Contents in Brief 2
1 Accounting:Information for Decision Making 2
1 Accounting:Information for Decision Making 2
Table of Contents 2
Comprehensive Problem 2
Accounting Information:A Means to an End 4
Types of Accounting Information 5
Accounting from a User s Perspective 5
Accounting Systems 6
The Cost of Producing Accounting Information 7
Determining Information Needs 7
Basic Functions of an Accounting System 8
Who Designs and Installs Accounting Systems? 8
Decision Making by Extemal Parties 9
External Users of Accounting Information 9
Objectives of External Financial Reporting 10
Characteristics of Externally Reported Information 13
Decision Making by Internal Parties 14
Internal Users of Accounting Information 14
Objectives of Management Accounting 16
Characteristics of Management Accounting Information 17
Integrity of Accounting Information 18
Institutional Features 19
Professional Organizations 21
Competence,Judgment,and Ethical Behavior 22
Supplemental Topic:Careers in Accounting 25
Public Accounting 25
Management Accounting 25
Governmental Accounting 26
What About Bookkeeping? 27
Accounting Education 27
Accounting as a Stepping-Stone 27
End-of-Chapter Review 28
Assignment Material 31
2 Basic Financial Statements 38
2 Basic Financial Statements 38
Introduction to Financial Statements 40
A Starting Point:Statement of Financial Position 41
Assets 43
Liabilities 45
Creditors Claims Have Priority Over Those of Owners 45
Owner s Equity 45
The Accounting Equation 46
The Effects of Business Transactions:An Illustration 47
the Accounting Equation 52
Effects of These Business Transactions on 52
Income Statement 54
Statement of Cash Flows 54
Relationships Among Financial Statements 56
Forms of Business Organizations 58
Sole Proprietorships 58
Parmerships 59
Corporations 59
Reporting Ownership Equity in the Balance Sheet 59
The Use of Financial Statements by Outsiders 60
The Need for Adequate Disclosure 61
Management s Interest in Financial Statements 61
End-of-Chapter Review 63
Assignment Material 67
3 The Accounting Cycle:Capturing 82
Economic Events 82
3 The Accounting Cycle:Capturing Economic Events 82
The Role of Accounting Records 84
The Ledger 84
The Use of Accounts 84
Debit and Credit Entries 85
Double-Entry Accounting—The Equality of Debits andCredits 86
Recording Transactions in Ledger Accounts:An 87
Illustration 87
The Journal 90
Posting Journal Entries to the Ledger Accounts(and How to Read a Journal Entry) 91
What Is Net Income? 93
Revenue 95
Expenses 96
The Accrual Basis of Accounting 97
Investments and Withdrawals by the Owner 98
Debit and Credit Rules for Revenue and Expenses 98
Recording December s Revenue and Expense 99
Transactions:An Illustration 99
The Journal 104
December s Ledger Balances 104
The Accounting Cycle 106
The Trial Balance 106
Uses and Limitations of the Trial Balance 107
Adjusting Entries:The Next Step in the 107
Accounting Cycle 107
Shop Supplies:An Asset That Turns into an Expense 107
The Concept of Depreciation 108
Recording Depreciation Expense:An Illustration 110
The Adjusted Trial Balance 111
Preparing Financial Statements 112
The Income Statement 112
The Statement of Owner s Equity 113
The Balance Sheet 113
The Statement of Cash Flows 113
Relationship Among the Financial Statements 115
Closing the Temporary Equity Accounts 115
Closing Entries for Revenue Accounts 116
Closing Entries for Expense Accounts 116
Closing the Income Summary Account 117
Closing the Owner s Drawing Account 118
Summary of the Closing Process 118
After-Closing Trial Balance 119
The Accounting Cycle in Perspective 120
Some Concluding Remarks 120
End-of-Chapter Review 121
Assignment Material 127
4 The Accounting Cycle:Preparing an Annual Report 142
4 The Accounting Cycle:Preparing 142
an Annual Report 142
Preparing the Annual Report 144
Adjusting Entries:A Closer Look 145
The Need for Adjusting Entries 145
Types of Adjusting Entries 145
Characteristics of Adjusting Entries 146
Year-End at Overnight Auto Service 148
