1  An Introduction to Accounting/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/3
  1.4   Understanding of Financial Statements/5
   • Balance Sheet/5
   • Income Statement (Statement of financial performance)/6
   • Statement of Owner’s Equity/6
   • Statement of Cash Flow/8
  1.5  Accounting and Its Profession /9
  1.6  Accounting Elements and Using the Accounting Equation/9
   • What is Accounting Equation/9
   • Effects of Transactions on the Accounting Equation/10
  1.7  Ethics in Accounting/13
   •Some Basic Ethical Standards/13
       Vocabulary/14
       SelfTest Questions/15
       Discussion Questions/16
       Exercises/16
       Problems/18

2  Recording Transactions/22
  2.1  Economic Events and Business Documents/23
  2.2  T Accounts and Debit & Credit/23
   •Types of Accounts/24
   •Chart of Accounts and Ledger/26
   •The Accounting Equation and the Rules of Debits and Credits/27
   •Normal Balances/27
  2.3  Journalizing and Posting Transactions/27
   •Journalizing Transactions/30
   •Posting Transactions/33
  2.4  Preparing a Trial Balance/36
   •Trial Balance/36
   •Locating and Correcting Errors/37
   •Formatting Conventions/38
  2.5  Using the Information—the Debt Ratio/38
       Vocabulary/39
       SelfTest Questions/40
       Discussion Questions/41
       Exercises/41
       Problems/42


3  Adjusting the Accounts, Preparing the Statements, and Completing the Accounting Cycle/46
  3.1  The Need for Adjustments/47
   •Time Period Principle/47
   •Need for Adjustments at the End of an Accounting Period/47
   •Accrual and Cash Basis of Accounting/48
  3.2  Adjusting the Accounts/49
   •Prepaid Expenses/49
   •Depreciation/50
   •Unearned Revenues/52
   •Accrued Expenses/53
   •Accrued Revenues/53
  3.3  Adjusted Trial Balance and Preparation of Financial Statements/54
  3.4  Using the Worksheet/60
   •Purpose of the Worksheet/60
   •Preparing Worksheets/61
  3.5  Closing Entries/62
   •Purpose of Closing Entries/63
   •Preparing the Closing Entries/63
  3.6  PostClosing Trial Balance/65
  3.7  Classification of Balance Sheet Items/66
   •Assets/66
   •Liabilities/67
   •Owner’s Equity/67
  3.8  Using the Information—the Current Ratio/69
       Vocabulary/69
       SelfTest Questions/70
       Discussion Questions/70
       Exercises/72
       Problems/73

4  Accounting for Merchandising Enterprises/77
  4.1  Service Enterprise versus Merchandising Concern/78
   •Service Enterprise/78
   •Merchandising Enterprise/78
   • Periodic and Perpetual Inventory Systems/78
  4.2  Purchase, Sales Revenue and Cost of Goods Sold/79
   •Merchandise Purchases—Perpetual Inventory System/79
   •Purchase Returns and Allowances/79
   •Trade Discounts/79
   •Purchase Discounts/80
   •Transportation Costs/81
   •Revenue from Sales and Cost of Goods Sold—Perpetual Inventory System/83
   •Sales Returns and Allowances /83
   •Sales Discounts/84
   •Shrinkage/85
   •Summary of Merchandising Cost Flows/85
  4.3  Multiplestep Income Statement/86
  4.4  Worksheet for a Merchandising Enterprise and Closing Entries/88
   •Worksheet for a Merchandiser/88
   •Closing Entries/91
  4.5  Special Journals/91
   •Sales Journal/92
   •Cash Receipts Journal/92
   •Purchases Journal/93
   •Cash Disbursements Journal/94
   •Testing the Accuracy of Ledgers/94
   •Subsidiary Inventory Records/97
  4.6  Using the Information—AcidTest Ratio, Gross Margin Ratio/97
       Vocabulary/98
       SelfTest Questions/99
       Discussion Questions/100
       Exercises/100
       Problems/102

