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Introduction to Financial Accounting PDF

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with Open Texts Introduction to Financial Accounting by Henry Dauderis & David Annand Edited by Athabasca University VERSION 2017– REVISION A ADAPTABLE|ACCESSIBLE|AFFORDABLE *CreativeCommonsLicense(CCBY-NC-SA) a d v a n c i n g l e a r n i n g Champions of Access to Knowledge ONLINE OPEN TEXT ASSESSMENT All digital forms of access to our high- We have been developing superior on- quality open texts are entirely FREE! All line formative assessment for more than content is reviewed for excellence and is 15 years. Our questions are continuously wholly adaptable; custom editions are pro- adapted with the content and reviewed for ducedbyLyryxforthoseadoptingLyryxas- quality and sound pedagogy. To enhance sessment. Accesstotheoriginalsourcefiles learning, students receive immediate per- isalsoopentoanyone! sonalized feedback. Student grade reports andperformancestatisticsarealsoprovided. INSTRUCTOR SUPPORT SUPPLEMENTS Accesstoourin-housesupportteamisavail- Additional instructor resources are also able 7 days/week to provide prompt resolu- freely accessible. Product dependent, these tion to both student and instructor inquiries. supplements include: full sets of adaptable In addition, we work one-on-one with in- slides and lecture notes, solutions manuals, structors to provide a comprehensive sys- and multiple choice question banks with an tem, customized for their course. This can exambuildingtool. include adapting the text, managing multi- plesections,andmore! Contact Lyryx Today! [email protected] a d v a n c i n g l e a r n i n g Introduction to Financial Accounting by Henry Dauderis & David Annand Edited by Athabasca University Version2017 — RevisionA BE A CHAMPION OF OER! Contributesuggestionsforimprovements,newcontent,orerrata: Anewtopic Anewexample Aninterestingnewquestion Anyothersuggestionstoimprovethematerial ContactLyryxat [email protected]. LyryxLearningTeam BruceBauslaugh JenniferMacKenzie PeterChow TamsynMurnaghan NathanFriess BogdanSava StephanieKeyowski LarissaStone ClaudeLaflamme RyanYee MarthaLaflamme EhsunZahedi LICENSE CreativeCommonsLicense(CCBY-NC-SA):Thistext,includingtheartandillustrations,are availableundertheCreativeCommonslicense(CCBY-NC-SA),allowinganyonetoreuse,revise, remixandredistributethetext. Toviewacopyofthislicense,visithttp://creativecommons.org/licenses/by-nc-sa/3.0/ Table of Contents TableofContents iii 1 Introduc(cid:415)ontoFinancialAccoun(cid:415)ng 1 Chapter1LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Accoun(cid:415)ngDefined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.2 BusinessOrganiza(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1.3 GenerallyAcceptedAccoun(cid:415)ngPrinciples(GAAP) . . . . . . . . . . . . . . . . . 5 1.4 FinancialStatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 1.5 Transac(cid:415)onAnalysisandDouble-entryAccoun(cid:415)ng . . . . . . . . . . . . . . . . 15 SummaryofChapter1LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 23 DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 2 TheAccoun(cid:415)ngProcess 45 Chapter2LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 2.1 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 2.2 Transac(cid:415)onAnalysisUsingAccounts . . . . . . . . . . . . . . . . . . . . . . . . 51 2.3 TheTrialBalance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 2.4 UsingFormalAccoun(cid:415)ngRecords . . . . . . . . . . . . . . . . . . . . . . . . . 62 2.5 TheAccoun(cid:415)ngCycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 iii iv TableofContents SummaryofChapter2LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 67 DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 3 FinancialAccoun(cid:415)ngandAdjus(cid:415)ngEntries 89 Chapter3LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 3.1 TheOpera(cid:415)ngCycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 3.2 Adjus(cid:415)ngEntries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 3.3 TheAdjustedTrialBalance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 3.4 UsingtheAdjustedTrialBalancetoPrepareFinancialStatements . . . . . . . . . 109 3.5 TheAccoun(cid:415)ngCycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 3.6 TheClosingProcess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 SummaryofChapter3LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 118 DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 4 TheClassifiedBalanceSheetandRelatedDisclosures 143 Chapter4LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 4.1 FinancialStatementDisclosureDecisions . . . . . . . . . . . . . . . . . . . . . . 144 4.2 ClassifiedBalanceSheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146 4.3 NotestoFinancialStatements . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 4.4 Auditor’sReport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 4.5 Management’sResponsibilityforFinancialStatements . . . . . . . . . . . . . . 155 SummaryofChapter4LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 156 v DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159 Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165 5 Accoun(cid:415)ngfortheSaleofGoods 171 Chapter5LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171 5.1 TheBasicsofMerchandising . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 5.2 ThePurchaseandPaymentofMerchandiseInventory(Perpetual) . . . . . . . . 175 5.3 MerchandiseInventory: SalesandCollec(cid:415)on(Perpetual) . . . . . . . . . . . . . 178 5.4 AdjustmentstoMerchandiseInventory(Perpetual) . . . . . . . . . . . . . . . . 181 5.5 MerchandisingIncomeStatement . . . . . . . . . . . . . . . . . . . . . . . . . 185 5.6 ClosingEntriesforaMerchandiser . . . . . . . . . . . . . . . . . . . . . . . . . 187 5.7 AppendixA:ThePeriodicInventorySystem . . . . . . . . . . . . . . . . . . . . 187 SummaryofChapter5LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 191 DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193 Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 6 AssigningCoststoMerchandise 207 Chapter6LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207 6.1 InventoryCostFlowAssump(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . 208 6.2 FinancialStatementImpactofDifferentInventoryCostFlows . . . . . . . . . . . 221 6.3 LowerofCostandNetRealizableValue(LCNRV) . . . . . . . . . . . . . . . . . . 223 6.4 Es(cid:415)ma(cid:415)ngtheBalanceinMerchandiseInventory . . . . . . . . . . . . . . . . . 225 6.5 AppendixA:Ra(cid:415)oAnalysis—MerchandiseInventoryTurnover . . . . . . . . . . 229 6.6 AppendixB:InventoryCostFlowAssump(cid:415)onsUnderthePeriodicSystem . . . . 230 vi TableofContents SummaryofChapter6LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 232 DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235 Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239 7 CashandReceivables 247 Chapter7LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247 7.1 InternalControl . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248 7.2 Pe(cid:425)yCash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 7.3 CashCollec(cid:415)onsandPayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 252 7.4 AccountsReceivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261 7.5 Short-TermNotesReceivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269 7.6 AppendixA:Ra(cid:415)oAnalysis—AcidTest . . . . . . . . . . . . . . . . . . . . . . . 271 7.7 AppendixB:Ra(cid:415)oAnalysis—AccountsReceivableTurnover . . . . . . . . . . . . 272 SummaryofChapter7LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . 273 DiscussionQues(cid:415)ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 8 Long-livedAssets 289 Chapter8LearningObjec(cid:415)ves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 ConceptSelf-Check . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289 8.1 EstablishingtheCostofProperty,Plant,andEquipment(PPE) . . . . . . . . . . . 290 8.2 Deprecia(cid:415)on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294 8.3 Par(cid:415)alYearDeprecia(cid:415)on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 8.4 RevisingDeprecia(cid:415)on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 8.5 ImpairmentofLong-livedAssets . . . . . . . . . . . . . . . . . . . . . . . . . . 304

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