War22e_endsheets_front.qxd 6/22/06 12:00 PM FINAL Page B The Basics STATEMENT OF OWNER’S EQUITY A summary of the changes in the owner’s equity of a business entity that have occurred during a specific period of time, such as a month or a year Accounting Equation: Assets = Liabilities + Owner’s Equity T Account: BALANCE SHEET A list of the assets, liabilities, and owner’s equity of a business entity as of a specific date, usually at the close of the last day of a month or a year Account Title Left Side debit Right Side credit STATEMENT OF CASH FLOWS A summary of the cash receipts and cash payments of a business entity for a specific period of time, such as a month or a year Rules of Debit and Credit: Accounting Cycle: Total Debits ϭ Total Credits Balance Sheet Accounts ASSETS Asset Accounts Debit for Credit for increases(ϩ) decreases(Ϫ) LIABILITIES Liability Accounts ϭ ϩ Debit for Credit for decreases(Ϫ) increases(ϩ) The side of the account for recording increases and the normal balance is shown shaded OWNER’S EQUITY Owner’s Equity Accounts Debit for Credit for decreases(Ϫ) increases(ϩ) Income Statement Accounts Revenue Accounts Debit for Credit for decreases(Ϫ) increases(ϩ) Transactions are analyzed and recorded in the journal Transactions are posted to the ledger An unadjusted trial balance is prepared Adjustment data are assembled and analyzed An optional end-of-period spreadsheet (work sheet) is prepared Adjusting entries are journalized and posted to the ledger An adjusted trial balance is prepared Financial statements are prepared Closing entries are journalized and posted to the ledger 10 A post-closing trial balance is prepared Less he sum of the debits is ways equal to the sum the credits for each urnal entry Types of Adjusting Entries: Expense Accounts Debit for Credit for increases(ϩ) decreases(Ϫ) Equals Net Income Revenues exceed expenses Increases owner’s equity (capital) or Net Loss Expenses exceed revenues Decreases owner’s equity (capital) Drawing Account Debit for Credit for increases(ϩ) decreases(Ϫ) Analyzing and Recording Transactions Carefully read the description of the transaction to determine whether an asset, liability, owner’s equity, revenue, expense, or drawing account is affected by the transaction For each account affected by the transaction, determine whether the account increases or decreases Determine whether each increase or decrease should be recorded as a debit or a credit Record the transaction using a journal entry Periodically post journal entries to the accounts in the ledger Prepare an unadjusted trial balance at the end of the period Financial Statements: INCOME STATEMENT A summary of the revenue and expenses of a business entity for a specific period of time, such as a month or a year Prepaid expense (deferred expense) Unearned revenue (deferred revenue) Accrued revenue (accrued asset) Accrued expense (accrued liability) Depreciation expense Each entry will always affect both a balance sheet and an income statement account Closing Entries: Transfer revenue account balances to Income Summary Transfer expense account balances to Income Summary Transfer Income Summary balance to Capital Transfer drawing account balance to Capital Special Journals: Providing services on account ⎯⎯⎯⎯⎯→ recorded in Receipt of cash from any source ⎯⎯⎯⎯⎯→ recorded in Purchase of items on account ⎯⎯⎯⎯⎯→ recorded in Payments of cash for any purpose ⎯ ⎯⎯⎯⎯→ recorded in ⎯ ⎯→ Revenue (sales) journal ⎯ ⎯→ Cash receipts journal ⎯ ⎯→ Purchases journal ⎯ ⎯→ Cash payments journal War22e_endsheets_front.qxd 6/22/06 12:00 PM FINAL Page C 10 Shipping Terms: FOB Shipping Point Ownership (title) passes to buyer when merchandise is Transportation costs are paid by FOB Destination delivered to freight carrier delivered to buyer buyer seller 17 Break-Even Sales (Units) = Deduct: Deductions by company not on bank statement Bank errors Adjusted balance Cash balance according to company’s records Add: Additions by bank not recorded by company Company errors Deduct: Deductions by bank not recorded by company Company errors Adjusted balance $xxx $xx xx $xx xx xx $xxx xx $xxx $xxx $xx xx $xx xx xx $xxx xx $xxx 12 Inventory Costing Methods: 19 Margin of Safety = Sales – Sales at Break-Even Point Sales 20 Operating Leverage = Contribution Margin Income from Operations 21 Variances Direct Materials = Actual Price per Unit – Price Variance Standard Price Direct Labor = Actual Rate per Hour – Rate Variance Standard Rate Direct Labor = Actual Hours Worked – Time Variance Standard Hours – Fixed Factory Budgeted Factory Overhead Volume = Overhead for Variance Amount Produced 13 Interest Computations: Interest = Face Amount (or Principal) × Rate × Time × Actual Quantity Used Direct Materials = Actual Quantity Used – Quantity Variance Standard Quantity Variable Factory Actual Overhead Controllable = Factory Variance Overhead First-in, First-out (FIFO) Last-in, First-out (LIFO) Average Cost × Standard Price per Unit × Actual Hours Worked × Standard Rate per Hour Budgeted Factory Overhead for Amount Produced Applied – Factory Overhead 22 Rate of Return on Income from Operations = Investment (ROI) Invested Assets 14 Methods of Determining Annual Depreciation: STRAIGHT-LINE: Cost – Estimated Residual Value Estimated Life DOUBLE-DECLINING-BALANCE: Rate* × Book Value at Beginning of Period *Rate is commonly twice the straight-line rate (1/Estimated Life) 15 Adjustments to Net Income (Loss) Using the Indirect Method Net income (loss) Adjustments to reconcile net income to net cash flow from operating activities: Depreciation of fixed assets Amortization of intangible assets Losses on disposal of assets Gains on disposal of assets Changes in current operating assets and liabilities: Increases in noncash current operating assets Decreases in noncash current operating assets Increases in current operating liabilities Decreases in current operating liabilities Net cash flow from operating activities Fixed Costs Unit Contribution Margin 18 Sales (Units) = Fixed Costs + Target Profit Unit Contribution Margin 11 Format for Bank Reconciliation: Cash balance according to bank statement Add: Additions by company not on bank statement Bank errors 16 Contribution Margin Ratio = Sales – Variable Costs Sales Increase (Decrease) $ XXX XXX XXX XXX (XXX) (XXX) XXX XXX (XXX) $ XXX or $(XXX) Alternative ROI Computation: ROI = Income from Operations Sales × Sales Invested Assets 23 Capital Investment Analysis Methods: Methods That Ignore Present Values: A Average Rate of Return Method B Cash Payback Method Methods That Use Present Values: A Net Present Value Method B Internal Rate of Return Method 24 Average Rate Estimated Average Annual Income = of Return Average Investment 25 Present Value Index = Total Present Value of Net Cash Flow Amount to Be Invested 26 Present Value Factor Amount to Be Invested = for an Annuity of $1 Equal Annual Net Cash Flows FM_Warren22e.qxd 7/28/06 11:04 AM FINAL Page i WAR R E N R E E VE DUC H AC ACCOUNTING 22e Carl S Warren Professor Emeritus of Accounting University of Georgia, Athens James M Reeve Professor Emeritus of Accounting University of Tennessee, Knoxville Jonathan E Duchac Professor of Accounting Wake Forest University FM_Warren22e_i-xxxii.qxd 8/21/06 3:49 PM REVISED 8-21-06 Page ii Accounting, 22e Carl S Warren, James M Reeve, Jonathan E Duchac VP/Editorial Director: Jack W Calhoun Associate Manager of Technology: John Barans Art Director: Bethany Casey Publisher: Rob Dewey Sr Technology Project Editors: Sally Nieman and Robin Browning Infographic Illustrations: Grannan Graphic Design, Ltd Executive Editor: Sharon Oblinger Manufacturing Coordinator: Doug Wilke Internal Designer: Grannan Graphic Design, Ltd Developmental Editor: Steven E Joos Editorial Assistant: Kelly Somers Cover Designer: Grannan Graphic Design, Ltd Assistant Editor: Erin Berger Production House: LEAP Publishing Services, Inc Cover Images: Max Dereta/Jupiterimages Marketing Manager: Robin Farrar Compositor: GGS Book Services, Inc Photography Manager: John Hill Sr Content Project Manager: Cliff Kallemeyn Printer: RR Donnelley Willard, OH Photo Researcher: Rose Alcorn ALL RIGHTS RESERVED No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means— graphic, electronic, or mechanical, including photocopying, recording, taping, Web distribution or information storage and retrieval systems, or in any other manner—without the written permission of the publisher Library of Congress Control Number: 2006929459 Manager of Technology, Editorial: Vicky True COPYRIGHT © 2007, 2005 Thomson South-Western, a part of The Thomson Corporation Thomson, the Star logo, and South-Western are trademarks used herein under license Printed in the United States of America 09 08 07 06 Student Edition 0-324-40184-1 Instructor Edition 0-324-38187-5 Looseleaf Edition 0-324-38185-9 Softbound Chs 14–26 0-324-64054-4 For permission to use material from this text or product, submit a request online at http://www.thomsonrights.com For more information about our products, contact us at: Thomson Learning Academic Resource Center 1-800-423-0563 Thomson Higher Education 5191 Natorp Boulevard Mason, OH 45040 USA FM_Warren22e.qxd 7/28/06 11:04 AM Page iii FINAL The Author Team Carl S Warren Dr Carl S Warren is Professor Emeritus of Accounting at the University of Georgia, Athens For over 25 years, Professor Warren taught all levels of accounting classes Professor Warren has taught classes at the University of Georgia, University of Iowa, Michigan State University, and University of Chicago Professor Warren focused his teaching efforts on principles of accounting and auditing Professor Warren received his doctorate degree (Ph.D.) from Michigan State University and his undergraduate (B.B.A) and masters (M.A.) degrees from the University of Iowa During his career, Professor Warren published numerous articles in professional journals, including The Accounting Review, Journal of Accounting Research, Journal of Accountancy, The CPA Journal, and Auditing: A Journal of Practice & Theory Professor Warren’s outside interests include writing short stories and novels, oil