Accounting Demystified PDF
Preview Accounting Demystified
Accounting Demystified ..........................10288$ $$FM 08-29-0308:30:20 PS This page intentionally left blank ..........................10288$ $$FM 08-29-0308:30:21 PS Accounting Demystified Jeffry R. Haber, Ph.D., CPA American Management Association NewYork•Atlanta•Brussels•Chicago•MexicoCity•SanFrancisco Shanghai•Tokyo•Toronto•Washington,D.C. ..........................10288$ $$FM 08-29-0308:30:22 PS SpecialdiscountsonbulkquantitiesofAMACOMbooksare availabletocorporations,professionalassociations,andother organizations.Fordetails,contactSpecialSalesDepartment, AMACOM,adivisionofAmericanManagementAssociation, 1601Broadway,NewYork,NY10019. Tel.:212-903-8316.Fax:212-903-8083. Website:www.amacombooks.org Thispublicationisdesignedtoprovideaccurateandauthoritative informationinregardtothesubjectmattercovered.Itissoldwith theunderstandingthatthepublisherisnotengagedinrendering legal,accounting,orotherprofessionalservice.Iflegaladviceor otherexpertassistanceisrequired,theservicesofacompetent professionalpersonshouldbesought. LibraryofCongressCataloging-in-PublicationData Haber,JeffryR.,1960– Accountingdemystified/JeffryR.Haber. p. cm. ISBN0-8144-0790-0 1. Accounting. I. Title. HF5635.H112 2004 657—dc22 2003017265 (cid:2)2004JeffryR.Haber Allrightsreserved. PrintedintheUnitedStatesofAmerica. Thispublicationmaynotbereproduced, storedinaretrievalsystem, ortransmittedinwholeorinpart, inanyformorbyanymeans,electronic, mechanical,photocopying,recording,orotherwise, withoutthepriorwrittenpermissionofAMACOM, adivisionofAmericanManagementAssociation, 1601Broadway,NewYork,NY10019. Printingnumber 10 9 8 7 6 5 4 3 2 1 ..........................10288$ $$FM 08-29-0308:30:22 PS Contents Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . ix Chapter1 Introduction . . . . . . . . . . . . . . . . . . 1 Chapter2 FinancialStatements . . . . . . . . . . . . 4 IncomeStatement . . . . . . . . . . . . . . . . 5 StatementofRetainedEarnings . . . . . . . . 7 BalanceSheet . . . . . . . . . . . . . . . . . . 8 Summary . . . . . . . . . . . . . . . . . . . . . 12 Chapter3 TheAccountingProcess . . . . . . . . . . 13 Journalize . . . . . . . . . . . . . . . . . . . . . 14 TheAccountingEquation . . . . . . . . . . . . 15 Post . . . . . . . . . . . . . . . . . . . . . . . . . 17 TrialBalance . . . . . . . . . . . . . . . . . . . 19 FindingErrors . . . . . . . . . . . . . . . . . . . 20 RestoftheProcess . . . . . . . . . . . . . . . . 24 Summary . . . . . . . . . . . . . . . . . . . . . 24 Chapter4 MakingtheEntries . . . . . . . . . . . . . 25 AnalogiestoPersonalLife . . . . . . . . . . . 26 SomeExamples . . . . . . . . . . . . . . . . . 27 Summary . . . . . . . . . . . . . . . . . . . . . 29 Chapter5 Assets . . . . . . . . . . . . . . . . . . . . . . . 30 v ..........................10288$ CNTS 08-29-0308:30:24 PS vi Contents Chapter6 Cash . . . . . . . . . . . . . . . . . . . . . . . . 32 PettyCash . . . . . . . . . . . . . . . . . . . . . 32 BankReconciliation . . . . . . . . . . . . . . . 34 Chapter7 AccountsReceivable . . . . . . . . . . . . 41 ControlAccount/SubsidiaryLedger . . . . . 42 BadDebts . . . . . . . . . . . . . . . . . . . . . 45 DirectWrite-OffMethod . . . . . . . . . . . 45 AllowanceMethod . . . . . . . . . . . . . . 46 Chapter8 Inventory . . . . . . . . . . . . . . . . . . . . 52 SpecificIdentification . . . . . . . . . . . . . . 54 First-In,First-Out . . . . . . . . . . . . . . . . . 55 Last-In,First-Out . . . . . . . . . . . . . . . . . . 59 WeightedAverage . . . . . . . . . . . . . . . 61 ThingstoKeepinMind . . . . . . . . . . . . . 63 Chapter9 PrepaidExpenses . . . . . . . . . . . . . . 66 Chapter10 OtherReceivables . . . . . . . . . . . . . . 68 LoanTerm . . . . . . . . . . . . . . . . . . . . . 68 Interest . . . . . . . . . . . . . . . . . . . . . . . 69 Entries . . . . . . . . . . . . . . . . . . . . . . . 70 Chapter11 FixedAssets . . . . . . . . . . . . . . . . . . 