CONTENTS 1
Chapter 1 THE FINANCIAL ACCOUNTING CONCEPTUAL FRAMEWORK AND THE ACCOUNTING EQUATION 1
1.1 ACCOUNTING 1
1.2 COMPARISON BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING 1
1.3 THE FASB’S FINANCIAL ACCOUNTING CONCEPTUAL FRAMEWORK 2
1.4 THE ACCOUNTING EQUATION AND TRANSACTIONS 9
Chapter 2 THE ACCOUNTING CYCLE 21
2.1 THE ACCOUNT 21
2.2 THE RULES OF DEBIT AND CREDIT 22
2.3 NORMAL BALANCES OF ACCOUNTS 23
2.4 PERMANENT AND TEMPORARY ACCOUNTS 23
2.5 JOURNALIZING AND POSTING 24
2.6 ILLUSTRATIONS OF JOURNALIZING AND POSTING 29
2.7 THE TRIAL BALANCE 36
2.8 ACCRUAL ACCOUNTING AND TIMING OF REVENUE AND EXPENSE 37
2.9 ADJUSTING ENTRIES 39
2.10 ASSET/EXPENSE ADJUSTMENTS 40
2.11 LIABILITY/REVENUE ADJUSTMENTS 44
2.12 LIABILITY/EXPENSE ADJUSTMENTS 45
2.13 ASSET/REVENUE ADJUSTMENTS 47
2.14 JOURNALIZING AND POSTING ADJUSTING ENTRIES 48
2.15 THE ADJUSTED TRIALBALANCE 51
2.16 FINANCIAL STATEMENTS FROM ADJUSTED TRIAL BALANCE 52
2.17 THE WORK SHEET 54
2.18 CLOSING ENTRIES 58
2.19 POST-CLOSING TRIAL BALANCE 60
2.20 REVERSING ENTRIES—AN OPTIONAL STEP 62
2.21 SUMMARY OF THE ACCOUNTING CYCLE 62
2.22 CLASSIFIED FINANCIAL STATEMENTS 64
Chapter 3 ACCOUNTING FOR MERCHANDISING FIRMS 75
3.1 MERCHANDISING FIRMS 75
3.2 ACCOUNTING FOR THE SALE OF MERCHANDISE 76
3.3 ACCOUNTING FOR THE COST OF GOODS SOLD 80
3.4 THE WORK SHEET FOR A MERCHANDISING FIRM 87
3.5 FINANCIAL STATEMENTS 92
3.6 SUMMARY OF MERCHANDISING ENTRIES 94
Chapter 4 SPECIAL JOURNALS 101
4.1 INTRODUCTION 101
4.2 SALES JOURNAL 101
4.3 SPECIAL LEDGERS（Subsidiary Ledgers） 102
4.4 SALES RETURNS 105
4.5 TYPES OF LEDGER ACCOUNT FORMS 106
4.6 TRADE DISCOUNTS 106
4.7 PURCHASES JOURNAL 107
4.8 SUBSIDIARY ACCOUNTS PAYABLE LEDGER 109
4.9 RETURN OF MERCHANDISE 110
4.10 CASH RECEIPTS JOURNAL 111
4.11 CASH DISBURSEMENTS JOURNAL 113
4.12 DISCOUNTS 115
4.13 COMBINATION CASH JOURNAL 115
Chapter 5 CASH AND ITS CONTROL 124
5.1 INTRODUCTION 124
5.2 DEFINITION OF CASH 124
5.3 CONTROLLING CASH RECEIPTS 124
5.4 CONTROLLING CASH DISBURSEMENTS 125
5.5 PETTY CASH 126
5.6 THE BANK RECONCILIATION 127
Chapter 6 ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE 134
6.1 INTRODUCTION 134
6.2 ACCOUNTS RECEIVABLE 134
6.3 NOTES RECEIVABLE 139
Chapter 7 INVENTORIES 146
7.1 INTRODUCTION 146
7.2 PERIODS INVENTORY SYSTEM VERSUS PERPETUAL INVENTORY SYSTEM 146
7.3 INVENTORY VALUATION METHODS 148
7.4 EVALUATION OF INVENTORY METHODS 150
7.5 LOWER OF COST OR MARKET VALUATION（LCM） 151
7.6 RECORDING DECLINE IN INVENTORY VALUE 154
7.7 CONSISTENCY IN THE VALUATION OF INVENTORY 155
7.8 ESTIMATING ENDING INVENTORIES 156
Chapter 8 PLANT ASSETS 164
