Schaum's Outline of Bookkeeping and Accounting, 3rd Edition

411 Pages·1994·16.15 MB·English

by  Joel Lerner

SCHAUM’S OUTLINE OF
THEORY AND PROBLEMS
OF
BOOKKEEPING
and
ACCOUNTING
Third Edition
a
JOEL J. LERNER, M.S., P.D.
Professor of Business
Sulliuan County Community College
a
SCHAUM’S OUTLINE SERIES
McGRAW-HILL
New York San Francisco Washington, D.C . Auckland Bogota Caracas
Lisbon London Madrid Mexico City Milan Montreal
New Delhi San Juan Singapore
Sydney Tokyo Toronto
JOEL J. LERNER is Professor and former Chairman of the Business Divi-
sion at Sullivan County Community College, Loch Sheldrake, New York. He
received his B.S. from New York University and his M.S. and P.D. from
Columbia University. He has coauthored the Schaum’s Outlines of Principles
of Accounting I, Principles of Accounting U, and Business Mathematics and is
the sole author of McGraw-Hill’s publication of Financial Planning for the
Utterly Confused. He is the president of MASTCA Publishing Corp. and is the
editor of “The Middle/Fixed Income Letter,” a monthly financial publication.
Professor Lerner is also a financial lecturer to several Fortune 500 firms, has
produced his own TV and radio series for eleven years, and addresses thou-
sands of people annually on finances.
Portions of this book have been taken from Schaum’s Outline of Principles ofAccounting I,
4th edition, 0 1993.
Schaum’s Outline of Theory and Problems of
BOOKKEEPING AND ACCOUNTING
Copyright 0 1994, 1988, 1987 by The McGraw-Hill Companies, Inc. All rights reserved.
Printed in the United States of America. Except as permitted under the Copyright Act of 1976,
no part of this publication may be reproduced or distributed in any form or by any means, or
stored in a data base or retrieval system, without the prior written permission of the publisher.
6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 BAW BAW 9 9
ISBN 0-07-037573-3
Sponsoring Editor, John Aliano
Production Supervisor, Fred Schulte
Editing Supervisor, Patty Andrews
Library of Congress Cataloging-in-Publication Data
Lerner, Joel J.
Schaum’s outline of theory and problems of bookkeeping and
accounting / Joel J. Lerner. -3rd ed.
p. cm.-(Schaum’s outline series)
Includes index.
ISBN 0-07-037593-3
I. Bookkeeping-Problems, exercises, etc. 2. Accounting-
Problems, exercises, etc. I. Title 11. Title: Outline of theory
and problems of bookkeeping and accounting. 111. Title: Bookkeeping
and accounting.
HF5661.L46 1994b
657’.076 -d c20 93-41304
CIP
McGraw -Hill
A Division of The McGmw.HiU Companies
Preface
This third edition brings to the study of bookkeeping and accounting the same
solved-problems approach that has proved so successful in the disciplines of engineer-
ing, mathematics, and accounting. In contrast to previous supplementary materials,
which have been little more than summary textbooks, this book is organized around
the practical application of basic bookkeeping and accounting concepts. By providing
1. Concise definitions and explanations, in easily understood terms,
2. Fully worked-out solutions to a large range of problems (against which stu-
dents can check their own solutions),
3. Review questions,
4. Sample examinations typical of those used by high schools and 2- and 4-year
colleges,
5. Comprehensive Review Problems in each category,
this book develops the student’s ability to understand and solve bookkeeping and ac-
counting problems.
JOEL J. LERNER
iii
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Contents
......................................
PART I The Bookkeeping Cycle 1
Chapter I ASSETS. LIABILITIES. AND CAPITAL ................................ 1
1.1 Nature of Bookkeeping and Accounting ........................................ 1
1.2 Basic Elements of Financial Position: The Accounting Equation ................... 1
Chapter 2 DEBITS AND CREDITS: THE DOUBLE-ENTRY SYSTEM .............. 16
2.1 Introduction .............................................................. 16
2.2 The Account .............................................................. 16
2.3 Debits and Credits ......................................................... 17
2.4 The Ledger ............................................................... 19
2.5 The Chart of Accounts ..................................................... 19
2.6 The Trial Balance ......................................................... 20
3 .....................