Apportioning Recorded Costs 149
Apportioning Unearned Revenue 151
Recording Unrecorded Expenses 153
Recording Unrecorded Revenue 155
Adjusting Entries and Accounting Principles 155
The Concept of Materiality 156
Effects of the Adjusting Entries 157
Preparing the Statements 158
Drafting the Notes That Accompany Financial 159
Statements 159
What Types of Informaton Must Be Disclosed? 161
Closing the Accounts 162
A Last Look at Overnight:Was 2002 a Good Year? 163
Preparing Financial Statements Covering DifferentPeriods of Time 164
Supplemental Topic:The Worksheet 166
Isn t This Really a Spreadsheet ? 166
What s It Used For? 166
The Mechanics:How It s Done 166
What If... :A Special Applicarion of WorksheetSoftware 169
End-of-Chapter Review 170
Assignment Material 175
A Comprehensive Accounting Cycle Problem 190
Comprehensive Problem 1—Tony s Rentals 190
Comprehensive Problem 1:Tony s Rentals 190
5 Accounting for Merchandising Activities 192
5 Accounting for Merchandising Activities 192
Merchandising Companies 194
The Operating Cycle of a Merchandising Company 194
Income Statement of a Merchandising Company 195
What Accrounting Information Does a MerchandisingCompany Need? 196
General Ledger Accounts 196
Subsidiary Ledgers:A Source of Needed Details 196
Two Approaches Used in Accounting for 199
Perpetual Inventory Systems 199
Merchandising Transactions 199
Closing Entries in a Perpetual Inventory System 202
Periodic Inventory Systems 202
Taking a Physical Inventory 202
Operation of a Periodic Inventory System 203
Closing Process in a Periodic Inventory System 204
Comparison of Perpetual and Periodic 204
Inventory Stems 204
Selecting an Inventory System 205
Modifying an Accounting System 206
Special Journals Provide Speed and Efficiency 206
Credit Terms and Cash Discounts 207
Transactions Relating to Purchases 207
Transportation Costs on Purchases 209
Returns of Unsatisfactory Merchandise 209
Transactions Relating to Sales 210
Sales Returns and Allowances 210
Sales Discounts 211
Delivery Expenses 212
Accounting for Sales Taxes 212
Evaluating the Performance of a Merchandising 212
Company 212
Net Sales 212
Gross Profit Margins 213
Using Information About Profit Margins 214
End-of-Chapter Review 215
Assignment Material 220
6 Forms of Business Organization 232
6 Forms of Business Organization 232
Sole Proprietorships 234
The Concept of the Separate Business Entity 234
Characteristics of a Sole Proprietorship 234
Unlimited Personal Liability (Subtitle:The OwnerCould Lose EVERYTHING!) 235
Accounting Practices of Sole Proprietorships 235
Evaluating the Financial Statements of a 235
Proprietorship 235
Partnerships 236
General Partnerships 237
Parmerships That Limit Personal Liability 238
Accounting Practices of Parmerships 239
Evaluating the Financial Statements of a Partnership 240
What Is a Corporation? 240
Corporations 240
Stockholders Liability for Debts of a Corporation 241
What Types of Businesses Choose the Corporate 242
Form of Organization? 242
Accounting for Corporate Income Taxes 242
Salaries Paid to Owners 244
Owner s Equity in a Corporate Balance Sheet 244
Accounting for Dividends 245
Retained Earnings 245
The Issuance of Capital Stock 245
Closing Entries and the Statement of Retained Earnings 246
Evaluating the Financial Statements of a Corporation 247
The Concept—and the Problem—of Double Taxation 248
S Corporations 248
Selecting an Appropriate Form of Business 249
Organization 249
Incorporating an Established Business 249
Supplemental Topic:Partnership Accounting— 251
A Closer Look 251
Opening the Accounts of a New Partnership 251
Allocating Partnership Net Income Among the Partners 253
End-of-Chapter Review 258
Assignment Material 262
7 Financial Assets 274
7 Financial Assets 274
How Much Cash Should a Business Have? 276
The Valuation of Financial Assets 276
Reporting Cash in the Balance Sheet 277
The Statement of Cash Flows 277
Cash 277
Cash Management 278
Internal Control Over Cash 279