8.1 INTRODUCTION 164
8.2 VALUATION OF PLANT ASSETS AT ACQUISITION 164
8.3 ACCOUNTING FOR DISPOSAL OF PLANT ASSETS 167
8.4 POST-ACQUISITION EXPENDITURES 171
8.5 DEPRECIATION OF PLANT ASSETS 172
8.6 DEPRECIATION METHODS 174
8.7 REVISING DEPRECIATION RATES 177
Chapter 9 INTANGIBLE ASSETS AND NATURAL RESOURCES 182
9.1 BASIC PRINCIPLES OF ACCOUNTING FOR INTANGIBLE ASSETS 182
ASSETS 185
9.2 ACCOUNTING FOR SEPARATELY IDENTIFIABLE INTANGIBLE 185
9.3 ACCOUNTING FOR GOODWILL——AN UNIDENTIFIABLE INTANGIBLE ASSET 188
9.4 NATURAL RESOURCES 193
Chapter 10 CURRENT LIABILITIES 199
10.1 INTRODUCTION 199
10.2 NOTES PAYABLE 200
10.3 PAYROLL 202
Chapter 11 CORPORATION：ORGANIZATION AND STOCKHOLDERS’EQUITY 212
11.1 INTRODUCTION 212
11.2 ADVANTAGES OF THE CORPORATE FORM OF ORGANIZATION 212
11.3 DISADVANTAGES OF THE CORPORATE FORM OF ORGANIZATION 213
11.4 FORMATION OF A CORPORATION 214
Chapter 12 CORPORATION：OPERATION，DIVIDENDS AND EARNINGS PER SHARE 221
12.1 OPERATION AT A PROFIT OR LOSS 221
12.2 DIVIDENDS 223
12.3 BOOK VALUE OF STOCK 227
12.4 EARNINGS PER SHARE 229
Chapter 13 LONG-TERM LIABILITIES（BONDS PAYABLE） 234
13.1 INTRODUCTION 234
13.2 ADVANTAGES OF ISSUING BONDS 234
13.3 TYPES OF BONDS ISSUED BY CORPORATIONS 235
13.4 ACCOUNTING FOR TERM BONDS 237
13.5 ALLOCATING INTEREST AND AMORTIZING 240
13.6 BOND DISCOUNT AND PREMIUM IN THE BALANCE SHEET 244
Chapter 14 INVESTMENTS 247
14.1 OVERVIEW：WHY INVEST IN FINANCIAL INSTRUMENT 247
14.2 INVESTMENTS IN DIFFERENT SECURITIES 247
14.3 COST AND AMORTIZED COST METHOD 248
14.4 FAIR VALUE METHOD 250
14.5 EQUITY METHOD 254
Chapter 15 STATEMENT OF CASH FLOWS 260
15.1 PURPOSE OF THE STATEMENT OF CASH FLOWS 260
15.2 CLASSIFICATION OF CASH FLOWS 261
15.3 FORMAT OF STATEMENT OF CASH FLOWS 262
15.4 PREPARATION OF THE STATEMENT 263
15.5 SUMMARY OF CONVERSION TO CASH PROVIDED BY OPERATIONS 272
Chapter 16 BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENTS（EQUITY METHOD） 276
16.1 BUSINESS COMBINATION 276
16.2 ACCOUNTING FOR BUSINESS COMBINATIONS UNDER THE PURCHASE METHOD 276
16.3 EQUITY METHOD——A ONE-LINE CONSOLIDATION 278
16.4 DIFFERENCE BETWEEN INVESTMENT COST OF THE PARENT COMPANY AND THE BOOK VALUE OF THE NET ASSETS OF THE SUBSIDIARY 280
16.5 INTERCOMPANY PROFIT TRANSACTIONS——INVENTORIES 289
16.6 INTERCOMPANY PROFIT TRANSACTIONS——PLANT ASSETS 295
16.7 INTERCOMPANY PROFIT TRANSACTIONS——BONDS 298
REFERENCE BOOKS 308
Appendix Ⅰ AN ENGLISH-CHINESE GLOSSARY OF ACCOUNTING 309
Appendix Ⅱ NEWLY ADDED WORDS 346
Appendix Ⅲ KEY TO PART OF THE EXERCISES 348
Appendix Ⅳ PRESENT AND FUTURE VALUE INTEREST TABLES 354