5  Accounting for Cash, Temporary Investments, and Receivables/104
  5.1  Cash, Cash Equivalents, and Liquidity/105
  5.2  Internal Control over Cash/105
   •The Characteristics of an Effective System of Internal Control/106
   •Internal Control for Cash/106
  5.3  The Petty Cash Fund/107
   •Establishing the Fund/107
   •Making Petty Cash Payments/107
   •Reimbursing the Fund/107
  5.4  Reconciling the Bank Balance/108
   •Bank Statement/108
   •Need for Reconciling the Bank Balance/109
   •Steps in Reconciling the Bank Balance/110
  5.5  Trading Securities/112
   •Accounting for Trading securities/112
   •Balance Sheet Presentation/113
  5.6  Credit Sales and Bad Debts/113
   •Design Internal Controls for Receivables/114
   •Allowance Method of Accounting for Bad Debts/114
   •Writing off a Bad Debt/114
   •Bad Debt Recoveries/114
   •Estimating the Amount of Bad Debt Expense/115
   •Direct WriteOff Method of Accounting for Bad Debts/117
  5.7  Promissory Notes/118
   •Recording Receipt and Collection of a Note/119
   •Dishonored Notes Receivable/119
   •Discounting Notes Receivable/119
   •Recording the Discounting of Notes Receivable/121
   •Contingent Liability and the Full Disclosure Principle/121
  5.8  Converting Receivable into Cash/121
   •Selling Accounts Receivable/121
   •Pledging Accounts Receivable/122
  5.9  Using the Information—Accounts Receivable Turnover/122
       Vocabulary/122
       SelfTest Questions/123
       Discussion Questions/124
       Exercises/125
       Problems/125

6  Inventories and Cost of Goods Sold/128
  6.1  Cost to Be Included in Inventories/129
   •What Is Inventory?/129
   •Who Owns the Inventory?/130
  6.2  Inventory Systems/131
  6.3  Inventory Cost Flow Assumptions/132
   •Periodic Inventory System/134
   •Perpetual Inventory System/135
   •Consistency in the Application of Inventory Valuation Procedures/136
  6.4  Inventory Errors/136
  6.5  Valuation Using Lower of Cost or Market (LCM) Method/137
  6.6  Inventory Estimation Method/140
  6.7  Analysis the Information—Merchandise Turnover/141
       Vocabulary/143
       SelfTest Questions/144
       Discussion Questions/145
       Exercises/145
       Problems/147

7  LongTerm Assets: Investments, Fixed Assets, Natural Resources and
Intangible Assets/150
  7.1  Type of LongTerm Assets/151
  7.2  LongTerm Investment/152
   •Availableforsale Securities/153
   •Cost Method/153
   •Equity Method/154
  7.3  Acquisition of Fixed Assets/155
   •Capital Expenditure & Revenue Expenditure/155
   •Acquisition for Cash/156
   •Subsequent Expenditures/156
   •Acquisition through Leasing/157
   •Acquisition via Exchange/158
   •Acquisition with a Basket Purchase/159
   •Acquisition from Donations/159
   •Acquisition through SelfConstruction/159
  7.4  Depreciation/161
   •The StraightLine (SL) Method/161
   •Accelerated Methods/161
   •SumoftheYears’Digits Method/162
   •DecliningBalance Method/163
   •Revision of Estimated Depreciation/164
  7.5  Disposal of Plant Assets/165
  7.6  Accounting for Natural Resources/166
  7.7  Accounting for Intangible Assets/167
   •Valuation of Purchased Intangibles/168
   •Amortization of Intangible Assets/168
   •Patents/169
   •Copyrights/169
   •Franchises/169
   •Trademarks/170
   •Goodwill/170
  7.8  Other Assets/171
   •Preoperating Expenses/171
   •Deferred Expenses/171
  7.9  Impairment of LongTerm Assets/171
  7.10  Using the Information—Return on Total Assets & Asset Turnover/172
       Vocabulary/173
       SelfTest Questions/174
       Discussion Questions/175
       Exercises/175
       Problems/177