Cash Disbursements 280
Bank Statements 281
Reconciling the Bank Statement 282
The Cash Budget as a Control Device 285
Short-Term Investments 285
Petty Cash Funds 285
Mark-to-Market:A New Principle of Asset Valuation 286
Accounts Receivable 287
Uncollectible Accounts 288
The Allowance for Doubtful Accounts 289
Writing Off an Uncollectible Account Receivable 290
Recovery of an Account Receivable Previously 291
Written Off 291
Manthly Estimates of Credit Losses 291
Direct Write-off Method 294
Income Tax Regulations and Financial Reporting 294
Internal Controls for Receivables 294
Management of Accounts Receivable 295
Factoring Accounts Receivable 295
Credit Card Sales 295
Evaluating the Quality of Accounts Receivable 296
Notes Receivable and Interest Charges 298
Supplemental Topic A:Accounting for MarketableSecurities 299
Purchases of Marketable Secutities 299
Recognition of Investment Revenue 300
Sales of Investments 300
Adjusting Marketable Securities to Market Value 301
Interest Revenue 302
Reporting Investment Transactions in the FinancialStatements 302
Supplemental Topic B:Notes Receivable and 302
Nature of Interest 303
Accounting for Notes Receivable 303
The Decision of Whether to Accrue Interest 305
End-of-Chapter Review 306
Assignment Material 311
8 Inventories and the Cost of Goods Sold 328
8 Inventories and the Cost of Goods Sold 328
Inventory Defined 330
The Flow of Inventory Costs 330
Which Unit Did We Sell? 330
Data for an Illustrution 331
Specific Identification 332
Cost Flow Assumptions 332
Average-Cost Method 333
First-In,First-Out Method 334
Last-In,First-Out Method 334
Evaluation of the Methods 335
Do Inventory Methods Really Affect Performance? 337
The Principle of Consistency 338
Taking a Physical Inventory 339
Just-in-Time (JIT) Inventory Systems 339
Recording Shrinkage Losses 340
LCM and Other Write-Downs of Inventory 341
The Year-End Cutoff of Transactions 341
Periodic Inventory Systems 342
Importance of an Accurate Valuation of Inventory 345
Techniques for Estimating the Cost of Goods sold andthe Ending Inventory 346
The Gross Profit Method 347
The Retail Method 347
Textbook Inventory Systems Can Be Modified...and They Often Are 348
Evaluating the Liquidity of Inventory 349
Inventory Turnover Rate 349
Accounting Methods Can Affect Analytical Ratios 350
Supplemental Topic:LIFO Reserves 351
The Significance of a LIFO Reserve 352
End-of-Chapter Review 354
Assignment Material 358
Guitar Universe,Inc. 374
Comprehensive Problem 2—Guitar Universe,Inc. 374
9 Plant Assets and Depreciation 376
9 Plant Assets and Depreciation 376
Plant Assets as a Stream of Future Services 378
Major Categories of Plant Assets 378
Accountable Events in the Lives of Plant Assets 378
Acquisitions of Plant Assets 378
Determining Cost:An Example 379
Some Special Considerations 379
Capital Expenditures and Revenue Expenditures 380
Allocating the Cost of Plant and Equipment overthe Years of Use 381
Depreciation 381
Causes of Depreciation 382
Methods of Computing Depreciation 383
The Straight-Line Method 384
The Declining-Balance Method 386
MACRS:The Tax Method 387
Which Depreciation Methods Do Most 389
Businesses Use? 389
Financial Statement Disclosures 391
The Impairment of Plant Assets 392
Disposal of Plant and Equipment 392
Equipment 393
Gains and Losses on Disposals of Plant and 393
Gains and Losses for Income Tax Purposes 394
Which Amounts Are Recorded in the Accounting 395
Records? 395
Trading in Used Assets for New Ones 396
Characteristics 397
Operating Expenses Versus Intangible Assets 397
Intangible Assets 397
Other Income Tax Reporting Obligations 397
Amortization 398
Goodwill 398
Patents 400
Trademarks and Trade Names 401
Franchises 401
Copyrights 401
Other Intangibles and Deferred Charges 401
Research and Development(R D) Costs 401
Natural Resources 402
Accounting for Natural Resources 402
A Common Goal 403
Depreciation,Amortization,and Depletion— 403
Plant Transactions and the Statement of Cash Flows 403
The Units-of-Output Method 404
