1 An Introduction to Accounting 1
LEARNING OBJECTIVES 1
1.1 Accounting is an information system 2
1.2 Forms of organization 2
1.3 The framework for the preparation and presentation of financial statements—The conceptual framework 3
1.4 Understanding of financial statements 4
1.5 Accounting and its profession 8
1.6 Accounting elements and using accounting equation 9
1.7 Professional ethics in accounting 11
Vocabulary 12
Translation of the chapter 14
Self-Test Questions 22
Exercises 23
Problems 25
Answers to Self-Test Questions 28
2 Journalizing and Posting Transactions 29
LEARNING OBJECTIVES 29
2.1 Economic events and original documents 30
2.2 T-accounts and debit&credit 30
2.3 Journalizing and posting transactions 34
2.4 Preparing a trial balance 41
2.5 Practices in China 42
Vocabulary 44
Translation of the chapter 46
Self-Test Questions 57
Exercises 58
Problems 62
Answers to Self-Test Questions 65
3 Adjusting and Preparing Financial Statements 67
LEARNING OBJECTIVES 67
3.1 The need for adjustments 68
3.2 Adjusting the accounts 69
3.3 Adjusted trial balance and preparation of financial statements 72
3.4 The worksheet 77
3.5 Closing entries 78
3.6 Post-closing trial balance 80
3.7 The accounting cycle summary 80
3.8 Classification of balance sheet items 81
3.9 Practices in China 83
3.10 Using the accounting information—the current ratio 84
Vocabulary 85
Translation of the chapter 86
Self-Test Questions 100
Exercises 101
Problems 104
Answers to Self-Test Questions 108
4 MerChandising Activities and Accounting Information Systems 109
LEARNING OBJECTIVES 109
4.1 Service enterprise versus merchandising concern 110
4.2 Purchase,sales revenue and cost of goods sold 110
4.3 AIternative income statement formats 115
4.4 Worksheet for a merchandising enterprise and closing entries 117
4.5 Accounting systems 120
4.6 Special iournals 121
4.7 Chinese practice 121
4.8 Using the information—quick ratio and gross margin ratio 122
Vocabulary 122
Translation of the chapter 124
Self-Test Questions 133
Exercises 134
Problems 136
Answers to Self-Test Questions 139
5 Operating Cycle：Cash,Receivables and Sales 141
LEARNING OBJECTIVES 141
5.1 Cash,cash equivalents and liquidity 142
5.2 Operating,investing and financing activities 142
5.3 Internal control over cash 142
5.4 The petty cash fund 143
5.5 Reconciling the bank balance 144
5.6 Credit sales and bad debts 146
5.7 Promissory notes 150
5.8 Converting receivable into cash 152
5.9 Cash,receivables,sales and the cash flow 152
5.10 Using the information—accounts receivable turnover 153
Vocabulary 153
Translation of the chapter 155
Self-Test Questions 163
Exercises 164
Problems 166
Answers to Self-Test Questions 171
6 Operating Cycle：Cost of Goods Sold and Inventory 173
LEARNING OBJECTIVES 173
6.1 Costs to be included in inventory 174
6.2 Inventory systems 175
6.3 Inventory cost flow assumptions 177
6.4 Inventory errors 183
6.5 Valuation using lower of cost or market（LCM）method 183
6.6 Inventory estimation method 185
6.7 Cost of goods sold,inventory and cash flow 187
6.8 Other expenses and cash flow 187
6.9 Analysis the accounting information—inventory turnover 188
Vocabulary 188
Translation of the chapter 189
Self-Test Questions 200
Exercises 201
Problems 204
Answers to Self-Test Questions 207
7 Investing in Operating Assets 209
LEARNING OBJECTIVES 209
7.1 Non-current operating assets 210
7.2 Acquisition of fixed assets 210
7.3 Depreciation 215
7.4 Disposal of plant assets 219
7.5 Accounting for natural resources 220
7.6 Accounting for intangible assets 220
7.7 Impairment of fixed assets 222
7.8 Interest and dividend receipts in cash flow statement 223
7.9 Using the information—total asset turnover and return on total assets 224
Vocabulary 224
Translation of the chapter 226
Self-Test Questions 236
Exercises 237
Problems 239
Answers to Self-Test Questions 240
8 Investing in Securities 241
LEARNING OBJECTIVES 241
8.1 Investment classification 242
8.2 Trading securities 243
8.3 Available-for-sale securities 244
8.4 Held-to-maturity securities 247
8.5 Accounting for long-term investments in equity securities 250
8.6 Impairment of long-term investment 253
Vocabulary 254
Translation of the chapter 255
Self-Test Questions 263
Exercises 264
Problems 266
Answers to Self-Test Questions 268
9 Financing with Debt 269
LEARNING OBJECTIVES 269
9.1 The nature of liabilities 270
9.2 Current liabilities 270
9.3 Contingencies 276
9.4 Classify cash transactions related with short-term liabilities in cash flow statement of cash flows 277
9.5 Time value of money 277
9.6 Long-term liabilities 282
9.7 Using the information—times interest earned 289
Vocabulary 290
Translation of the chapter 291
Self-Test Questions 304
Exercises 305
Problems 306
Answers to Self-Test Questions 307
10 Financing with Equity 309
LEARNING OBJECTIVES 309
10.1 Business organization 310
10.2 Shareholders’equity 310
10.3 Capital vs.retained earnings 311
10.4 Corporate capital 311
10.5 Retained earnings 313
10.6 Dividends and stock split 314
10.7 Treasury stock 318
10.8 Earnings per share（EPS） 320
10.9 Dividend yield and price-earnings ratio 321
Vocabulary 321
Translation of the chapter 323
Self-Test Questions 331
Exercises 332
Problems 333
Answers to Self-Test Questions 334
11 The Statement of Cash Flow 335
LEARNING OBJECTIVES 335
11.1 Brief introduction 336
11.2 Cash and cash equivalents 336
11.3 Composition of cash flow statement 336
11.4 Determining cash flow from operating activities 338
11.5 Determining cash flow from investing activities 344
11.6 Determining cash flow from financing activities 348
11.7 Presenting the information in the form of the statement of cash flows 349
11.8 Usefulness of the cash flow statement 351
11.9 Format of cash flow statement for reference in China 352
Translation of the chapter 355
Self-Test Questions 369
Exercises 371
Problems 372
Answers to Self-Test Questions 376
Appendix 377
1 Answers to Exercises and Problems 377
2 Balance Sheet 412
3 Income Statement 413
4 Future Value of$1 414
5 Present Value of$1 416
6 Future Value of Annuity of$1 418
7 Present Value of Annuity of$1 420