Chapter JOURNALIZING AND POSTING TRANSACTIONS 34
3.1 Introduction .............................................................. 34
3.2 The Journal .............................................................. 34
3.3 Journalizing .............................................................. 34
3.4 Posting .................................................................. 36
..........................................
Chapter 4 FINANCIAL STATEMENTS 52
4.1 Introduction .............................................................. 52
4.2 Income Statement ......................................................... 52
4.3 Accrual Basis and Cash Basis of Accounting .................................. 53
4.4 Balance Sheet ............................................................. 53
4.5 Capital Statement .......................................................... 55
4.6 Financial Statement Summary. .............................................. 55
4.7 Classified Financial Statements .............................................. 56
...........................
5
Chapter ADJUSTING AND CLOSING PROCEDURES 77
5.1 Introduction: The Accrual Basis of Accounting ................................ 77
5.2 Adjusting Entries Covering Recorded Data .................................... 77
5.3 Adjusting Entries Covering Unrecorded Data .................................. 79
5.4 Closing Entries ............................................................ 80
5.5 Ruling Accounts .......................................................... 82
5.6 Post-Closing Trial Balance .................................................. 83
5.7 Bookkeeping and Accounting Cycle .......................................... 84
vi CONTENTS
......................................................
Comprehensive Review Problem 97
....................................................................
Examination I 106
................
PART I1 Special Journals. Ledgers. and The Worksheet 116
Chapter 6 REPETITIVE TRANSACTIONS-THE SALES AND THE PURCHASE
.......................................................
JOURNALS 116
6.1 Introduction ............................................................ 116
6.2 Sales Journal ........................................................... 116
6.3 Special Ledgers (Subsidiary Ledgers) ....................................... 117
6.4 Sales Returns and Discounts .............................................. 119
6.5 Types of Ledger Account Forms ........................................... 120
6.6 Purchases as a Cost ...................................................... 120
6.7 Trade Discounts ......................................................... 121
6.8 Purchase Control ........................................................ 121
6.9 Purchase Invoices. ....................................................... 122
6.10 Purchases Journal ....................................................... 122
6.11 Subsidiary Accounts Payable Ledger ........................................ 123
6.12 Return of Merchandise ................................................... 124
6.13 Purchase Discounts ...................................................... 125
..............................................
Chapter 7 THE CASH JOURNAL 145
7.1 Introduction ............................................................. 145
7.2 Cash Receipts Journal ..................................................... 145
7.3 Cash Disbursements Journal ................................................ 147
7.4 Combination Cash Journal ................................................. 148
.....................................................
Comprehensive Review Problem 156
Chapter 8 SUMMARIZING AND REPORTING VIA THE WORKSHEET .......... 164
8.1 Introduction ............................................................. 164
8.2 Worksheet Procedures for a Service Business ................................. 164
...................................................................
Examination II 176
...........................................
PART I11 Metchandising 187
CONTENTS vii
.................................
Chapter 9 THE MERCHANDISING COMPANY 187
9.1 Introduction ............................................................. 187
9.2 Purchases ............................................................... 187
9.3 Adjusting Entry Procedures ................................................ 187
9.4 Worksheet Procedures ..................................................... 188
9.5 Closing Entries ........................................................... 190
9.6 Financial Statement Treatment ............................................. 191
9.7 Summary ............................................................... 193
.....................................................
Comprehensive Review Problem 209
.............................
Chapter 10 COSTING MERCHANDISE INVENTORY 213
10.1 Introduction ............................................................ 213
10.2 Determining Inventory-Physical Count .................................... 213
a . First.In. First-Out (FIFO) .............................................. 213
b . Last.In. First-Out (LIFO) .............................................. 215
c . Average Cost Valuation ................................................ 216
d . Comparison of Inventory Methods ....................................... 217
10.3 Determining Inventory-Estimation ....................................... 219
a . Gross Profit Method ................................................... 219
b . Retail Inventory Method ............................................... 220
c . Summary ............................................................ 221
...........................................