8  Current and LongTerm Liabilities/180
  8.1  The Nature of Liabilities/181
   •The Definition of Liabilities Includes Five Key Points/181
   •Distinction Between Debt and Equity/181
  8.2  Current Liabilities/182
  8.3  Determinable Current Liabilities/182
   •Trade Accounts Payable/183
   •Current Notes Payable and ShortTerm Loan/183
   •Advances from Customers/184
   •Current Maturities of LongTerm Obligations/184
   •Dividend Payable/184
   •ThirdParty Collections/184
  8.4  Current Liabilities Dependent on Operating Results/185
   •Income Taxes Payable/185
   •Temporary Differences/185
   •Permanent Differences/186
  8.5  Contingencies/187
   •Contingent Asset/187
   •Contingent Liability/188
  8.6  Time Value of Money/189
   •Simple versus Compound Interest/190
   •Future Value of a Single Amount/191
   •Present Value of a Single Amount/191
   •Future Value of an Annuity/192
   •Present Value of an Annuity/192
  8.7  NonCurrent Liabilities/193
   •Bonds Payable/193
   •Accounting for Bonds Payable/194
   •Capital Lease Payable /201
  8.8  Using the Information—Times Interest Earned/203
       Vocabulary/203
       SelfTest Questions/204
       Discussion Questions/206
       Exercises/206
       Problems/208

9  Owner’s Equity/212
  9.1  Difference between a Loan and an Investment/212
  9.2  Forms of Business Organization/213
  9.3  Corporate Organization/214
   •Rights of Stockholders/214
   •Functions of the Board of Directors/215
  9.4  Corporate Capital/216
   •Authorized Stock/216
   •Par Value/216
   •NoPar Value/217
   •Common Stock/217
   •Issuance of Par Value Stock/217
   •Issurance of NoPar Value Stock/218
  9.5  Treasury Stock/218
   •Purchase Treasury Stock/219
   •Reissue Treasury Stock/219
   •Retirement of Stock/220
  9.6  Income & Retained Earnings/221
   •Income/221
   •Earnings per Share (EPS)/223
   •Retained Earnings/224
   •Prior Period Adjustments/224
   •Appropriated (or Restricted) Retained Earnings/225
  9.7  Dividends and Stock Split/225
   •Cash Dividends/225
   •Dividend Dates/226
   •Stock Dividends/226
   •Stock Split/227
  9.8  Using the Information—Dividend Yield and PriceEarnings Ratio/228
       Vocabulary/228
       SelfTest Questions/229
       Discussion Questions/231
       Exercises/231
       Problems/233

10  Statement of Cash Flows/236
  10.1  Cash and Cash Equivalents/237
  10.2  Classification of Cash Receipts and Cash Payments/238
   •Cash Flows from Operating Activities/238
   •Cash Flows from Investing Activities/238
   •Cash Flows from Financing Activities/239
  10.3  Preparing Cash Flow Statement—Direct Method/239
   •Converting Sales to Cash Collected from Customers/240
   •Converting Cost of Goods Sold to Cash Paid for Goods/242
   •Converting Wages Expense to Cash Paid to and on Behalf of 
Employees/242
   •Converting Taxes Expense to Payments of All Types of Taxes/243
   •Cash Paid Relating to Other Operating Activities/243
   •Compiling the Operating Activities Section of the Statement of Cash Flow/244
  10.4  Preparing Cash Flow Statement—Indirect Method/245
  10.5  Determining Cash Flows from Investing Activities/247
  10.6  Determining Cash Flows from Financing Activities/250
  10.7  Presenting the Information in the Form of the Statement of Cash Flows/251
  10.8  Usefulness of the Statement of Cash Flows/253
       SelfTest Questions/254
       Discussion Questions/255
       Exercises/255
       Problems/257
  Appendix 1:Balance Sheet/260
  Appendix 2:Profit and Loss Account/262
  Appendix 3:Format of Statement of Cash Flow Reference in China/263
  Appendix 4:Future Value of ＄1/267
  Appendix 5:Present Value of ＄1/269
  Appendix 6:Present Value of Annuity of ＄1/271
  Appendix 7:Future Value of Annuity of ＄1/273
  Appendix 8:Solution of exercises and problems/275