painting, playing handball, golfing, skiing, backpacking, and fly-fishing James M Reeve Dr James M Reeve is Professor Emeritus of Accounting and Information Management at the University of Tennessee Professor Reeve taught on the accounting faculty for 25 years, after graduating with his Ph.D from Oklahoma State University His teaching effort focused on undergraduate accounting principles and graduate education in the Master of Accountancy and Senior Executive MBA programs Beyond this, Professor Reeve is also very active in the Supply Chain Certification program, which is a major executive education and research effort of the College His research interests are varied and include work in managerial accounting, supply chain management, lean manufacturing, and information management He has published over 40 articles in academic and professional journals, including the Journal of Cost Management, Journal of Management Accounting Research, Accounting Review, Management Accounting Quarterly, Supply Chain Management Review, and Accounting Horizons He has consulted or provided training around the world for a wide variety of organizations, including Boeing, Procter and Gamble, Norfolk Southern, Hershey Foods, Coca-Cola, and Sony When not writing books, Professor Reeve plays golf and is involved in faith-based activities Jonathan E Duchac Dr Jonathan Duchac is the Merrill Lynch and Co Associate Professor of Accounting Policy and Director of the Program in Enterprise Risk Management at Wake Forest University He earned his Ph.D in accounting from the University of Georgia and currently teaches introductory and advanced courses in financial accounting Dr Duchac has received a number of awards during his career, including the Wake Forest Graduate Accounting Student Teaching Award, the T.B Rose award for Instructional Innovation, and the University of Georgia Outstanding Teaching Assistant Award In addition to his teaching responsibilities, Dr Duchac serves as Accounting Advisor to Merrill Lynch Equity Research, where he works with research analysts in reviewing and evaluating the financial reporting practices of public companies He has testified before the U.S House of Representatives, the Financial Accounting Standards Board, and the Securities and Exchange Commission and has worked with a number of major public companies on financial reporting and accounting policy issues iii FM_Warren22e.qxd 7/28/06 11:04 AM Page iv FINAL FM_Warren22e.qxd 7/28/06 11:04 AM FINAL Page v Get Connected For over 75 years, Accounting has been used effectively to teach generations of businessmen and women As the most successful business textbook of all time, it continues to introduce students to accounting through a variety of time-tested ways With this edition, we continue our quest to explore new ways to connect the modern student to accounting, a discipline that is challenging and rewarding With this quest in mind, we came to you, the teachers of accounting, and asked what works, what doesn’t, and what needs improvement For this edition, we employed many new methods to get closer to instructors who teach the course every day As always, your responses were thorough and insightful, and through reviews, focus groups, and our ground-breaking Blue Sky Workshops, we’ve created a contemporary and efficient learning system for today’s student and instructor In fact, our Blue Sky Workshops brought together accounting teachers from all over the country to discuss content, chapter pedagogy, book design, and supplements For the first time, instructors had input on every aspect of the project, and the effect of their input on this edition is clear By connecting with those who use the book, Accounting, 22e, delivers everything students and instructors need, with nothing they don’t The original author of Accounting, James McKinsey, could not have imagined the success and influence this text has enjoyed or that his original vision would continue to lead the market into the twenty-first century As the current authors, we appreciate the responsibility of protecting and enhancing this vision, while continuing to refine it to meet the changing needs of students and instructors Always in touch with a tradition of excellence but never satisfied with yesterday’s success, this edition enthusiastically embraces a changing environment and continues to proudly lead the way We sincerely thank our many colleagues who have helped to make it happen “The teaching of accounting is no longer designed to train professional accountants only With the growing complexity of business and the constantly increasing difficulty of the problems of management, it has become essential that everyone who aspires to a position of responsibility should have a knowledge of the fundamental principles of accounting.” — James O McKinsey, Author, first edition, 1929 v FM_Warren22e.qxd 7/28/06 11:04 AM FINAL Page vi Connect to Course Content As the clear leader in pedagogical innovation, Accounting, 22e, introduces the next step in the evolution of accounting textbooks Through discussions at the Blue Sky Workshops and other instructor interactions, this edition is closer than ever to becoming the “perfect” accounting text NEW! See the example of the application being presented Example Exercise Based on extensive market feedback, we’ve developed new Example Exercises that reinforce concepts and procedures in a bold, new way Like a teacher in a classroom, students follow the authors’ example to see how to complete accounting applications as they are presented in the text This feature also provides a list of Practice Exercises that parallel the Example Exercises, so students get the practice they need Example Exercise 1-1 objective On August 25, Gallatin Repair Service extended an offer of $125,000 for land that had been priced for sale at $150,000 On September 3, Gallatin Repair Service accepted the seller’s counteroffer of $137,000 On October 20, the land was assessed at a value of $98,000 for property tax purposes On December 4, Gallatin Repair Service was offered $160,000 for the land by a national retail chain At what value should the land be recorded in Gallatin Repair Service’s records? Follow My Example 1-1 $137,000 Under the cost concept, the land should be recorded at the cost to Gallatin Repair Service For Practice: PE 1-1A, PE 1-1B Follow along as the authors work through the example exercise Try these corresponding end-ofchapter exercises for practice! vi Clear Objectives and Key Learning Outcomes To help guide students, the authors revised and focused the chapter objectives and developed key learning outcomes related to each chapter objective All aspects of the chapter content and end-of-chapter exercises and problems connect back to these objectives and related outcomes In doing so, students can test their understanding and quickly locate concepts for review FM_Warren22e.qxd 7/28/06 NEW! 11:04 AM FINAL Page vii “At a Glance” Chapter Summary The “At a Glance” summary grid ties everything together and helps students stay on track First, the Key Points recap the chapter content for each chapter objective Second, the related Key Learning Outcomes list all of the expected student performance capabilities that come from completing each objective In case students need further practice on a specific outcome, the last two columns reference related Example Exercises and their corresponding Practice Exercises Through this intuitive grid, all the chapter pedagogy links together in one cleanly integrated summary Describe the financial statements of a proprietorship and explain how they interrelate Key Points Key Learning Outcomes The principal financial statements of a proprietorship are the income statement, the statement of owner’s equity, the balance sheet, and the statement of cash flows The income statement reports a period’s net income or net loss, which also appears on the statement of owner’s equity The ending owner’s capital reported on the statement of owner’s equity is also reported on the balance sheet The ending cash balance is reported on the balance sheet and the statement of cash flows • List and describe the financial statements of a proprietorship • Prepare an income statement • Prepare a statement of owner’s equity • Prepare a balance sheet • Prepare a statement of cash flows • Explain how the financial statements of a proprietorship are interrelated Provides a conceptual review of each objective Creates a checklist of skills to help review for a test EXHIBIT Accounting Information and the Stakeholders of a Business Example Exercises Practice Exercises 1-4 1-5 1-4A, 1-4B 1-5A, 1-5B 1-6 1-7 1-6A, 1-6B 1-7A, 1-7B Directs the student to this helpful new feature! Modern, UserFriendly Design The internal design has been modified to be both appealing and easy to navigate Based on student testimonials of what they find most useful, this streamlined presentation includes a wealth of helpful resources without feeling cluttered To update the look of the material, some Exhibits use computerized spreadsheets to better reflect the changing environment of business Visual learners will appreciate the generous number of exhibits and illustrations used to convey concepts and procedures vii FM_Warren22e.qxd 7/28/06 11:04 AM FINAL Page viii Connect to Real Always aware of the issues and changes in real world accounting, the colorful and dynamic Accounting, 22e, visually highlights coverage that is designed to help students make the connection between accounting concepts and business practices Accounting doesn’t occur in a vacuum, and the new and improved features found in each chapter make the content come to life Improved Chapter Openers Building on the strengths of past editions, these openers continue to relate the accounting and business concepts in the chapter to the student’s life New for this edition, these openers now employ examples of real companies as well providing invaluable insight into real practice The following companies are among those that have been incorporated into the chapter openers • Google • Marvel Entertainment • Fatburger • Gold’s Gym • Electronic Arts • The North Face Chapter Introduction to Accounting and Business chapter Analyzing Transactions Gold’s Gym International, Inc Y © BODYWEDGE 21/PRNEWSFOTO (AP TOPIC GALLERY) ou can organize your digital music within your MP3 player or IPod® according to various playlists, according to your favorite songs, genre, artist, or album Your playlists allow you to quickly retrieve music for listening Computer files are organized within folders for the same reason Information, like music or digital files, is organized into categories to simplify retrieval and reporting In the same way that you organize your digital information, a business also needs to organize its transactions For example, when you shop at Wal-Mart or Target, or buy groceries at Kroger or SUPERVALU, you enter into a transaction that is processed and recorded by the business A company such as Gold’s Gym, the largest co-ed gym chain in the world, must also process, record, and summarize objectives After studying this chapter, you should be able to: Describe the characteristics of an account and record transactions using a chart of accounts and journal Describe and illustrate the posting of journal entries to accounts Prepare an unadjusted trial balance and explain how it can be used to discover errors Discover and correct errors in recording transactions its transactions For example, Gold’s would want to record all its cash transactions so that they can be summarized as a single category, called “cash.” This is much the same way you would summarize the cash transactions in the check register of your checkbook In Chapter 1, we analyzed and recorded this kind of information by using the accounting equation, Assets ϭ Liabilities ϩ Owner’s Equity However, such a format is not practical for most businesses, and in this chapter we will study more efficient methods of recording transactions We will conclude this chapter by discussing how accounting errors may occur and how they may be detected and corrected by the accounting process Using Accounts to Record Transactions objective Describe the characteristics of an account and record transactions using a chart of accounts and journal In Chapter 1, we recorded the November transactions for NetSolutions using the accounting equation format shown in Exhibit However, this format is not efficient or practical for companies that have to record and summarize thousands or millions of transactions daily As a result, accounting systems are designed to show the increases and decreases in each financial statement item as a separate record This record is called an account To illustrate, the Cash column of Exhibit records the increases and decreases in cash Likewise, the other columns in Exhibit record the increases and decreases in Supplies; Land; Accounts Payable; Chris Clark, Capital; Chris Clark, Drawing; Fees Earned; Wages Expense; Rent Expense; Supplies Expense; Utilities Expense; and Miscellaneous Expense As we illustrate next, each of these columns can be organized into a separate account that more efficiently records and summarizes transactions An account, in its simplest form, has three parts First, each account has a title, which is the name of the item recorded in the account Second, each account has a space for recording increases in the amount of the item Third, each account has a space for recording decreases in the amount of the item The account form presented below is called a T account because it resembles the letter T The left side of the account is called the debit side, and the right side is called the credit side.1 Title Left side debit Right side credit The terms debit and credit are derived from the Latin debere and credere 49 Financial Analysis and Interpretation The Financial Analysis and Interpretation section in Chapters 6–16 introduces relevant, key ratios throughout the textbook Students connect with the business environment as they learn how stakeholders will interpret financial reports This section covers basic analysis tools that students will use again in the Financial Statement Analysis chapter Furthermore, students get to test their proficiency with these tools through special activities and exercises in the end of the chapter Both the section and related end-of-chapter material are indicated with a unique icon for a consistent presentation viii INDEX_Warren22e.qxd 8/1/06 1:15 PM Page Federal Unemployment Tax Act See FUTA Federal Wage and Hour Law, 483 Feedback, 970 def., 798 Fees earned, 250 def., 15 Fees on account, 15 FICA, 485 FICA tax, 487 def., 485 Financial Accounting Standards Board (FASB), 355 def., 10 Financial accounting, def., 8, 794 Financial analysis and interpretation, 272, 326, 370, 458, 501, 546, 587, 628, 668, 712 Financial and managerial accounting differences between, 794 illus., 795 Financial statement reporting of cash, 368 Financial statements, 147 consolidated, 627 def., 17 effect of inventory costing methods on, illus., 310 effect of inventory errors on, 322 for manufacturing business, 805 for merchandising business, 252 illus., 20, 167–168 international differences, 151 interrelationships among, 23 prepared from work sheet, illus., 148 preparing, 166 report on fairness of, 764 reporting merchandise inventory in, 320 under periodic inventory system, 278 Financing activities cash flows from, 22, 692, 695 net cash flow provided by, 695 net cash flow used for, 695 noncash, 695 Finished goods and cost of goods sold, 842 Finished goods inventory, def., 806 Finished goods ledger account, illus., 842 def., 842 Firm culture, First-in, first-out flow of costs, illus., 316 First-in, first-out (FIFO) method, 312, 315 def., 310, 876 use of, 319 Fiscal year, 490 def., 174 Fixed asset impairment, def., 615 Fixed asset turnover ratio, def., 458 Fixed assets accounting for exchanges of similar, illus., 451 as a percent of total assets, illus., 436 cost of, 436 costs of acquiring, illus., 437 def., 115, 150, 435 discarding, 447 disposal of, 447 exchanging similar, 449 financial reporting for, 456 in balance sheet, illus., 457 leasing, 439 nature of, 435 selling, 448 to long-term liabilities, ratio of, 753 Fixed charge coverage ratio, 754 Fixed cost graphs, illus., 923 Fixed costs def., 922 effect of changes in, 929 Fixed factory overhead volume variance, 1025 Fixed overhead volume variance, graph of, illus., 1026 Flexible and static budgets, illus., 975 Flexible budgets def., 974 illus., 974 Flowchart of closing entries, illus., 153 FOB (free on board) destination, 323 def., 266 FOB (free on board) shipping point, 323 def., 266 Fraud accounting and business in the 2000s, illus., case of fraudulent price tags, 263 check, 363 employee, 350 hotlines, 354 journalizing to prevent, 57 online, 221 receivables, 405 round tripping, 149 tips on preventing employee, 354 Free cash flow, def., 712 Free issue basis, office supplies, 109 Fringe benefits def., 495 employees’, 495 Functional depreciation, 440 Funds petty cash, 367 sinking, 662 special-purpose, 367–368 FUTA, 487 tax, 487 Future event, 498 Future value, def., 653 G GAAP See Generally accepted accounting principles Gain on realization, illus., 540 Gain on sale of land, 700, 710 Gains on exchanges, 449 General expenses, 254 General journal, def., 207 General ledger def., 206 illus., 206 Generally accepted accounting principles (GAAP), 351, 795 def., 10 Ghost employees, 836 Goal conflict, 1026 def., 971 Goods manufactured cost of, 806–807 statement of cost of, 807 REVISED Goods sold, cost of, 744fn Goodwill def., 454 write-offs of, 456 Government stakeholders, Graph of fixed overhead volume variance, illus., 1026 Graphic approach to cost-volumeprofit analysis, 933 Gross pay, def., 483 Gross profit, def., 251, 254 Gross profit method def., 325 estimating inventory by, illus., 325 of estimating inventories, 325 Growth investing, 764 H Harvest strategy, 973 Held-to-maturity securities, def., 666 High-low method, def., 924 Hijacking receivable, 55 Horizontal analysis comparative balance sheet, illus., 743 comparative income statement, illus., 744 comparative schedule of current assets, illus., 744 def., 742 Hub-and-spoke approach, 457 Human behavior problems in budgeting, illus., 970 Hurdle rate, 1148 I Ideal standards, def., 1015 Illusory profits, 319 Impairment asset, 616 fixed asset, 615 In-and-out cards, 835 Income, 255 adjustments to net using indirect method, illus., 699 by product, illus., 1101 comprehensive, 620 net, 18 operating, 254 participation in, 527 shifting through transfer prices, 1074 taxable, 611 Income from operations def., 254, 1063 to total assets, rate of, 757 Income of partnership, dividing, 530, 531 Income statement, 18, 147 absorption costing, illus., 942 accounts, 54 and balance sheet columns, 176 and balance sheet data for direct method, illus., 707 budgeted, illus., 983 budgets, 977, illus., 976 columns, spreadsheet with amounts extended to, illus., 176B4 common-size, illus., 747 comparative, illus., 744, illus., 746 contribution margin, illus., 926 def., 18 for a manufacturing company, 806 Subject Index I-7 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page Income statement, (continued) illus., 843, 1072, 1073 multiple-step, 252, illus., 253 reporting unusual items on, 614, illus., 615 single-step, 255, illus., 256 unusual items affecting current period’s, 614 unusual items affecting prior period’s, 618 unusual items in, illus., 616 variable costing, illus., 942 variances from standards in, illus., 1030 with earnings per share, illus., 620 with statement of costs of goods manufactured, illus., 809 Income Summary, def., 152 Income tax payable, estimated, 511fn Income taxes, 483, 1153 allocating, 611 cash payments for, 710 corporate, 610 depreciation for federal, 445 payment of, 610 provision for, 511fn Incorporation application of, 569 articles of, 570 Indenture bond, 652 trust, 652 Indicators of internal control problems, illus., 356 Indirect costs classifying, illus., 801 def., 800 Indirect expenses, 1061 Indirect method, 23fn adjustments to net income (loss), illus., 699 cash flow from operations, illus., 695 cash flows from operating activities, 697, illus., 702 def., 694 