Supplemental Topic:Other Depreciation Methods 404
MACRS 405
Sum-of-the-Years Digits 405
Decelerated Depreciation Methods 405
Depreciation Methods in Use:A Survey 405
End-of-Chapter Review 407
Assignment Material 411
10 Liabilities 424
10 Liabilities 424
The Nature of Liabilities 426
Accounts Payable 427
Notes Payable 427
Current Liabilities 427
The Current Portion of Long-Term Debt 428
Accrued Liabilities 429
Payroll Liabilities 429
Unearned Revenue 430
Long-Term Liabilities 430
Maturing Obligations Intended to Be Refinanced 430
Installment Notes Payable 431
Special Types of Liabilities 433
Bonds Payable 433
What Are Bonds? 434
Tax Advantage of Band Financing 436
Accounting for Bonds payable 436
The Concept of Present Value 438
Bond Prices After Issuance 439
Early Retirement of Bonds Payable 440
Capital Leases 441
Lease Payment Obligations 441
Operating Leases 441
Liabilities for Pensions and Other PostretirementBenefits 442
Deferred Income Taxes 445
Liabilities and Cash Flows 446
Evaluating the Safety of Creditors Claims 447
How Much Debt Should a Business Have? 448
Supplemental Topic A:Estimated Liabilities,Loss 450
Estimated Liabilities 450
Loss Contingencies 450
Contingencies,and Commitments 450
Commitments 452
Supplemental Topic B:Bonds Issued at a Discount 452
or a Premium 452
Accounting for Bond Discount:An Illastration 452
Accounting for Bond Premium 454
Bond Discount and Premium in Perspective 454
End-of-Chapter Review 455
Assignment Material 460
11 Stockholders Equity:Paid-in Capital 474
11 Stockholders Equity:Paid-in Capital 474
Corporations 476
Why Businesses Incorporate 476
Publicly Owned Corporations 478
Formation of a Corporation 478
Stockholder Records in a Corporation 481
Paid-in Capital of a Corporation 482
Authorization and Issuance of Capital Stock 483
Common Stocks and Preferred Stocks 484
Characteristics of Preferred Stock 485
Subscriptions to Capital Stock 488
Stock Issued for Assets Other Than Cash 488
Donated Capital 489
Book Value per Share of Common Stock 489
Market Value 490
Market Price of Preferred Stock 491
Market Price of Common Stock 492
Book Value and Market Price 493
Stock Splits 493
Treasury Stock 494
Recording Purchases of Treasury Stock 494
Reissuance of Treasiru Stock 495
Stock Buyback Programs 496
End-of-Chapter Review 498
Assignment Material 502
12 Income and Changes in Retained Earnings 512
12 Income and Changes in Retained Earnings 512
Reposing the Results of Operations 514
Developing Predictive Information 514
Reporting Irregular Items:An Illustration 514
Continuing Operations 515
Discontinued Operations 515
Extraordinary Items 516
Changes in Accounting Principles 519
Earnings per Share (EPS) 520
Basic and Diluted Earnings per Share 522
Divideut Dates 524
Cash Dividends 524
Other Transactions Affecting Retained Earnings 524
Liquidating Dividends 525
Stock Dividends 526
Statement of Retained Earnings 528
Prior Period Adjustments 529
Comprehensive Income 530
Statement of Stockholders Equity 531
Stockholders Equity Section of the Balance Sheet 532
End-of-Chapter Review 533
Assignment Material 538
13 Statement of Cash Flows 552
13 Statement of Cash Flows 552
Statement of Cash Flows 554
Example of a Statement of Cash Flows 554
Purpose of the Statement 554
Classification of Cash Flows 555
Critical Importance of Cash Flows from OperatingActivities 557
The Approach to Preparing a Statement of 557
Cash Flows 557
An Illustration 558
Preparing a Statement of Cash Flows: 558
Investing Activities 559
Operating Activities 559
Financing Activities 561
Cash and Cash Equivalents 561
Cash Flows from Operating Activities 561
Cash Payments for Merchandise and for Expenses 563
Differences Between Net Income and Net Cash 566
Flows from Operating Activities 566
Reporting Operating Cash Flows:The Direct 566
and Indirect Methods 566
Cash Flows from Investing Activities 567
Cash Flows from Financing Activities 568
Relationship Between the Statement of Cash Flowsand the Balance Sheet 569
