Month: March 2020

1 Introduction to Financial Statements 1-1

Knowing the Numbers: Columbia Sportswear Company 1-1

Business Organization and Accounting Information Uses 1-2

Forms of Business Organization 1-3

Users and Uses of Financial Information 1-4

Ethics in Financial Reporting 1-6

The Three Types of Business Activity 1-8

Financing Activities 1-8

Investing Activities 1-9

Operating Activities 1-9

The Four Financial Statements 1-11

Income Statement 1-11

Retained Earnings Statement 1-12

Balance Sheet 1-14

Statement of Cash Flows 1-15

Interrelationships of Statements 1-16

Elements of an Annual Report 1-19

2 A Further Look at the Balance Sheet 2-1

Just Fooling Around?: The Motley Fool 2-2

The Classified Balance Sheet 2-3

Current Assets 2-3

Long-Term Investments 2-5

Property, Plant, and Equipment 2-5

Intangible Assets 2-6

Current Liabilities 2-7

Long-Term Liabilities 2-8

Stockholders’ Equity 2-8

Analyzing the Balance Sheet Using Ratios 2-9

Ratio Analysis 2-9

Using a Classified Balance Sheet 2-10

3 The Accounting Information System 3-1

Accidents Happen: MF Global Holdings Ltd 3-1

Financial Reporting Concepts 3-2

The Standard-Setting Environment 3-3

Qualities of Useful Information 3-3

Assumptions in Financial Reporting 3-5

Principles in Financial Reporting 3-5

Cost Constraint 3-6

Using the Accounting Equation to Analyze Transactions 3-7

Accounting Transactions 3-8

Analyzing Transactions 3-8

Summary of Transactions 3-15

Preparing Financial Statements 3-16

Income Statement 3-17

Retained Earnings Statement 3-17

Classified Balance Sheet 3-17

4 Accrual Accounting Concepts 4-1

Keeping Track of Groupons: Groupon 4-1

Accrual-Basis Accounting and Adjustments 4-2

The Revenue Recognition Principle 4-3

The Expense Recognition Principle 4-4

Accrual versus Cash Basis of Accounting 4-5

The Need for Adjustments 4-6

Types of Adjustments 4-6

Adjustments for Deferrals 4-8

Prepaid Expenses 4-8

Unearned Revenues 4-12

Adjustments for Accruals 4-14

Accrued Revenues 4-14

Accrued Expenses 4-16

Summary of Basic Relationships 4-19

Preparing Financial Statements 4-20

5 Fraud, Internal Control, and Cash 5-1

Minding the Money in Madison: Barriques 5-1

Fraud and Internal Control 5-3

Fraud 5-3

The Sarbanes-Oxley Act 5-3

Internal Control 5-4

Principles of Internal Control Activities 5-4

Data Analytics and Internal Controls 5-10

Limitations of Internal Control 5-11

Cash Controls 5-12

Cash Receipts Controls 5-12

Cash Disbursements Controls 5-14

Petty Cash Fund 5-16

Control Features of a Bank Account 5-17

Electronic Funds Transfer (EFT) System 5-17

Bank Statements 5-18

Reconciling the Bank Account 5-19

Reporting Cash and Cash Management 5-24

Reporting Cash 5-24

Managing and Monitoring Cash 5-26

Cash Budgeting 5-28

6 Merchandising Operations and the Multiple-Step Income Statement 6-1

Buy Now, Vote Later: REI 6-1

Merchandising Operations and Inventory Purchases 6-3

Flow of Costs 6-3

Recording Purchases Under a Perpetual Inventory System 6-5

Freight Costs 6-5

Purchase Returns and Allowances 6-6

Purchase Discounts 6-7

Summary of Purchasing Transactions 6-8

Recording Sales Under a Perpetual Inventory System 6-9

Recording Sales 6-9

Sales Returns and Allowances 6-10

Sales Discounts 6-11

Data Analytics and Credit Sales 6-12

Multiple-Step Income Statement 6-12

Format of the Multiple-Step Income Statement 6-12

Components of the Multiple-Step Income Statement 6-13

Gross Profit Rate and Profit Margin 6-16

Gross Profit Rate 6-16

Profit Margin 6-18

7 Reporting and Analyzing Inventory and Receivables 7-1

“Where Is That Spare Bulldozer Blade?”: Caterpillar 7-1