spreadsheet for statement of cash flows, 712, illus., 714 statement of cash flows, 696, illus., 706 Individual character, Industry Norms & Key Business Ratios, 748 Inflation, def., 1155 Information and communication, 355 flow of accounting, 145 overload, 811 Information Systems Audit and Control Association, Installments, 480 Institute of Internal Auditors, Institute of Management Accountants (IMA), Intangible asset disclosures, frequency of, illus., 455 Intangible assets comparison of, illus., 455 def., 453 financial reporting for, 456 in balance sheet, illus., 457 Interest charges, number of times earned, 668, 754 Interest expense, 710 I-8 Subject Index Interest in a partnership, purchasing, 534 Interest method, 659 amortization of discount by, 668 amortization of premium by, 669 Interest revenue, def., 15 Interest tables, A-2–A-5 Interest, market or effective rate, 653 Internal control, 350 def., 205, 348 elements of, illus., 351 for payroll systems, 493 objectives of, 350 problems, indicators of, illus., 356 procedures, illus., 353 report on adequacy of, 763 Internal Control—Integrated Framework, 350 Internal rate of return (IRR) method, def., 1150 Internal Revenue Code, 445 Internal stakeholders, International differences in financial statements, 151 Interpretation, financial analysis and, 272, 326, 370, 458, 501, 546, 587, 628, 712, 668 Interpretations, 10 Inventory, 327 and manufacturing costs, illus., 832 control of, 308 determining by retail method, illus., 324 estimating by gross profit method, illus., 325 finished goods, 806 gross profit method of estimating, 325 materials, 805 merchandise, 251 number of days’ sales in, 326, 752 physical, 309 work in process, 805 Inventory analysis, 752 Inventory at lower of cost or market, determining, illus., 320 Inventory cost estimating, 324 flow assumptions, 309 Inventory costing methods comparing, 318 illus., 311 on financial statements, effect of, illus., 310 under periodic inventory system, 315 under perpetual inventory system, 312 Inventory costing, retail method of, 324 Inventory errors on financial statements, effect of, 322 Inventory in manufacturing and merchandising companies, balance sheet presentation of, illus., 806 Inventory ledger, 309 Inventory profits, 319 Inventory shortage, 270 Inventory shrinkage adjusting entry for, 270 def., 270 Inventory turnover, def., 326, 752 Investing activities cash flows from, 21, 692, 694 REVISED net cash flow provided by, 695 net cash flow used for, 695 noncash, 695 Investing strategies, 764 Investment(s), 395, 436 accounting for bond, 663, 665 def., 625 dividing of partnership income, 532 rate of return on, 1065 return on, 1067 shareholders’, 571 temporary, 622 Investment center def., 1064 responsibility accounting for, 1064 Investment turnover, def., 1065 Investments in bonds, 663 Investments in stocks accounting for, 622 long-term, 625 sale of, 626 short-term, 622 Investor Protection, Auditor Reform, and Transparency Act of 2002, 10 Invoice def., 260 illus., 260 open, 210, 221 phony scams, 834 vendor’s, 308 Invoice form, illus., 276 J Job cost sheets and work in process controlling account, illus., 841 comparing data from, illus., 845 def., 834 Job order cost system and process cost system, comparing, 873, illus., 874 def., 831 for manufacturing businesses, 832 for professional service businesses, 846 Job order costing for decision making, 845 Job shops, 831 Jobs, assigning factory overhead to, illus., 839 Journal analyzing and recording transactions in, 162 cash payments, 214 def., 52 general, 207 illus., 65–71 modified special, 217 purchases, 212 revenue, illus., 208 special, 206, 207 two-column, 59 Journal entries for process cost system, 886 illus., 162–163 posting to accounts, 59 Journal entry, def., 52 Journalizing adjusting entries, 165 closing entries, 153, 168 def., 52 to prevent fraud, 57 Junk bonds, 661 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page Just-in-time processing (JIT), def., 889 Just-in-time production line, illus., 890 K Kaizen costing, 1015 L Labor information and cost flows, illus., 836 Land, 705 gain on sale of, 700, 710 Last-in, first-out (LIFO) method, 313, 316 def., 310 use of, 319 Last-in, first-out flow of costs, illus., 317 Laws and enforcement, Lease, 439 capital, 439 operating, 439 vs capital investment, 1154 Lease or sell, 1099 differential analysis report, illus., 1100 Leasing fixed assets, 439 Ledger accounts payable subsidiary, 206 accounts receivable subsidiary, 206 additional subsidiary, 217 creditors, 206 customers, 206 def., 51 general, illus., 206 illus., 65–71, 155–159, 170–174 inventory, 309 posting transactions to, 164 revenue journal postings to, illus., 209 subsidiary, 205, illus., 206 with adjusting entries, illus., 119–120 Legal capital, 572 Lender, 479 Lessee, 439 Lessor, 439 Leverage, 651fn def., 757 illus., 758 Liabilities, 150 accounts payable as a percent of total current, illus., 480 accrued, 106 changes in current operating, 700 contingent, 410, 498 current, 150, 479 def., 12, 51 limited, 528, 568 long-term, 150, 479 ratio of fixed assets to long-term, 753 to stockholders’ equity, ratio of, 754 today’s mistakes can be tomorrow’s, 500 unlimited, 527 Liability for employee earnings, 483 Liability for employer’s payroll taxes, 487 Limited liability, 528, 568 Limited liability companies, 526 characteristics of, illus., 529 def., 4, 528 proprietorships, and partnerships, comparing, 529 Limited life, 527 Limited partnership, 527 Line, 796 Line department, def., 795 Line of credit, 369 Liquidating dividend, 578fn Liquidating partnership, steps in, illus., 539 Liquidation def., 539 errors in, 544 statement of partnership, 540 Long-term debt, current portion of, 480 Long-term investments in stocks, 625 Long-term liabilities, 479 def., 150 ratio of fixed assets to, 753 Loss, net, 18 Loss on realization, 541 capital deficiency, illus., 542 illus., 541 Losses on exchanges, 450 Lower of cost or market determining inventory at, illus., 320 valuation at, 320 Lower-of-cost-or-market (LCM) method, def., 320 M MACRS depreciation, 612 Maintenance, ordinary, 438 Make or buy, 1103 differential analysis report, illus., 1104 Maker, 405 Management controlling function of, 969 directing function of, 969 planning function of, 968 Management accountant in the organization, 795 Management accounting, def., Management by exception, def., 798 Management process, def., 796 diagram of, illus., 797 managerial accounting in, 796 Management’s Discussion and Analysis (MD&A), def., 763 Management’s philosophy and operating style, 352 Managerial accounting, 794 def., 9, 795 differences between, 794 illus., 795 in management process, 796 uses of, 810 Mandatory vacations, 353 Manual accounting system, 205, 208, 212 adapting, 217 Manufacturing business balance sheet for, 805 def., financial statements for, 805 job order cost systems for, 832 Manufacturing cells, def., 890 Manufacturing company balance sheet presentation of inventory of, illus., 806 income statement for, 806 income statement with statement of costs of goods manufactured, illus., 809 REVISED Manufacturing costs, 801 and inventories, illus., 832 flow of, illus., 807, 833, 844 schedule of payments for, illus., 985 Manufacturing margin, 942 Manufacturing operations illus., 799 tour of, 799 Manufacturing overhead, def., 802 MAP (minimum advertised price), 1110 Margin of safety, def., 941 Market price approach, def., 1071 Market rate of interest, 653 Marketable securities, 623 Markup, def., 1108 Master budget, def., 976 Matching concept, def., 18, 104 Matching principle, def., 104 Material substitution variance, 1026 Materiality concept, def., 73 Materials, 833 Materials equivalent units, 879 Materials information and cost flows, illus., 833 Materials inventory, def., 805 Materials ledger, def., 834 Materials requisitions, def., 834 Mathematical approach to costvolume-profit analysis, 928 Maturity date, 405 Maturity value, def., 406 Medicare, 485 Members’ equity, statement of, 545 Merchandise cash payments for, 708 physical flow of, 312 Merchandise available for sale, def., 254 Merchandise inventory def., 251 in financial statements, reporting, 320 on balance sheet, 321 Merchandise purchased, cost of, 253 Merchandise sold, cost of, 251, 252, 744fn, 806 illus., 254 Merchandise transactions dual nature of, 268 recording under periodic inventory system, 277 Merchandisers, accounting systems for, 273 Merchandising businesses cash payments journal for, illus., 275 cash receipts journal for, illus., 274 chart of accounts for, 257, illus., 258 def., end-of-period spreadsheet, C-1, illus., C-2, C-4 financial statements for, 252 nature of, 250 purchases journal for, illus., 274 sales journal for, illus., 273 statement of owner’s equity for, illus., 256 Merchandising companies, balance sheet presentation of inventory of, illus., 806 Merchandising transactions, 257 Subject Index I-9 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page 10 Method variance, 1026 Mixed costs def., 922 illus., 923 Modified Accelerated Cost Recovery System, (MACRS), 445 Monitoring, 355 Mortgage note payable, 150 Mortgage payable, 150 Movie business, making money in, 847 Moving average, 314 Multiple-step income statement def., 252 illus., 253 Mutual agency, 527 N Natural business year, def., 174 Natural resources, 452 Negotiated price approach, def., 1072 Net book value, def., 115 Net cash flow, 1145 provided by financing activities, 695 provided by investing activities, 695 used for financing activities, 695 used for investing activities, 695 Net income, 250 completed spreadsheet with, illus., 176B6 def., 18 dividing of partnership income when allowances exceed, 533 Net loss, def., 18 Net pay computing employee, 486 def., 483 Net present value analysis at 12%, illus., 1150 equalized lives of proposals, illus., 1154 unequal lives of proposals, illus., 1154 Net present value method, def., 1148 Net profit, def., 18 Net purchases, def., 253 Net realizable value def., 321, 397 valuation at, 321 Net sales def., 252 to assets, ratio of, 755 Network business, 939 Nominal accounts, def., 152 Noncash investing and financing activities, 695 