Essentials of Accounting PDF
Preview Essentials of Accounting
Essentials of Accounting Eleventh Edition Leslie K. Breitner and Robert N. Anthony McGill University, Harvard Business School Desautels Faculty of Management International Edition contributions by Abhik Kumar Mukherjee St. Xavier’s College, Kolkata Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editorial Director: Sally Yagan Publishing Assistant, International Edition: Shokhi Shah Editor in Chief: Donna Battista Print and Media Editor, International Edition: Ashwitha Jayakumar Acquisitions Editor: Lacey Vitetta Project Editor, International Edition: Jayashree Arunachalam Editorial Project Manager: Nicole Sam Senior Operations Supervisor: Arnold Vila Editorial Assistants: Jane Avery and Lauren Zanedis Operations Specialist: Ben Smith Director of Marketing: Maggie Moylan Leen Creative Director: Jayne Conte Marketing Assistants: Ian Gold and Kimberly Lovato Cover Designer: Bruce Kenselaar Senior Managing Editor: Nancy Fenton Manager, Rights and Permissions: Hessa Albader Senior Manufacturing Buyer: Carol Melville Cover Art: Fotolia: © João Freitas Associate Production Project Manager: Alison Eusden Full-Service Project Management/Composition: Publisher, International Edition: Angshuman Chakraborty S4Carlisle Publishing Services Acquisitions Editor, International Edition: Somnath Basu Cover Printer: Lehigh Phoenix Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoninternationaleditions.com © Pearson Education Limited 2013 The rights of Leslie K. Breitner and Robert N. Anthony to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled Essentials of Accounting, 11th edition, ISBN 978-0-13-274437-9 by Leslie K. Breitner and Robert N. Anthony published by Pearson Education © 2013. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Many of the designations by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. Screen shots and icons reprinted with permission from the Microsoft Corporation. This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation. ISBN 10: 0-273-77146-9 ISBN 13: 978-0-273-77146-3 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 14 13 12 11 10 Typeset in 11/18 Times by S4Carlisle Publishing Services Printed and bound by Courier Kendallville in The United States of America The publisher’s policy is to use paper manufactured from sustainable forests. For Professor Robert N. Anthony—In Memory I am forever grateful for your wisdom and advice over the years of our partnership. —LKB This page intentionally left blank Contents Introduction 7 Acknowledgments 8 Part 1 Basic Concepts 9 Part 2 Balance Sheet Changes; Income Measurement 29 Part 3 Accounting Records and Systems 54 Part 4 Revenues and Monetary Assets 75 Part 5 Expense Measurement; The Income Statement 94 Part 6 Inventories and Cost of Sales 117 Part 7 Noncurrent Assets and Depreciation 135 Part 8 Liabilities and Equity 154 Part 9 Statement of Cash Flows 176 Part 10 Analysis of Financial Statements 193 Part 11 Nonprofit Financial Statements 222 Part 12 International Financial Reporting Standards (IFRS) 236 The following are found after Part 12 in the back of the book: Exhibits E-1 Post-Tests and Mini Cases PT-1 Answers to Post-Tests and Mini Cases A-1 Glossary G-1 For the first time, MyAccountingLab is available for Essentials of Accounting. Visit www.myaccountinglab.com to learn more. 5 This page intentionally left blank Introduction This book will help you teach yourself the essential ideas of accounting. You will learn what accounting information can—and cannot—tell you about an organization. Accounting is the principal way of organizing and reporting finan- cial information. Although there are differences in detail, the general structure and rules are similar in most countries and in most types of organizations. Accounting has been called the “language of business.” Learning this language is complicated by the fact that many words used in accounting do not mean quite the same thing as they mean in everyday life. When using accounting words, it is important that you understand their accounting meaning. As in any language, some accounting rules and terms have a single correct meaning, and others are like dialects in that their meaning varies with different users. You will learn to understand and allow for these differences. HOW TO USE THIS PROGRAM This program consists of “frames.” Each frame asks you to d o something after reading the frame: answer a question, make a calculation, fill in blanks. But these frames are n ot tests. As in most learning experiences, you learn by doing. You should be able to complete most frames without difficulty. Procedures • Read each frame in the left- or right-hand column, while covering the opposite column with the mask provided. • Write your response in the space provided. Experience has shown that if you don’t write your response, you will not retain nearly as much information. • Check your response by moving the mask so as to uncover the correct response. Please be careful not to expose the response for the frames that follow. • I f your response is correct, go to the next frame. Otherwise, study the frame again and try to understand why you were wrong. • Some frames refer you to exhibits. These are in the back of the book. 7 • You will find a post-test for each part at the back of this book, after the exhibits. When you have completed a part, complete the post-test. Then, check your responses with the solutions provided. If you have difficulty with it, review the frames on this topic. For additional chal- lenge and review of concepts, you can work through the mini cases at the end of each set of post-tests. You can check your work with the solutions provided for the mini cases too. • Do not skip frames. If you have difficulty with a particular point, go back to the frame in which it was first mentioned and review it from there. Technical Conventions _____________ = Fill in one or more words that are missing. __ __ __ __ __ = Fill in the letters that are missing, one to each underline. [Yes / No] = Underline or circle the correct alternative. Acknowledgments Dr. Matthew Israel developed the program for the first edition. Dr. Philip E. Meyer, Boston University, developed the original glossary. Cameron E. H. Breitner contributed to the development of Part 8 . Cory Sbarbaro helped with the Sarbanes-Oxley Act and its relationship to nonprofit organizations. Emily Mackay helped to write the section on International Financial Reporting Standards (IFRS). Alice Lawson and Lori Reimann-Garretson helped to write some of the mini cases. I am enormously grateful to all of them, and they know why! Nicole Sam, Christina Rumbaugh, Lacey Vitetta, and Alison Eusden at Pearson and Shyam Ramasubramony at S4Carlisle Publishing Services were extremely helpful and supportive during the revision process for the eleventh edition. I am forever grateful to a wonderful teacher and partner, Professor Robert N. Anthony. I appreciate the advice and help from all of these people as well as the wisdom and encouragement of my wonderful husband and friend, John C. S. Breitner. The publishers would like to thank Mr. Soumya Mukherjee of Maharaja Manindra Chandra College, Kolkata, for reviewing the content of the International Edition. 8 Acknowledgments Part 1 Basic Concepts Learning Objectives In this part you will learn: • The nature of the balance sheet. • The accounting meaning of assets, liabilities, and equity. • The first five of the nine concepts that govern all accounting: • The dual-aspect concept. • The money-measurement concept. • The entity concept. • The going-concern concept. • The asset-measurement concept. • The meaning of the principal items reported on a balance sheet. 1-1. Accounting is a language. The purpose of any language is to convey information. Accounting information is provided by reports called finan- cial statements. This program helps you understand what the numbers in the financial statements mean and how they can be used. Please see Exhibit 1 (at the back of this book) to view a sample financial state- ment. As indicated by the title at the top of the page, this report is called a _ ______ sheet. balance On an item like this, fill in one letter for each underline and then compare it with the correct answer, found here. NOTE: Be sure to cover up the answers with the mask provided. Part 1 Basic Concepts 9
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