The Statement of Cash Flows:A Second Look 570
Using the Statement of Cash Flows 570
What Priority Should Managers Give to IncreasingNet Cash Flows? 572
Budgeting:The Primary Cash Management Tool 572
Managing Cash Flows 572
Industries Incorporated 572
Annotated Statement of Cash Flows:ABM 572
Some Strategies for Permanent Improvements in 574
Cash Flow 574
Concluding Comments... 576
Supplemental Topic A:The Indirect Method 577
Comparison of the Direct and Indirect Methods 577
Differences Between Net Income and Net Cash Flowsfrom Operating Activities 578
Reconciling Net Income with Net Cash Flows 578
The Indirect Method:A Summary 580
Indirect Method May Be Required in 580
a Supplementary Schedule 580
Supplemental Topic B:A Worksheet for Preparing 581
a Statement of Cash Flows 581
Data for an Illustration 581
The Worksheet 582
Entry 582
End-of-Chapter Review 586
Assignment Material 592
14 Financial Statement Analysis 608
14 Financial Statement Analysis 608
Financial Statements Are Designed for Analysis 610
Tools of Analysis 611
Dollar and Percentage Changes 611
Trend Percentages 612
Component Percentages 613
Ratios 614
Standards of Comparison 614
Quality of Earnings 615
Quality of Assets and the Relative Amount of Debt 616
Impact of Inflation 616
Measures of Liquidity and Credit Risk 616
A Classified Balance Sheet 616
Working Capital 618
Current Ratio 619
Quick Ratio 619
Debt Ratio 620
Evaluating Financial Ratios 620
Concluding Comment—Solvency Credit Risk， 622
and the Law 622
Measures of Profitability 623
Classifications in the Income Statement 623
Some Specific Examples of Corporate Earnings 623
and Losses 623
Multiple-Step Income Statements 624
Price-Earnings Ratio 627
Earnings per Share 627
Single-Step Income Statements 628
Evaluating the Adequacy of Net Income 629
Return on Investment(ROI) 629
Return on Assets(ROA) 629
Return on Equity(ROE) 630
Comprehensive Illustration:Seacliff Company 631
Analysis by Common Stockholders 634
Return on Investmens(ROI) 636
Leverage 637
Analysis by Long-Term Creditors 638
Analysis by Short-Term Creditors 639
Cash Flow Anatysis 642
Usefulness of Notes to Financial Statements 643
Some Concluding Comments 644
Sources of Financial Information 644
Financial Analysis and Stock Price 644
Summary of Analytical Measurements 645
End-of-Chapter Review 647
Assignment Material 652
a Publicly Owned Corporation 671
Part Ⅰ 671
Comprehensive Problem 3—Toys R Us,Inc. 671
Analysis of the Financial Statements of 671
Comprehensive Problem 3 Toys R Us,Inc. 671
Possible Credit Rating 672
Part Ⅲ 672
Part Ⅱ 672
15 Global Business and Accounting 674
15 Global Business and Accounting 674
Globalization 676
Environmental Forces Shaping Globalization 678
Political and Legal Systems 678
Economic Systems 680
Culture 681
Technology and Infrastructure 683
Foreign Currencies and Exchange Rates 685
Exchange Rates 685
Accounting for Transactions with Foreign Companies 686
Currency Fluctuations—Who Wins and Who Loses? 690
Consolidated Financial Statements That IncludeForeign Subsidiaries 691
Global Sourcing 691
Foreign Corrupt Practices Act 693
End-of-Chapter Review 695
Assignment Material 699
16 Management Accounting:A Business Partner 708
16 Management Accounting: 708
A Business Partner 708
Management Accounting:Basic Framework 710
Management Accounting s Role in Assigning 710
Decision-Making Authority 710
Management Accounting s Role in Decision Making 710
Management Accounting s Role in Performance 711
Evaluation and Rewards 711
Accounting Systems:A Business Partner 712
Accounting for Manufacturing Operations 713
Classifications of Manufacturing Costs 713
Product Costs Versus Period Costs 713
Product Costs and the Matching Principle 715
Inventories of a Manufacturing Business 715
The Flow of Costs Parallels the Flow of PhysicalGoods 716
Accounting for Manufacturing Costs:An Illustration 716
Direct Materials 717
Direct Labor 718
Manufacturing Overhead 718
Overhead Application Rates 720
Direct and Indirect Manufacturing Costs 720