Nonfinancial performance measure, def., 1031 Nonmanufacturing activities, direct labor standards for, 1022 Nonpublic corporations, 568 Nontaxable entity, 527 No-par stock, 572, 576 Normal standards, 1015 Note receivable, dishonored, 406 Notes payable, short-term, 480 Notes receivable, 405 accounting for, 406 characteristics of, 405 def., 150, 394 discounting, 410 I-10 Subject Index Not-for-profit, 571 NSF (not sufficient funds) checks, 361 Number of days’ sales in inventory, def., 326, 752 Number of days’ sales in receivables, def., 409, 751 Number of times interest charges are earned, def., 668, 754 Number of times preferred dividends are earned, 755 O Objectives (goals), def., 797 Objectivity concept, def., 11 Office supplies, free issue basis of, 109 Offsetting account, 261 Online fraud, 221 Open invoices, 210, 221 Operating activities, cash flows from, 21, 692, 693 direct method, 710 indirect method, 697, illus., 702 reporting, 702 Operating agreement, 528 Operating cycle, 251 Operating expenses, cash payments for, 709 Operating income, 254 Operating lease, def., 439 Operating leverage, def., 939 Operations cash flow from, direct and indirect methods, illus., 695 centralized and decentralized, 1056 discontinued, 617 income from, 254 separating, 354 Opportunity cost, def., 1105 Ordinary maintenance and repairs, 438 Organization, management accountant in, 795 Organizational chart, illus., 796 Organizational forms in the accounting and consulting industry, 529 Organizational structure, 352 of corporation, illus., 569 Organizations, types of business, Orphan Drug Act, 933 Other comprehensive income item, 623 def., 620 Other expense, def., 255 Other income, def., 255 Other receivables, 395 Outstanding stock, def., 572 Overabsorbed factory overhead, 838 Overapplied factory overhead, def., 838 Owner’s equity, 150 def., 12, 51 effects of transactions on, illus., 17 statement of, 18, 19, 147, 255 P Pacific Athletic Conference (PAC 10), 10 Paid-in capital def., 571 from issuing stock, 572 Par, def., 572 Par value method, 581fn REVISED Parent company, def., 627 Partial present value of an annuity table, illus., 1148 Participating preferred stock, 573fn Participation in income, 527 Partnership(s), 526, 527 admitting a partner, 534 characteristics of, illus., 529 contributing assets to, 535 death of a partner, 539 def., forming of, 530 limited, 527 liquidating, 539 partner bonuses, illus., 536 partners admission and withdrawal, 534 proprietorships, and limited liability companies, comparing, 529 purchasing an interest in, 534 revaluation of assets, 535 steps in liquidating, illus., 539 two methods of admitting a partner, illus., 534 withdrawal of a partner, 538 Partnership agreement, def., 527 Partnership equity, statement of, illus., 545 Partnership income, dividing of, 530, 531 by services and investments of partners, 532 by services of partners, 531 when allowances exceed net income, 533 Partnership liquidation, statement of, 540 Partnership property, co-ownership of, 527 Past transaction, 498 Patents, def., 453 Pay computing employee net, 486 gross, 483 net, 483 take-home, 486 vacation, 495 Payee, 405 Payments and receipts, cash controls over, 357 Payments for manufacturing costs, schedule of, illus., 985 Payroll and payroll taxes, accounting systems for, 488 def., 482 distribution, 489 Payroll accounting, 482 department charges, illus., 1061 Payroll checks, 491 illus., 494 Payroll costs, benefit dollars as a percent of, illus., 496 Payroll register def., 488 illus., 488–489 Payroll system diagram, 492 flow of data in, illus., 494 internal controls for, 493 Payroll taxes, 482 recording and paying, 490 Pensions, 396 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page 11 Period costs def., 803, 843 examples of, illus., 804 illus., 804 Periodic inventory spreadsheet, C-3 Periodic inventory system, 276 adjusting process under, 278 chart of accounts, 276, illus., 277 closing entries under, 279 cost of merchandise sold using, 276 end-of-period spreadsheet for merchandising business, illus., C-4 financial statements under, 278 inventory costing methods under, 315 transactions using, illus., 279 Periodic system def., 254 determining cost of merchandise sold using, illus., 277 Permanent differences, def., 613 Perpetual inventory account (FIFO), entries and, illus., 312, 314 Perpetual inventory spreadsheet, C-1 Perpetual inventory system computerized, 315 end-of-period spreadsheet for merchandising business, illus., C-2 inventory costing methods, 312 transactions using, illus., 279 Perpetual system, def., 254 Personnel policies, 352 Personnel, competent, 353 Petty cash fund, def., 367 Physical depreciation, 440 Physical flow of merchandise, 312 Physical flows for a process manufacturer, illus., 875 Physical inventory, def., 309 Pirates, 21st century, 454 Planned level of production, 1017 Planning, 969 def., 797 function of management, 968 Plant assets, 435 def., 115, 150 Point-to-point approach, 457 Post-closing trial balance, 155 illus., 159, 169 preparing, 168 Posting adjusting entries, 165 cash payments journal, illus., 215 cash receipts journal, illus., 211 closing entries, 153, 168 def., 59 journal entries to accounts, 59 of a debit and credit, illus., 60 purchases journal, illus., 213 to ledgers, revenue journal, illus., 209 transactions to ledger, 164 Postretirement benefits other than pensions, 498 Predetermined factory overhead rate, def., 837 Preferred and common stock, dividends to, illus., 573 Preferred dividends, number of times earned, 755 Preferred stock cumulative, 573fn def., 573fn participating, 573fn Premium on bonds payable, amortization of, illus., 670 Premium on stock, 575 Premium amortization of by interest method, 669 bonds issued at, 659 def., 574, 653 Prepaid expenses, 108 def., 14, 106 Present value def., 653 methods that ignore, 1143 Present value concepts, def., 1146 Present value index, def., 1148 Present value methods, 1146 Present value of $1, 654 at compound interest, A-2, A-3 illus., 655 table, illus., 1147 Present value of an amount, 1146 Present value of an annuity, def., 655, 1147 Present value of an annuity of $1, illus., 656 Present value of ordinary annuity of $1, A-4, A-5 Present value of periodic bond interest payments, 655 Present value of the face amount of bonds, 653 Price fixing, 1110 Price levels, changes in, 1155 Price-earnings (P/E) ratio, def., 628, 759 Prime costs, 802 def., 803 illus., 803 Principal, 652 Principle of exceptions, 1014 Prior period adjustments, def., 585 Private accounting, def., Private corporations, 568 Proceeds, def., 481 Process cost system and job order cost system, comparing, 873, illus., 874 def., 832, 873 journal entries for, 886 Process costing, overview of, 872 Process manufacturers cost flows for, 875, illus., 876 def., 872 overview of, 872 physical flows for, illus., 875 Process, def., 1031 Process or sell, 1106 differential analysis report, illus., 1106 Processing methods, 205 Product, 1115 discontinue a, 1101 Product cost concept, def., 1111 Product costs def., 803 illus., 804 Product life-cycle management (PLM), 222 Product or service market stakeholders, REVISED Product selling prices, setting normal, 1108 Production actual, 1017 compute equivalent units of, 893 planned level of, 1017 Production bottlenecks product pricing under, 1116 product profitability under, 1114 Production budget def., 977 illus., 978 Production line just-in-time, illus., 890 traditional, illus., 890 Production report cost of, 884, 893, illus., 885, 894 for decision making, using cost of, 888 Profit(s) def., gross, 251, 254 illusory, 319 inventory, 319 net, 18 target, 932 Profit center def., 1060 reporting, 1062 Profit margin, def., 1065 Profit measurement and accounting systems, 218 Profitability analysis, 755 Profitability, def., 748 Profit-volume chart def., 935 illus., 935 original and revised, illus., 937 Proofs and security measures, 355 Property, co-ownership of partnership, 527 Property, plant, and equipment, 150, 435, 456 Proprietorships, 526 characteristics of, illus., 529 def., partnerships, and limited liability companies, comparing, 529 Provision for income taxes, 511fn Public accounting, def., Public Company Accounting Oversight Board (PCAOB), 7, 10 Public corporations, 568 Publicly held companies, 348 Purchase allowance, def., 252 Purchase and payment cycle, 212 Purchase order, 214, 308 Purchase return, def., 252 Purchase transactions, 263 Purchases allowance, def., 264 Purchases discounts, 263 def., 252 Purchases journal and postings, illus., 213 def., 212 for merchandising business, illus., 274 Purchases return and allowances, 264 def., 264 Q Qualitative considerations, 1155 Quick assets, def., 501, 750 Subject Index I-11 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page 12 Quick ratio, 749 def., 501, 750 R Rate earned on common stockholders’ equity, def., 758 Rate earned on stockholders’ equity, def., 757 Rate earned on total assets, def., 756 Rate of income from operations to total assets, 757 Rate of return on assets, 1065 Rate of return on investment (ROI), def., 1065 Rate of return, Panera Bread store, 1152 Ratio acid-test, 501, 750 bankers’, 749 contribution margin, 926, 927 current, 749 fixed asset turnover, 458 fixed charge coverage, 754 of fixed assets to long-term liabilities, def., 753 of liabilities to stockholders’ equity, def., 754 of net sales to assets, 755 price-earnings (P/E), 628, 759 quick, 501, 749, 750 working capital, 749 Real accounts, def., 151 Realization capital deficiency—loss on, illus., 542 def., 539 gain on, illus., 540 loss on, illus., 541 Receipts and payments, cash controls over, 357 Receivable(s) accounts, 394 aging the, 401 classification of, 394 def., 394 estimate based on analysis of, 401 fraud, 405 hijacking, 55 notes, 394, 405 number of days’ sales in, 409, 751 on balance sheet, illus., 408 other, 395 reporting on the balance sheet, 408 trade, 394 Receiving report, 308 def., 834 Records and bank statement, illus., 363 Related operations, separating responsibilities for, 354 Related party transactions, 528 Related-party deals, 1104 Relative value units, 974 Relevant range, 933 def., 920 