72 Land . . . . . . . . . . . . . . . . . . . . . . . . 74 LandImprovements . . . . . . . . . . . . . . . 74 LeaseholdImprovements . . . . . . . . . . . . 75 Buildings . . . . . . . . . . . . . . . . . . . . . . 75 EquipmentandMachinery . . . . . . . . . . . 75 Furniture . . . . . . . . . . . . . . . . . . . . . . 75 Fixtures . . . . . . . . . . . . . . . . . . . . . . . 76 Vehicles . . . . . . . . . . . . . . . . . . . . . . 76 Depreciation . . . . . . . . . . . . . . . . . . . 76 Straight-LineDepreciation . . . . . . . . . . 76 Declining-BalanceDepreciation . . . . . . 78 Partial-YearDepreciation . . . . . . . . . . 81 ..........................10288$ CNTS 08-29-0308:30:24 PS Contents vii Retirement . . . . . . . . . . . . . . . . . . . . . 81 AssetSale . . . . . . . . . . . . . . . . . . . . . 82 Chapter12 IntangibleAssets. . . . . . . . . . . . . . . 85 Chapter13 Liabilities . . . . . . . . . . . . . . . . . . . . 89 UnearnedRevenue . . . . . . . . . . . . . . . 90 AccruedExpenses . . . . . . . . . . . . . . . . 91 Chapter14 AccountsPayable . . . . . . . . . . . . . . 92 Chapter15 OtherPayables . . . . . . . . . . . . . . . . 95 InterestPayable . . . . . . . . . . . . . . . . . 95 RentPayable . . . . . . . . . . . . . . . . . . . 96 TaxesPayable . . . . . . . . . . . . . . . . . . 96 SalariesPayable . . . . . . . . . . . . . . . . . 97 PayrollTaxesPayable . . . . . . . . . . . . . . 97 Chapter16 Stockholders’Equity . . . . . . . . . . . . 99 TypesofStock . . . . . . . . . . . . . . . . . . 100 CommonStock . . . . . . . . . . . . . . . . . . 101 RecordingtheIssuance . . . . . . . . . . . . . 102 TreasuryStock . . . . . . . . . . . . . . . . . . 103 Dividends . . . . . . . . . . . . . . . . . . . . . 104 Chapter17 MerchandisingCompanies . . . . . . . 107 PerpetualInventorySystem . . . . . . . . . . . 111 PeriodicInventorySystem . . . . . . . . . . . 114 DiscountsforEarlyPayment . . . . . . . . . . 115 Side-by-SideComparisonofthePeriodicand PerpetualSystems . . . . . . . . . . . . . . . . 117 Chapter18 AdjustingandClosingEntries . . . . . . 118 PayrollAccrual . . . . . . . . . . . . . . . . . . 119 ReversingEntries . . . . . . . . . . . . . . . . . 121 InterestExpense . . . . . . . . . . . . . . . . . 123 UnearnedRevenue . . . . . . . . . . . . . . . 124 ..........................10288$ CNTS 08-29-0308:30:25 PS viii Contents PrepaidExpenses . . . . . . . . . . . . . . . . 125 ClosingEntry . . . . . . . . . . . . . . . . . . . 125 Chapter19 SpecializedJournals . . . . . . . . . . . . 129 CashReceiptsJournal . . . . . . . . . . . . . . 130 CashDisbursementsJournal . . . . . . . . . . 131 PurchasesJournal . . . . . . . . . . . . . . . . 133 SalesJournal . . . . . . . . . . . . . . . . . . . 134 PayrollJournal . . . . . . . . . . . . . . . . . . 134 Chapter20 StatementofCashFlows . . . . . . . . . 136 DirectMethod . . . . . . . . . . . . . . . . . . 138 IndirectMethod . . . . . . . . . . . . . . . . . 139 Chapter21 RatioAnalysis . . . . . . . . . . . . . . . . . 143 HorizontalandVerticalAnalysis . . . . . . . 144 RatioAnalysis . . . . . . . . . . . . . . . . . . . 145 LiquidityRatios . . . . . . . . . . . . . . . . 146 EfficiencyRatios . . . . . . . . . . . . . . . . 146 ProfitabilityRatios . . . . . . . . . . . . . . . 147 Summary . . . . . . . . . . . . . . . . . . . . . 149 Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 ..........................10288$ CNTS 08-29-0308:30:25 PS Acknowledgments I would like to thank my wonderful wife, Holly, and the great- est group of children any father could be blessed with: Jona- than, Amy, and Lauren. They were extremely understanding duringtheprocessofwritingthisbook. IwouldalsoliketothanktheteamatAMACOM,especially Ray O’Connell and Jim Bessent, who made the development ofthisbookpainless. Finally,Iwouldliketothankyou,thereader,foryourinter- estinfinancialaccounting,withoutwhichthisbookwouldnot benecessary. ix ..........................10288$ $ACK 08-29-0308:30:28 PS
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