corporate capital
Short-term investments, 752
Short-term paper, 752
Simple entries, 60
Single-step income statement, 234
Sinking fund bonds, 687
“Slush” funds, 391
Social responsibility, see Corporate social
responsibility
Social Security, 546
Social Security taxes, 533–534
Software:
for customization, 331
entry-level, 331
for fraud control, 331
for internal control, 331
network compatibility of, 331
Solvency, creditor interest in, 842
South Korea, 10
SOX, see Sarbanes-Oxley Act (2002)
effects on general journal, 347–348
Special order-price decisions, 1230–1232
Specific identification method (inventory), 281
Staff positions, 896
Standards. See also Standard costs budgets vs., 1178
government, 1178
ideal vs. normal, 1179
analyzing variances from, 1184–1194
need for, 1178
reporting variances from, 1193–1194
Standard cost accounting system, 1200–1202
Standard hours, 1191
Standard predetermined overhead, 1181
State income taxes, 534
Statement of cash flows, 21–24, 778–796
classification of cash flows, 778–779
company evaluation based on, 793–795
direct method for, 782–783, 798–804
significant noncash activities, 780
usefulness of, 778
Statement of comprehensive income, 889–890
Statement of earnings, 537–538
Statement of operations, 23. See also Income statement
State unemployment taxes, 539
Static budget reports, 1125–1126
authorized, 613
capital, 626
direct issues, 613
indirect issues, 613
issued for credit, 790
market value of, 614
no-par value, 615
Stockholders:
ownership rights of, 612
Stockholders’ equity, 183, 615. See also Corporate capital
effect of dividends on, 655–656
on financial statements, 661–665
Stockpiling, 1085
Straight-line amortization, 715–718
Straight-line depreciation, 477–478, 481
Subchapter S corporations, 570
Subsidiary (affiliated) company, 746
posting from cash receipts journal to, 341–342
posting from purchases journal to, 344
Summa de Arithmetica, Geometria, Proportione et Proportionalite (Luca Pacioli), 5n.2
Summary entries, 943
Sunk costs, 1229
Supplies, adjusting entries for, 104–105
Sustainability reporting, 377, 488
Tabular summaries, 54
Take-home pay, 535. See also Net pay
Taxes:
as accounting area, 30
on corporations, 611
and depreciation, 463
on dividends, 653
double taxation, 611
effect of cost flow methods on, 286, 288
income, see Income taxes
for partnerships, 568
sales taxes payable, 525
and time period divisions, 100
Taxing authorities, 7
Technology:
investment in, 1244
value chain and, 910
Temporary accounts, 167–168, 174
Term bonds, 687
Theory of constraints, 910
Three-column form of account, 63
Tilton, Glenn, 1197
Times interest earned, 701, 858
Timeliness, 129
Time period assumption, 100–102, 129, 157
Time value of money, 688, G1–G9
Time Warner, 748
Total labor variance, 1188
Total materials variance, 1185
Total overhead variance, 1190–1191
Total quality management (TQM), 910
Total standard cost per unit, 1182
TQM (total quality management), 910
Trademarks, 490
Tradenames, 490
Trade receivables, 430. See also Accounts receivable; Notes Receivable
Trading on the equity, 855
Transaction analysis, 15–21, 70. See also Business transactions
Transportation-in, 243
Transposition error, 75
Trend analysis, 843. See also Horizontal analysis
Trend forecasting, 1247
limitations of, 74
outdated information in, 103
on worksheet, 163–164, 246–247
Triple bottom line, 911
Trustees (bonds), 687
Turner, Ted, 738
Uncollectible accounts, 432–438
direct write-off method, 432–433
Understandability, 129
Unearned revenues, 103
adjusting entries for, 108–110
alternative treatment of, 124–127
as current liabilities, 526
Unemployment taxes, 539
United Nations, 1034
Units-of-activity depreciation, 478–479, 481
Units-of-production method, see Units-of-activity depreciation
Unit production costs, 994–995
Unprofitable segment elimination decisions, 1236–1238
Unrealized gains/losses, 749, 753
Unsecured bonds, 687
Useful financial information, 128–130
Valuation:
of accounts receivable, 432–438
cost allocation vs., 476
of notes receivable, 443
Variable costs:
in flexible budget, 1130
in manufacturing overhead budget, 1087
Variances from standards, 1184–1194
direct labor variances, 1188–1190
direct materials variances, 1185–1187
manufacturing overhead variance, 1190–1192
Venture capital firms, 569
Verifiability, 129
Verification, independent internal, see Independent internal verification
Vertical analysis, 842, 846–848
Virtual closes, 171
Voucher register, 389
Voucher system controls, 389–390
Wages, 532. See also Payroll accounting
Wage and Tax Statement (Form W-2), 542
Wages payable, 13
Wear and tear, 476
Weighted average method, 990–992
Weighted average unit cost, 285–286
West, Laura, 328
West, Paul, 328
Wholesalers, 218
Withdrawal of partners, 589–591
Working capital, 528
Work in process inventory, 903
for merchandising companies, 240–241, 246–248
preparing adjusting entries from, 167
preparing financial statements from, 165–167
for statement of cash flows, 806–811
Write-offs, 849
Years, fiscal, 100
Year-end, 24
Year-end balance, 959
Zero-interest bonds, 688
Zuckerberg, Mark, 611