Remittance advice, 358 Rent revenue, def., 15 Repairs extraordinary, 438 ordinary, 438 Replace equipment, 1104 differential analysis report, illus., 1105 I-12 Subject Index Report form def., 21, 257 of balance sheet, illus., 257 Research and development costs, 453 Residual income, def., 1068 Residual value, def., 440 Responsibility accounting def., 1057 for cost centers, 1058 for investment centers, 1064 for profit centers, 1060 reports for cost centers, illus., 1059 Responsibility centers, 1057 def., 969 Restrictions, def., 584 Restructuring charges, def., 616 Resumé padding, 488 Retail inventory method, def., 324 Retail method of inventory costing, illus., 324 Retained earnings, 697, 713 def., 571 reporting, 584 Retained earnings statement comparative, horizontal analysis, illus., 745 def., 584 illus., 584 Return on investment, 1067 Revenue and collection cycle, 208 in QuickBooks, illus., 220 Revenue expenditures, 437, 438 def., 438 Revenue journal def., 208 illus., 208 postings to ledgers, illus., 209 Revenue recognition concept, def., 104 Revenues accrued, 106, 112 def., 14, 51 deferred, 106 differential, 1098 interest, 15 rent, 15 unearned, 61, 106, 111 Reverse auction, 222 Reversing entries, 159fn, B-1 Risk assessment, 353 Round tripping, fraud, 149 Rules of debit and credit, illus., 58 S Safety first, 873 Safety, margin of, 941 Sale of investments in stocks, 626 Sale of land, gain on, 700, 710 Sales, 842 cash, 258 def., 15, 252 estimate based on percent of, 400 net, 252 schedule of collections from, illus., 984 Sales allowance, def., 261 Sales budget def., 977 illus., 977 Sales discounts, 260 def., 252 Sales journal for merchandising business, illus., 273 REVISED Sales mix considerations, 938 Sales on account, 15, 260 Sales return, def., 261 Sales returns and allowances, 261 def., 252 Sales taxes, 265, 267 Sales transactions, 258 Salvage value, 440 Sarbanes-Oxley Act of 2002, 7, 10, 349, 570, 763, 1104 def., 348 Sarbanes-Oxley report, illus., 349 Schedule of collections from sales, illus., 984 Schedule of payments for manufacturing costs, illus., 985 Scrap value, 440 Securities available-for-sale, 622 equity, 622 held-to-maturity, 666 marketable, 623 trading, 622 Security measures and proofs, 355 Segment, discontinue a, 1101 Sell at special price, differential analysis report, illus., 1107 Sell or lease, 1099 differential analysis report, illus., 1100 Sell or process, 1106 differential analysis report, illus., 1106 Seller beware, 397 Selling and administrative expenses budget, illus., 982 Selling expenses, 843 def., 254 Semivariable or semifixed costs, 923 Sensitivity analysis, 936 Serial bonds, 652 Service businesses def., flow of costs through, illus., 846 job order cost systems for professional, 846 Service department charge rates, 1062 Service department charges, 1060 def., 1061 illus., 1062 Service or product market stakeholders, Services of partners, dividing income, 531 Shareholders, 568 equity, 571 investment, 571 Short-term investments in stocks, 622 Short-term notes payable, 480 Single-step income statement def., 255 illus., 256 Sinking fund, def., 662 Slide, def., 74 Social Security Board, 487 Social security, 485 Solvency analysis, 748 def., 748 Special charges, 614 Special journals, 206 def., 207 modified, 217 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page 13 Special-purpose cash funds, 367 Special-purpose funds, def., 367–368 Specific identification method, 309 Spreadsheet completed with net income, illus., 176B6 Spreadsheet, end-of-period, 175 illus., 146, 165 preparing, 165 Spreadsheet (work sheet) for statement of cash flows, indirect method, 712, illus., 714 Spreadsheet with amounts extended to income statement and balance sheet columns, illus., 176B4 Spreadsheet with unadjusted trial balance adjustments and adjusted trial balance, illus., 176B2 illus., 176B Stabilization Act, 636 Staff, 796 Staff department, def., 796 Stakeholders of a business, accounting information and, illus., Standard cost def., 1014 illus., 1017 Standard cost systems, def., 1014 Standard factory overhead rate, factory overhead cost budget indicating, illus., 1024 Standard run quantity variance, 1026 Standard treatment protocols, 1022 Standards, 1014 currently attainable, 1015 for nonmanufacturing activities, direct labor, 1022 ideal, 1015 in income statement, variances from, illus., 1030 normal, 1015 recording and reporting variances from, 1028 reviewing and revising, 1015 setting, 1014 theoretical, 1015 types of, 1015 State Unemployment Compensation Tax, 487 State Unemployment Tax Acts See SUTA Stated value def., 572 per share, 577 Statement of cash flows, 21 def., 18, 692 direct method, 706, illus., 711 illus., 693 indirect method, 696, illus., 706 preparing, 705, 715 spreadsheet for, indirect method, 712, illus., 714 Statement of comprehensive income, 621, 623, illus., 624 Statement of cost of goods manufactured def., 807 income statement with, illus., 809 Statement of members’ equity, def., 545 Statement of owner’s equity, 19, 147, 255 def., 18 for merchandising business, illus., 256 Statement of partnership equity, def., illus., 545 Statement of partnership liquidation, def., 540 Statement of stockholders’ equity, 583 def., 585 illus., 586 Statements of Financial Accounting Standards, 10 Static and flexible budgets, illus., 975 Static budget, def., illus., 973 Stock(s) accounting for investments in, 622 characteristics of, 572 classes of, 572 common, 572, 703 cumulative preferred, 573fn def., 568 dividends to preferred and common, illus., 573 issuing, 574 long-term investments in, 625 no-par, 572, 576 outstanding, 572 paid-in capital from issuing, 572 participating preferred, 573fn preferred, 573 premium on, 575 sale of investments in, 626 short-term investments in, 622 treasury, 581 Stock certificates, 572 Stock dividend, def., 580 Stock ledger, 842 Stock split, def., 586 Stockholders, def., 568 Stockholders’ equity def., 571 in balance sheet, 582 rate earned on, 757 rate earned on common, 758 ratio of liabilities to, 754 reporting, 582 section of balance sheet, illus., 583 statement of, 583, 585, illus., 586 Stockholders ledger, 575fn Straight-line depreciation, 612 Straight-line method, 659 def., 442 Strategic planning, def., 797 Strategies, def., 797 Student Code of Conduct, Subsidiary company, def., 627 Subsidiary ledger accounts payable, 206 accounts receivable, 206 accounts receivable control and, 212 additional, 217 and accounts payable control, 216 and general ledger, illus., 206 def., 205 Sum-of-the-years digits method, 441fn Sum-of-the-years-digits depreciation, 458 Sunk costs, def., 1098 Supply chain management (SCM), 222 SUTA, 487 tax, 487 REVISED T T account, def., 49 Take-home pay, 486 Tangible assets, 435 Target cost concept, illus., 1114 Target costing, def., 1112 Target profit, 932 Tax payments, responsibility for, illus., 487 Taxable income def., 611 Taxation, double, 569 Taxes accounting systems for payroll, 488 allocating income, 611 cash payments for income, 710 corporate income, 610 FICA, 485, 487 FUTA, 487 income, 483 liability for employer’s payroll, 487 payment of income, 610 payroll, 482 recording and paying payroll, 490 reporting and analyzing, 613 sales, 265, 267 SUTA, 487 Temporary accounts, def., 152 Temporary differences, def., illus., 612 Temporary investments def., 622 on balance sheet, illus., 624 Term bonds, 652 Terminology, manufacturing operations, 799 Terms, transportation, illus., 268 Theft, cost of employee, 273 Theoretical standards, 1015 Theory of constraints (TOC), def., 1114 360-degree review, 1016 Time tickets, def., 835 Time value of money concept, def., 1143 Time-adjusted rate of return method, 1150 Total assets rate earned on, 756 rate of income from operations to, 757 Total cost concept, def., 1109 Trade discounts, 265 def., 268 Trade receivables, 394 Trade-in allowance, def., 449 Trade-in value, 440 Trademark, def., 454 Trading securities, def., 622 Traditional analysis, illus., 1100, 1102 Traditional production line, illus., 890 Transactions analyzing and recording in the journal, 162 dual nature of merchandise, 268 effects of on owner’s equity, illus., 17 illus., 50 in accounts, analyzing and summarizing, 51, illus., 52 merchandising, 257 posting to ledger, 164 purchase, 263 recording merchandise under the periodic inventory system, 277 Subject Index I-13 INDEX_Warren22e.qxd 8/1/06 3:42 PM Page 14 Transactions, (continued) recording using double-entry accounting, illus., 59 sales, 258 treasury stock, 581 using accounts to record, 49 using periodic and perpetual inventory systems, illus., 279 Transfer price def., 1071 illus., 1071 shifting income through, 1074 Transfer pricing, 1070 Transportation costs, 265, 266 Transportation in, def., 253 Transportation terms, illus., 268 Transposition, def., 74 Treasury stock def., 581 transactions, 581 Trial balance adjusted, 120, 166, illus., 121, 167, 176B2 def., 72 errors causing unequal, illus., 74 illus., 72 post-closing, 155, 168, illus., 159, 169 unadjusted, illus., 164, 176B, 176B2 Trial balance columns adjusted, 176 unadjusted, 175 Trust indenture, 652 Turnover, accounts receivable, 409, 751 Turnover, inventory, 326, 752 Two-column journal, def., 59 U U.S Treasury, 481 Unadjusted trial balance columns, 175 illus., 108, 164 preparing, 164 spreadsheet with, illus., 176B, 176B2 Uncertainty, 1155 Uncollectible accounts allowance method for, 397 direct write-off method for, 396 estimate of, illus., 402 expense, 395 Uncollectibles, estimating, 399 Underabsorbed factory overhead, 838 Underapplied factory overhead, def., 838 Unearned revenue(s), 111 def., 61, 106 Unequal proposal lives, 1153 Unfavorable cost variance, 1018 Unit contribution margin, def., 927 I-14 Subject Index Unit of measure concept, def., 11 Unit selling price, effect of changes in, 930 Unit variable costs, effect of changes in, 929 Units allocate costs to transferred and partially completed, 882, 893 manufactured exceed units sold, illus., 943 to be assigned costs, determine, 877, 892 to be costed—mixing department, illus., 878 whole, 878 Units-of-production method, def., 442 Unlimited liability, 527 Unrealized