Chapter 11 PRICING MERCHANDISE 236
11.1 Trade Discounts ......................................................... 236
11.2 Chain Discounts ......................................................... 237
11.3 Cash Discounts ......................................................... 238
11.4 Markup ................................................................ 239
11.5 Selling Price as a Basis ................................................... 240
11.6 Cost as a Basis .......................................................... 240
11.7 Markdowns ............................................................. 241
11 .8 Turnover-Ratios for Inventory ............................................. 241
11.9 Number of Days’ Sales In Inventory ........................................ 243
..................................................................
Examination III 249
...................
PART IV Specific Bookkeeping & Accounting Topics 255
......................................
Chapter 12 NEGOTIABLE INSTRUMENTS 255
12.1 Introduction ............................................................ 255
12.2 Methods of Computing Interest ............................................ 256
12.3 Accounting for Notes Payable and Notes Receivable. .......................... 257
viii CONTENTS
12.4 Discounting ............................................................ 259
12.5 Dishonored Notes Receivable .............................................. 259
12.6 Recording Uncollectible Accounts. ......................................... 260
12.7 Computing Uncollectible Accounts ......................................... 261
12.8 Recovery of Uncollectible Accounts ........................................ 263
..............................................
Chapter 13 CONTROLLING CASH 275
13.1 Introduction ............................................................ 275
13.2 Controlling Cash Receipts ................................................ 275
13.3 Controlling Cash Disbursements ........................................... 275
13.4 Controlling Cash Balances ................................................ 275
13.5 Bank Statements ........................................................ 276
13.6 Petty Cash ............................................................. 278
..........................................................
Chapter 14 PAYROLL 290
14.1 Gross Pay .............................................................. 290
14.2 Deductions from Gross Pay ............................................... 291
14.3 The Payroll System ...................................................... 293
14.4 Recording the Payroll .................................................... 294
............
Chapter 15 PROPERTY. PLANT. AND EQUIPMENT: DEPRECIATION 305
15.1 Fixed Asset ............................................................. 305
15.2 Depreciation and Scrap Value ............................................. 305
15.3 Depreciation Methods .................................................... 306
A . StraightLine(SL) .................................................... 306
B. Units of Production (UOP) ............................................. 307
C . Double Declining Balance (DDB) ....................................... 309
D . Sum-of-the-Years’ Digits (SY D) ........................................ 310
E . Partial-Year Depreciation .............................................. 311
F . Comparison of Methods ............................................... 312
..................................................................
Examination IV 319
..............................
PART V Other Business Organizations 323
................................................
Chapter 16 THE PARTNERSHIP 323
16.1 Characteristics of the Partnership .......................................... 323
16.2 Formation of the Partnership .............................................. 323
16.3 Division of Net Income and Loss ........................................... 324
16.4 Admission of a New Partner .............................................. 326
16.5 Liquidation of a Partnership ............................................... 329
CONTENTS ix
...............................................
Chapter 17 THE CORPORATION 351
17.1 Characteristics of the Corporation ......................................... 351
17.2 Corporate Terminology .................................................. 351
17.3 Advantages of the Corporate Form ........................................ 351
17.4 Disadvantages of the Corporate Form ...................................... 352
17.5 Equity Accounting for the Corporation .................................... 352
17.6 Common Stock ........................................................ 353
17.7 Preferred Stock ........................................................ 354
17.8 Issue of Stock .......................................................... 354
17.9 Book Value ............................................................ 356
17.10 Earnings per Share ..................................................... 357
17.1 1 Bond Characteristics .................................................... 357
17.12 Funding by Stock versus Funding by Bonds ................................ 358
...................................................................
Examination V 373
....................................................
Appendix MATHEMATICS 378
A.l Operations with Decimals ................................................. 378
A.2 Percentages ............................................................. 379
A.3 Statistical Methods ........................................................ 381
..............................
GLOSSARY OF BOOKKEEPING AND ACCOUNTING TERMS 389
...................................................................................
INDEX 395