Classifying and Determining Inventory 7-3

Classifying Inventory 7-3

Determining Inventory Quantities 7-3

Inventory Methods and Financial Effects 7-6

Specific Identification 7-6

Cost Flow Assumptions 7-7

Financial Statement and Tax Effects of Cost Flow Methods 7-13

Reporting Receivables 7-14

Types of Receivables 7-14

Recognizing Accounts Receivable 7-15

Valuing Accounts Receivable 7-15

Data Analytics and Receivables Management 7-19

Inventory Presentation and Analysis 7-20

Presentation 7-20

Analysis 7-20

8 Reporting and Analyzing Long-Lived Assets 8-1

A Tale of Two Airlines: American Airlines 8-1

Plant Asset Expenditures 8-3

Determining the Cost of Plant Assets 8-3

Expenditures During Useful Life 8-6

Depreciation Methods 8-8

Factors in Computing Depreciation 8-9

Depreciation Methods 8-9

Revising Periodic Depreciation 8-14

Impairments 8-15

Plant Asset Disposals 8-16

Sale of Plant Assets 8-16

Retirement of Plant Assets 8-18

Intangible Assets 8-18

Accounting for Intangible Assets 8-19

Types of Intangible Assets 8-20

Statement Presentation and Analysis 8-23

Presentation 8-23

Analysis 8-25

9 Reporting and Analyzing Liabilities and Stockholders’ Equity 9-1

And Then There Were Two: Maxwell Car Company 9-1

Accounting for Current Liabilities 9-3

What Is a Current Liability? 9-3

Notes Payable 9-3

Sales Taxes Payable 9-4

Unearned Revenues 9-5

Current Maturities of Long-Term Debt 9-6

Payroll and Payroll Taxes Payable 9-6

Accounting for Bond Transactions 9-9

Issuing Bonds at Face Value 9-9

Discount or Premium on Bonds 9-10

Issuing Bonds at a Discount 9-11

Issuing Bonds at a Premium 9-13

Redeeming Bonds at Maturity 9-14

Accounting for Common, Preferred, and Treasury Stock 9-15

Stockholder Rights 9-16

Corporate Capital 9-17

Accounting for Common Stock 9-18

Accounting for Preferred Stock 9-19

Accounting for Treasury Stock 9-20

Accounting for Cash Dividends 9-23

Cash Dividends 9-23

Dividend Preferences 9-25

Presentation and Analysis of Stockholders’ Equity 9-27

Balance Sheet Presentation of Stockholders’ Equity 9-27

Analysis of Stockholders’ Equity 9-27

Debt versus Equity Decision 9-29

10 Financial Analysis: The Big Picture 10-1

It Pays to Be Patient: Warren Buffett 10-2

Sustainable Income and Quality of Earnings 10-3

Sustainable Income 10-3

Quality of Earnings 10-7

Horizontal Analysis and Vertical Analysis 10-9

Horizontal Analysis 10-10

Vertical Analysis 10-12

Ratio Analysis 10-15

Liquidity Ratios 10-16

Solvency Ratios 10-17

Profitability Ratios 10-17

Financial Analysis and Data Analytics 10-18

Comprehensive Example of Ratio

Analysis 10-18

11 Managerial Accounting 11-1

Just Add Water … and Paddle: Current Designs 11-1

Managerial Accounting Basics 11-3

Comparing Managerial and Financial Accounting 11-3

Management Functions 11-4

Organizational Structure 11-5

Managerial Cost Concepts 11-7

Manufacturing Costs 11-8

Product versus Period Costs 11-9

Illustration of Cost Concepts 11-9

Manufacturing Costs in Financial Statements 11-11

Income Statement 11-11

Cost of Goods Manufactured 11-12

Cost of Goods Manufactured Schedule 11-13

Balance Sheet 11-14

Managerial Accounting Today 11-15

Service Industries 11-16

Focus on the Value Chain 11-17

Balanced Scorecard 11-18

Business Ethics 11-19

Corporate Social Responsibility 11-20

12 Job Order Costing 12-1

Profiting from the Silver Screen: Disney 12-1

Cost Accounting Systems 12-3

Process Cost System 12-3

Job Order Cost System 12-4

Job Order Cost Flow 12-5

Accumulating Manufacturing Costs 12-5

Assigning Manufacturing Costs 12-8

Raw Materials Costs 12-8

Factory Labor Costs 12-11

Predetermined Overhead Rates 12-13