holding gain or loss, def., 623 Unusual items affecting current period’s income statement, 614 affecting prior period’s income statement, 618 in income statement, illus., 616 reporting on income statement, 614, illus., 615 V Vacation pay, 495 Vacations, mandatory, 353 Valuation at lower of cost or market, 320 Valuation at net realizable value, 321 Valuation method, 116 Value book, 443, 456 fair, 580 future, 653 maturity, 406 net book, 115 net realizable, 321, 397 present, 653 residual, scrap, salvage, or tradein, 440 stated, 572 Value investing, 764 Variable cost concept, def., 1112 Variable cost graphs, illus., 921 Variable costing, 941 def., 925 income statement, illus., 942 Variable costs, def., 921 Variable factory overhead controllable variance, 1024 Variance relationships direct labor, illus., 1022 direct materials, illus., 1020 Variance(s) controllable, 1024 cost, 1014, 1018 direct labor, 1019, 1021, 1022 REVISED direct labor rate, 1021 direct labor time, 1021 direct materials, 1019, 1020 direct materials price, 1019 direct materials quantity, 1020 factory overhead, 1023, 1027 favorable cost, 1018 fixed factory overhead volume, 1025 from standards in income statement, illus., 1030 from standards, recording and reporting, 1028 graph of fixed overhead volume, illus., 1026 material substitution, 1026 method, 1026 reporting factory overhead, 1027 standard run quantity, 1026 unfavorable cost, 1018 variable factory overhead controllable, 1024 volume, 1025 Vendor’s invoice, 308 Vertical analysis comparative balance sheet, illus., 746 comparative income statement, illus., 746 def., 745 Volume variance, def., 1025 Voucher, def., 359 Voucher system, def., 359 W W-4 (Employee’s Withholding Allowance Certificate), 483, illus., 484 Wage bracket withholding table, illus., 484 Wages, accrued, illus., 114 Weighted average method, 317 “What if” analysis, 936 Whole units, def., 878 Work in process, 840 applying factory overhead to, 838 controlling account and job cost sheets, illus., 841 inventory, def., 805 Work sheet, financial statements prepared from, illus., 148 Working capital, 749 ratio, 749 Write-offs to the allowance account, 398 Y Yield, def., 889 Z Zero-based budgeting, def., 972 Zero-coupon bonds, 661 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page 15 Company Index A C A G Edwards & Sons, Inc., 650 Acusphere, Inc., 391 Adams, Stevens & Bradley, Ltd., 395 Adelphia Communications, 6, 348, 1017 Albertson’s, Inc., 339 Alcoa Inc., 31, 433, 436, 477, 480, 873, 901 Altria Group, Inc., 524 Amazon.com, 2, 3, 47, 222, 238, 312, 346, 357, 1070, 1140 America Online, Inc., American Airlines, 8, 104, 141, 204, 457, 740, 939, 972 American Express Company, 259, 260, 622, 1086 American Greetings Corporation, 339 American Honda, American International Group, Inc., (AIG), Amgen Inc., 1174 AMR Corp., 740 Anheuser-Busch Companies, Inc., 758, 954 Ann Taylor Retail, Inc., 780, 817 Apple Computer Inc., 339, 432, 453, 470, 512, 696, 790 Arthur Andersen LLP, 529 ArvinMeritor, Inc., 1119 Association of American Publishers, 261 AT&T Corporation, 587 AutoZone, Inc., 29, 433 Avon Products, Inc., 616 C.H Robinson Worldwide Inc., 779 Callaway Golf Company, 113, 795 Campbell Soup Company, The, 131, 578, 633 Carnival Corporation, 1165 Caterpillar, 29, 31, 433, 570, 817, 891, 1101 CBS Corp., 528 Charles Schwab Corporation, 1127 Chevron Texaco, 480 Children’s Hospital of the King’s Daughters Health System, 1010 Choice Hotels International, Inc., 458 Circuit City Stores, Inc., 13, 131, 432, 471, 754 Cisco Systems, Inc., 222, 247, 576, 696 Citigroup, 31 Coated Sales, Inc., 405 Coca-Cola Company, The, 2, 3, 7, 13, 32, 433, 454, 569, 575, 587, 622, 712, 787, 872, 996, 1017 Coca-Cola Enterprises, 996 Colgate-Palmolive Company, 817 Comair Holdings Inc., 627 Comcast Corporation, 458, 477 Commercial Law League of America, 402 Compaq Computer Corporation, 627, 1057 Computer Associates International, Inc., 6, 435, 436, 458 Consolidated Edison Inc., 845 Continental Airlines, 85, 701, 754 Costco Wholesale Corporation, 327, 346 CVS, 31 B Balanced Scorecard Collaborative, 1096 Bank of America Corporation, 3, 598, 628, 787 Barings Bank, 377 Barnes & Noble, Inc., 433, 692 Bay Inc., 787 BellSouth Corp., 480 Berkshire Hathaway Inc., 622 Best Buy, 3, 111, 250, 252, 254, 288, 308, 345, 431, 471 BMW Group, 151, 1014 Boeing, 31, 417, 432 Boston Celtics, 796 Briggs & Stratton Corporation, 668 Bristol-Myers Squibb Company (BMS), 222 Burger King Corporation, 357 Business Software Alliance (BSA), 454 D DaimlerChrysler, 2, 4, 266, 319, 1070, 1144 Darden Restaurants, Inc., 764, 1019 Deere & Company, 400 Dell Inc., 2, 3, 13, 222, 238, 320, 345, 512, 696, 778, 790, 811, 1140 Deloitte & Touché, 529, 557, 564 Delphi Corporation, 1098 Delta Air Lines, 3, 381–382, 408, 417, 433, 439, 457, 570, 625, 627, 636, 938, 1056, 1098, 1140 Digital Theater Systems Inc., 321 Discover, 259 Disney See Walt Disney Company Domino Foods, Inc., 901 Domino’s Pizza L.L.C., 1011 Donnkenny, Inc., 378 Dow Chemical Company, The, 31, 570, 872 REVISED Dow Jones & Company, Inc., 637 Dreyer’s Grand Ice Cream, Inc., 872 Duke Energy Corporation, 587 Dun & Bradstreet, 395 Dun’s Analytical Services, 748 E E.I du Pont de Nemours and Company (DuPont), 873, 1065 E.W Scripps Company, The, 1067 EarthLink, Inc., 432 Eastman Kodak Company, 970 eBay Inc., 13, 31, 32, 348, 598–599, 619, 627, 628 Edward Jones, 650 Electronic Arts Inc., 145 Enron Corporation, 6, 7, 10, 47, 348, 529, 569, 1017 Ernst & Young, 529, 564 eToys Direct, Inc., 312 Exabyte Corporation, 1123 ExxonMobil Corporation, 36, 436, 641, 712, 873 F Fannie Mae, 6, 569 Fatburger Corporation, 435 FBI, Federated Department Stores, Inc., 179, 777 FedEx Corporation, 31, 183, 394, 397, 409 FedEx Kinko’s, 394 Financial Executives International, 570 First Chicago Trust Company of New York, 575 First Union Corporation, 31 Ford Motor Company, 31, 141, 319, 436, 498, 511, 628, 632, 790–791, 890, 972 Fujitsu, 975 Furniture.com, Inc., 312 G GameStop Corporation, Gap Inc., 3, 31, 360, 480 Gaylord Entertainment Co., 610 Genentech, Inc., 628 General Electric Capital, 687–688 General Electric Company (GE), 349, 397, 570, 598, 605, 687–688, 712, 1152 General Motors Corporation, 3, 322, 581, 587, 969, 1098 Georgia-Pacific, 688–689, 873 GlaxoSmithKline, 1074 Gold’s Gym International, Inc., 49 Company Index I-15 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page 16 Golf Channel, The, 931 Goodyear Tire & Rubber Company, 646 Google Inc., 2, 32, 458, 499, 628, 695, 939, 1017, 1053 Grant Thornton LLP, 554 H H&R Block, 31, 256 H.J Heinz Company, 424, 628, 779, 973, 1039 Haliburton Company, 1017 Harris Corporation, 1081 Harris Interactive, 1017 Hasbro, 778–779 HCA Inc., 400 HealthSouth, Heritage Foundation, 1146 Hershey Company, The, 779, 901 Hershey Food Corporation, The, 872 Hewlett-Packard Company (HP), 627, 778, 1057 Hewlett-Packard Development Company, LP (HP), 345, 587, 851 Hilton Hospitality, Inc., 13, 31 Hilton Hotels Corporation, 791–792, 1070, 1085 Home Depot, The, 4, 252, 256, 293, 433, 570, 587, 1056 Howard Schultz & Associates (HS&A), 359 Hyperspace Communications, Inc., 382 I IBM, 433, 480, 696, 1061, 1155, 1166 IHOP Corp., 1165 Indian Airlines Limited, 929 Infinity Broadcasting Corporation, 931 Intel Corporation, 397, 436, 872, 1016 Internal Revenue Service (IRS), 441, 526, 571, 1021 International Paper Company, 916 Intuit Inc., 204, 238, 712, 952 Ivory, 973 J Jacobus Pharmaceuticals Company, Inc., 933 JCPenney, 4, 179, 252, 272, 346, 395, 400, 441 JHT Holdings, Inc., 378 Johnson & Johnson, 740, 1017 Jones Soda Co., 692, 726 K K2 Sports, 1056 Kellogg Company, 432, 570, 902 Keystone Foods LLC, 1019 Kmart, 179 Kohl’s Corporation, 727 Korn/Ferry International, 1060 KPMG LLP, 529, 554, 564 Kroger, 49, 254, 293–294, 339, 433, 436 L L.L Bean, Inc., 238, 357 Lands’ End Inc., 357 La-Z-Boy Incorporated, 394 Levi Strauss & Co., 997 I-16 Company Index Limited, Inc., The, 179, 424, 1014 Los Angeles Lakers, 936 Lowe’s Companies, Inc., 115 M Macy’s, 395 Mahanaim Essentials LLC, 526 Mandalay Resort Group, 417 Manpower Inc., 458 Manugistics, 248 Market Guide, 748 Marriott International, Inc., 3, 436, 458, 791–792, 1098, 1139 Marshalls, 263 Marvel Entertainment, Inc., 104 MasterCard, 259, 260, 396 Mattel, Inc., 381, 587, 778–779 May Department Stores Company, The, 777 McDonald’s, 8, 13, 357, 622, 678, 953, 1019, 1123 MCI, 1017 McKinsey & Company, 529 Merck & Co., Inc., 873, 1069, 1155, 1174 Merrill Lynch & Co Inc., 650, 661 Metro-Goldwyn-Mayer Studios Inc (MGM), 1164 Microsoft Corporation, 13, 29, 73, 118, 131, 145, 369, 454, 696, 712, 749, 791, 969 Middle Tennessee Lumber Co., Inc., 889 Millennium Chemicals, 1068 Miramax Film Corp., 847 Mohawk Forest Products, 1015 Molson Coors Brewing Company, 758 Monsanto Company, 1161 Moody’s Investors Service, 619, 661, 690 Motorola Inc., 712 N National Audubon Society, 571 National Check Fraud Center, 363 Nature’s Sunshine Products, Inc., 586 NBA, 1099 Neiman Marcus Group, Inc., 346 Netflix, 920 NetSuite Inc., 204, 248 NIKE, 3, 1103 Nissan Motor Co Ltd., 480 Nordstrom Inc., 1060 Norfolk Southern Corporation, 442, 458, 1056 North Face, The, 968 Northrop Grumman Corporation, 637 Northwest Airlines Corporation, 370, 722 Novartis AG, 933 O OccuLogix, Inc., 391 Office Depot, Inc., 252 Oracle, 204, 248, 587 Orvis Company, Inc., The, 357 Overhill Flowers, Inc., 702 Owens Corning, 1152 P Pacific Bell, 662 Pacific Gas and Electric Company, 845 Panera Bread, 479, 692, 1152 REVISED Parker Hannifin Corp., 1026 PayPal, 627 PepsiCo, Inc., 8, 29, 32, 397, 776 Pixar, 627 Polo Ralph Lauren Corporation, 423 Priceline.com Inc., 222, 625, 1098, 1107, 1139 Pricewaterhouse-Coopers, 201, 432, 433, 529, 564, 647, 740 Procter & Gamble, 31, 51, 433, 511, 611, 754, 770, 873, 891, 1056 PurchasePro, Q Quaker, 73 Qwest Communications International, Inc., R R.J Reynolds Tobacco Company, 570 RadioShack Corporation, 112 RealNetworks, Inc., 1098 Research in Motion Limited, 764 Rite Aid Corp., 480 Ritz-Carlton Hotel, The, 927 Robert Morris Associates, 748 Rogers Corporation, 1051 Ruby Tuesday, Inc., 458 S Safeway Inc., 339 Sage Software, Inc., 