What Drives Overhead Costs? 722
Workin Process Inventory,Finished Goods Inventory,and the Cost of Goods Sold 723
The Need for Per-Unit Cost Data 724
Determining the Cost of Finished Goods Manufactured 724
Financial Statements of a Manufacturing Company 725
End-of-Chapter Review 727
Assignment Material 730
17 Accounting Systems for Measuring Costs 746
17 Accounting Systems for Measuring Costs 746
Cost Accounting Systems 748
Basic Cost Accounting Methods 749
Job Order Costing 750
The Job Cost Sheet 750
Accounting for Direct Materials 751
Flow of Costs in Job Costing:An Illustration 751
Accounting for Direct Labor Costs 752
Accounting for Overhead Costs 752
Accounting for Completed Jobs 753
Job Order Costing in Service Industries 755
Process Costing 756
Work in Process Account—The Key to Process Costing 756
Process Costing and Equivalent Units 757
Cost per Equivalent Unit 759
Flow of Costs in Process Costing:An Illustration 761
Computing and Using Unit Costs 762
Evalua tingDepartmental Efficiency 763
Activity-Based Costing(ABC) 763
ABC Versus a Single Application Rate:A Comparison 764
Determining Unit Costs Using ABC 770
The Trend Toward More Informative Cost 771
Accounting Systems 771
End-of-Chapter Review 773
Assignment Material 779
18 Costing and the Value Chain 792
18 Costing and the Value Chain 792
The Value Chain 794
Value-and Non-Value-Added Activities 794
Activity-Based Management 795
Activity-Based Management Across the Value Chain 796
ABC:A Subset of Activity-Based Management 798
The Target Costing Process 798
Components of the Target Costing Process 799
Target Costing:An Illustration 800
Characteristics of the Target Costing Process 803
Just-in-Time Inventory Procedures 803
JIT,Supplier Relationships,and Product Quality 804
Measures of Efficiency in a JIT System 805
A Concluding Comment 805
Total Quality Management and the Value Chain 806
Components of the Cost of Quality 806
Measuring the Cost of Quality 808
Productivity and Quality 809
Managing Across the Value Chain 809
End-of-Chapter Review 810
Assignment Material 814
19 Cost-Volume-Profit Analysis 824
19 Cost-Volume-Profit Analysis 824
Cost-Volume Relationships 826
Cost-Volume Relationships:A Graphic Analysis 827
The Behavior of Per-Unit Costs 829
Economies of Scale 830
Additional Cost Behavior patterns 831
Cost Behavior and Operating Income 832
Cost-Volume-Profit Analysis:An Illustration 833
Preparing and Using a Cost-Volume-Profit Graph 833
Contribution Margin:A Key Relationship 835
How Many Dollars in Sales Must We Generate? 836
How Many Units Must We Sell? 836
What Is Our Margin of Safety? 837
What Change in Operating Income Do We Anticipate? 837
Business Applications of CVP 837
Additional Considerations in CVP 840
CVP Analysis When a Company Sells Many Products 840
Determining Semivariable Cost Elements: 841
The High-Low Method 841
Assumptions Underlying Cost-Volume-Profit Analysis 842
Sunmary of Basic Cost-Volume-Profit Relationships 842
End-of-Chapter Review 844
Assignment Material 847
20 Incremental Analysis 860
20 Incremental Analysis 860
The Challenge of Changing Markets 862
The Concept of Relevant Cost Information 862
Relevant Information in Business Decisions 863
Opportunity Costs 864
Sunk Costs Versus Out-of-Pocket Costs 864
Incremental Analysis in Common Business 865
Decisions 865
Special Order Decisions 865
Production Constraint Decisions 867
Make or Buy Decisions 868
Sell,Scrap,or Rebuild Decisions 870
Joint Product Decisions 871
Concluding Comments 872
End-of-Chapter Review 874
Assignment Material 877
Comprehensive Problem 4—Gilster Company 887
Comprehensive Problem 4 The Gilster 887
Company 887
21 Responsibility Accounting and Performance 890
Evaluation 890
21 Responsibility Accounting and Performance Evaluation 890
Responsibility Centers 892
The Need for Information About Responsibility CenterPerformance 892
Cost Centers,Profit Centers,and Investment Centers 892
Responsibility Accounting Systems 896