204 Salesforce.com, 248 Samsung, SAP, 204, 248 Saturn Corporation, 322 Sears Holding Corporation, 254, 272, 395, 360 Securities and Exchange Commission (SEC), 349, 740, 1152 Shell Group, 835 Sierra Club, 571 SIRIUS Satellite Radio, 931 S-K-I Limited, 969 Smurfit-Stone Container Corporation, 238 Solectron Corporation, 1123 Sony Corporation of America, 3, 454, 1123 Southern Airways, 55 Southwest Airlines Co., 4, 13, 457, 458, 680 Speedway Motorsports, Inc., 775 Sports Authority, 1056 Sprint Nextel, 954 St Paul Companies, 446 Standard & Poor’s, 619 Starbucks Corporation, 570, 692 Starwood Hotels & Resorts Worldwide, Inc., 458 Steelcase Inc., 994 Stern Stewart & Co., 1068fn, 1096 Sun Microsystems, Inc., 570 SUPERVALU Inc., 49, 326–327 T Tandy Corporation, 441 Target Corp., 49, 179, 315, 747 Tennessee Valley Authority, 845 3M, 570, 1017 Tiffany & Co., 294 Time Inc., 652 Time Warner, 454, 954 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page 17 Timken Company, The, 1116 Towers Perrin, 1016 Toyota Motor Corporation, 266, 1130 Toys “R” Us., Inc., 179 Tyco International, Ltd., 6, 10, 348 U U.S Post Office, 1040 Under Armour®, 650 Union Pacific, 779, 930 United Airlines, Inc., 417, 457, 1017 United Parcel Service (UPS), 1014, 1017, 1086 Universal Studios, 938 V Veritas Software, 488 Verizon Communications, 205, 436, 470, 939 VISA, 259, 260, 396, 969 Visteon Corporation, 632 W W.W Grainger, Inc., 238 Wachovia Corporation, 1056 Wal-Mart Stores, Inc., 3, 4, 13, 31, 49, 250, 254, 315, 346, 433, 436, 477, 575, 652, 747, 770, 1056 Walgreen Co., 436 Walt Disney Company, The, 3, 627, 663, 694, 1057, 1084, 1142 Warner Bros., 831 Washburn Guitars, 794, 799, 831 Washington Post Company, The, 570 WD-40 Company, 508 Wendy’s International Inc., 357 Western Digital Corporation, 972 Weyerhaeuser, 637 Whirlpool Corporation, 222, 433, 570 Whole Foods Market, 250 William-Sonoma, Inc., 677, 690, 729, 742, 749, 764, 789, D-1 Winn-Dixie Stores, Inc., 254 REVISED WorldCom, 6, 7, 10, 348, 438, 569, 603, 654 Worthington Industries, 1174 X Xerox Corporation, 6, 10 XM Satellite Radio, 3, 703, 931, 1142 Y Yahoo!, 939 Yahoo.com, 31 Yankee Candle Company, Inc., The, 568 YRC Worldwide, 779 Yum! Brands, Inc., 646, 1057, 1142 Z Zacks Investment Research, 748 Zale Corporation, 326–327 Company Index I-17 INDEX_Warren22e.qxd 8/1/06 1:15 PM Page 18 REVISED War22e_endsheets_rear.qxd 6/22/06 1:23 PM Page E Abbreviations and Acronyms Commonly Used in Business and Accounting AAA ABC AICPA CIA CIM CMA CPA Cr Dr EFT EPS FAF FASB FEI FICA tax FIFO FOB GAAP GASB GNP IMA IRC IRS JIT LIFO Lower of C or M MACRS n/30 n/eom P/E Ratio POS ROI SEC TQC American Accounting Association Activity-based costing American Institute of Certified Public Accountants Certified Internal Auditor Computer-integrated manufacturing Certified Management Accountant Certified Public Accountant Credit Debit Electronic funds transfer Earnings per share Financial Accounting Foundation Financial Accounting Standards Board Financial Executives International Federal Insurance Contributions Act tax First-in, first-out Free on board Generally accepted accounting principles Governmental Accounting Standards Board Gross National Product Institute of Management Accountants Internal Revenue Code Internal Revenue Service Just-in-time Last-in, first-out Lower of cost or market Modified Accelerated Cost Recovery System Net 30 Net, end-of-month Price-earnings ratio Point of sale Return on investment Securities and Exchange Commission Total quality control FINAL War22e_endsheets_rear.qxd 6/22/06 1:23 PM FINAL Page F Classification of Accounts Account Title Account Classification Normal Balance Financial Statement Accounts Payable Accounts Receivable Accumulated Depreciation Accumulated Depletion Advertising Expense Allowance for Doubtful Accounts Amortization Expense Bonds Payable Building Capital Current liability Current asset Contra fixed asset Contra fixed asset Operating expense Contra current asset Operating expense Long-term liability Fixed asset Owner’s equity Credit Debit Credit Credit Debit Credit Debit Credit Debit Credit Capital Stock Cash Cash Dividends Cash Dividends Payable Common Stock Cost of Merchandise (Goods) Sold Deferred Income Tax Payable Stockholders’ equity Current asset Stockholders’ equity Current liability Stockholders’ equity Cost of merchandise (goods sold) Current liability/Longterm liability Operating expense Long-term liability Other income Stockholders’ equity Owner’s equity Current liability Credit Debit Debit Credit Credit Debit Balance sheet Balance sheet Balance sheet Balance sheet Income statement Balance sheet Income statement Balance sheet Balance sheet Statement of owner’s equity/ Balance sheet Balance sheet Balance sheet Retained earnings statement Balance sheet Balance sheet Income statement Credit Balance sheet Debit Debit Credit Debit Debit Credit Income statement Balance sheet Income statement Retained earnings statement Statement of owner’s equity Balance sheet Fixed asset Other income Other expense Deferred credit Deferred debit Current liability Current liability Debit Credit Debit Credit Debit Credit Credit Balance sheet Income statement Income statement Balance sheet (interim) Balance sheet (interim) Balance sheet Balance sheet Current asset Other income Other income Other income Intangible asset Income tax Current liability Operating expense Other expense Current asset Other income Investment Investment Investment Fixed asset Other expense Other expense Other expense Current asset Current asset Debit Credit Credit Credit Debit Debit Credit Debit Debit Debit Credit Debit Debit Debit Debit Debit Debit Debit Debit Debit Balance sheet Income statement Income statement Income statement Balance sheet Income statement Balance sheet Income statement Income statement Balance sheet Income statement Balance sheet Balance sheet Balance sheet Balance sheet Income statement Income statement Income statement Balance sheet Balance sheet Depletion Expense Discount on Bonds Payable Dividend Revenue Dividends Drawing Employees Federal Income Tax Payable Equipment Exchange Gain Exchange Loss Factory Overhead (Overapplied) Factory Overhead (Underapplied) Federal Income Tax Payable Federal Unemployment Tax Payable Finished Goods Gain on Disposal of Fixed Assets Gain on Redemption of Bonds Gain on Sale of Investments Goodwill Income Tax Expense Income Tax Payable Insurance Expense Interest Expense Interest Receivable Interest Revenue Investment in Bonds Investment in Stocks Investment in Subsidiary Land Loss on Disposal of Fixed Assets Loss on Redemption of Bonds Loss on Sale of Investments Marketable Securities Materials War22e_endsheets_rear.qxd 6/22/06 1:23 PM Account Title Medicare Tax Payable Merchandise Inventory Notes Payable Notes Receivable Organizational Expenses Patents Paid-In Capital from Sale of Treasury Stock Paid-In Capital in Excess of Par (Stated Value) Payroll Tax Expense Pension Expense Petty Cash Premium on Bonds Payable Prepaid Insurance Prepaid Rent Preferred Stock Purchases Purchases Discounts Purchases Returns and Allowances Rent Expense Rent Revenue Retained Earnings Salaries Expense Salaries Payable Sales Sales Discounts Sales Returns and Allowances Sales Tax Payable Sinking Fund Cash Sinking Fund Investments Social Security Tax Payable State Unemployment Tax Payable Stock Dividends Stock Dividends Distributable Supplies Supplies Expense Transportation In Transportation Out Treasury Stock Uncollectible Accounts Expense Unearned Rent Utilities Expense Vacation Pay Expense Vacation Pay Payable Work in Process FINAL Page G Account Classification Normal Balance Financial Statement Credit Debit Credit Balance sheet Balance sheet/Income statement Balance sheet Debit Debit Debit Credit Balance sheet Income statement Balance sheet Balance sheet Stockholders’ equity Credit Balance sheet Operating expense Operating expense Current asset Long-term liability Current asset Current asset Stockholders’ equity Cost of merchandise sold Cost of merchandise sold Cost of merchandise sold Operating expense Other income Stockholders’ equity Debit Debit Debit Credit Debit Debit Credit Debit Income statement Income statement Balance sheet Balance sheet Balance sheet Balance sheet Balance sheet Income statement Credit Income statement Credit Income statement Debit Credit Credit Operating expense Current liability Revenue from sales Revenue from sales Revenue from sales Current liability Investment Investment Current liability Current liability Stockholders’ equity Stockholders’ equity Current asset Operating expense Cost of merchandise sold Operating expense Stockholders’ equity Operating expense Current liability Operating expense Operating expense Current liability/Longterm liability Current asset Debit Credit Credit Debit Debit Credit Debit Debit Credit Credit Debit Credit Debit Debit Debit Income statement Income statement Balance sheet/Retained earnings statement Income statement Balance sheet Income statement Income statement Income statement Balance sheet Balance sheet Balance sheet Balance sheet Balance sheet Retained earnings statement Balance sheet Balance sheet Income statement Income statement Debit Debit Debit Credit Debit Debit Credit Income statement Balance sheet Income statement Balance sheet Income statement Income statement Balance sheet Debit Balance sheet Current liability Current asset/Cost of merchandise sold Current liability/Longterm liability Current asset/Investment Operating expense Intangible asset Stockholders’ equity ... managerial accounting Other fields include cost accounting, environmental accounting, tax accounting, accounting systems, international accounting, not-forprofit accounting, and social accounting. .. Using Variances from Standard Costs 1013 Standards 1014 Setting Standards 1014 Types of Standards 1015 Reviewing and Revising Standards 1015 Support and Criticism of Standards 1015 Budgetary... Exercises: Completely revised and accompanied by a general topic and a reference to chapter objective Problems Series A and B: Completely revised and accompanied by a general topic and a reference to chapter