Responsibility Accounting:An Illustration 896
Assigning Revenue and Costs to Business Centers 896
Vorioble Costs 898
Contribution Margin 898
Fixed Costs 898
Traceable Fixed Costs 899
Common Fixed Costs 899
Responsibility Margin 900
When Is a Responsibility Center Unprofitable ? 902
Evaluating Responsibility Center Managers 902
Arguments Against Allocating Common Fixed Costs toBusiness Centers 903
Transfer Prices 903
Nonfinancial Objectives and Information 905
Business Center Reporting in Financial Statements 906
Supplemental Topic:Variable Costing 907
Full Costing:The Traditional View of Product Costs 907
Variable Costing:A Different View of Product Costs 908
An Illustration of Variable Costing 908
Fluctuation in the Level of Production 911
Why Is Variable Costing Unacceptable for Use in 914
Financial Statements and Income Tax Returns? 914
End-of-Chapter Review 915
Assignment Material 918
22 Operational Budgeting 930
22 Operational Budgeting 930
Profit Rich,Yet Cash Poor 932
Operating Cash Flows:The Lifeblood of Survival 933
Budgeting:The Basis for Planning and Control 934
Benefits Derived from Budgeting 934
Establishing Budgeted Amounts 935
The Budget Period 935
The Master Budget:A Package of Related Budgets 936
Steps in Preparing a Master Budget 937
Preparing the Master Budget:An Illustration 938
Operating Budget Estimates 938
Budgeted Income Statement 942
Financial Budget Estimates 943
The Cash Budget 948
Budgeted Balance Sheets 948
Using Budgets Effectively 948
Flexible Budgeting 950
End-of-Chapter Review 953
Assignment Material 956
23 Standard Cost Systems 968
23 Standard Cost Systems 968
Establishing and Revising Standard Costs 970
Standard Cost Systems 970
Direct Material Standards 971
Direct Labor Standards 971
Manufacturing Overhead Standards 971
Standard Costs and Variance Analysis:An Illustration 972
Materials Price and Quantity Variances 973
Labor Rate and Efficiency Variances 975
Manufacturing Overhead Variances 976
Valuation of Finished Goods 979
Evaluating Cost Variances from Different Perspectives 979
In Conclusion... 981
A Final Note:JIT Systems and Variance Analysis 982
End-of-Chapter Review 983
Assignment Material 986
Comprehensive Problem 5—Utease Corporation 1000
Comprehensive Problem 5 Utease Corporation 1000
24 Capital Budgeting 1002
24 Capital Budgeting 1002
Capital Investment Decisions 1004
Financial and Nonfinancial Considerations 1004
An Illustration 1005
Evaluating Capital Investment Proposals: 1005
Payback Period 1006
Return on Average Investment 1006
Discounting Future Cash Flows 1007
Replacing Assets 1010
Behavioral Considerations in Capital Budgeting 1012
In Summary... 1013
A Concluding Comment from the Authors 1013
End-of-Chapter Review 1014
Assignment Material 1017
Appendix A Toys R Us Annual Report 1029
APPENDIX A Annual Report of Toys R Us 1029
APPENDIX B Exploring the Internet 1056
Getting Started 1056
Appendix B Exploring The Internet 1056
Use of the Intemet in This Textbook 1056
Internet Assignment Materials 1057
The Concept 1070
Amounts and Present Values 1070
Relationships Between Present Values and FutureAmounts 1070
APPENDIX C The Time Value of Money:Future 1070
Appendix C The Time Value of Money:Future Amounts and Present Values 1070
Compound Interest 1071
Future Amounts 1072
The Tables Approach 1072
Applications of the Tune Value of Money Concept 1072
The Future Amount of an Annuity 1074
Interest Periods of Less Than One Year 1075
Present Values 1076
Using Present Value Tables 1077
What Is the Appropriate Discount Rate? 1077
The Present Value of an Annuity 1078
Discount Periods of Less Than One Year 1079
Interest-Bearing Receivables and Payables 1080
Non-Interest-Bearing Notes 1080
Valuation of Financial Instmments 1080
Market Prices of Bonds 1082
Capital Leases 1082
Obligations for Postretirement Benefits 1083
Deferred Income Taxes 1084
Capital Budgeting:Another Application of PresentValue 1084
Disclosure of Up-to-Date Present Value Information 1084
Assignment Material 1085
Index 1089