Jobs Completed and Sold 12-16

Assigning Costs to Finished Goods 12-16

Assigning Costs to Cost of Goods Sold 12-17

Summary of Job Order Cost Flows 12-17

Job Order Costing for Service Companies 12-18

Advantages and Disadvantages of Job

Order Costing 12-20

Applied Manufacturing Overhead 12-21

Cost of Goods Manufactured Schedule 12-21

Under- or Overapplied Manufacturing Overhead 12-22

13 Cost-Volume-Profit 13-1

Don’t Worry—Just Get Big: Amazon.com 13-1

Cost Behavior Analysis 13-2

Variable Costs 13-3

Fixed Costs 13-4

Relevant Range 13-5

Mixed Costs 13-6

Mixed Costs Analysis 13-7

High-Low Method 13-8

Importance of Identifying Variable and Fixed Costs 13-10

Cost-Volume-Profit Analysis 13-11

Basic Components 13-11

CVP Income Statement 13-11

Break-Even Analysis 13-15

Mathematical Equation 13-15

Contribution Margin Technique 13-16

Graphic Presentation 13-17

Target Net Income and Margin of Safety 13-19

Target Net Income 13-19

Margin of Safety 13-21

Appendix 13A: Regression Analysis 13-23

14 Incremental Analysis 14-1

Keeping It Clean: Method Products 14-1

Decision-Making and Incremental Analysis 14-3

Incremental Analysis Approach 14-3

How Incremental Analysis Works 14-4

Qualitative Factors 14-5

Types of Incremental Analysis 14-5

Special Orders 14-6

Make or Buy 14-8

Opportunity Cost 14-9

Sell or Process Further 14-10

Single-Product Case 14-11

Multiple-Product Case 14-11

Repair, Retain, or Replace Equipment 14-14

Eliminate Unprofitable Segment or Product 14-15

15 Budgetary Planning 15-1

What’s in Your Cupcake?: BabyCakes NYC 15-1

Effective Budgeting and the Master Budget 15-3

Budgeting and Accounting 15-3

The Benefits of Budgeting 15-3

Essentials of Effective Budgeting 15-4

The Master Budget 15-7

Sales, Production, and Direct Materials Budgets 15-8

Sales Budget 15-8

Production Budget 15-10

Direct Materials Budget 15-10

Direct Labor, Manufacturing Overhead, and S&A Expense Budgets 15-14

Direct Labor Budget 15-14

Manufacturing Overhead Budget 15-15

Selling and Administrative Expense Budget 15-15

Budgeted Income Statement 15-16

Cash Budget and Budgeted Balance Sheet 15-18

Cash Budget 15-18

Budgeted Balance Sheet 15-20

Budgeting in Nonmanufacturing Companies 15-23

Merchandisers 15-23

Service Companies 15-24

Not-for-Profit Organizations 15-25

16 Budgetary Control and Responsibility Accounting 16-1

Pumpkin Madeleines and a Movie: Tribeca Grand 16-1

Budgetary Control and Static Budget Reports 16-3

Budgetary Control 16-3

Static Budget Reports 16-4

Flexible Budget Reports 16-7

Why Flexible Budgets? 16-7

Developing the Flexible Budget 16-9

Flexible Budget—A Case Study 16-10

Flexible Budget Reports 16-12

Responsibility Accounting and Responsibility Centers 16-14

Controllable versus Noncontrollable Revenues and Costs 16-16

Principles of Performance Evaluation 16-16

Responsibility Reporting System 16-18

Types of Responsibility Centers 16-19

Investment Centers 16-24

Return on Investment (ROI) 16-24

Responsibility Report 16-25

Judgmental Factors in ROI 16-26

Improving ROI 16-26

Appendix 16A: ROI vs. Residual Income 16-30

Residual Income Compared to ROI 16-31

Residual Income Weakness 16-31

17 Standard Costs and Balanced Scorecard 17-1

80,000 Different Caffeinated Combinations: Starbucks 17-2

Overview of Standard Costs 17-3

Distinguishing Between Standards and Budgets 17-4

Setting Standard Costs 17-4

Direct Materials Variances 17-8

Calculating Direct Materials Variances 17-10

Direct Labor and Manufacturing Overhead Variances 17-12

Direct Labor Variances 17-13

Manufacturing Overhead Variances 17-15

Variance Reports and Balanced Scorecards 17-17

Reporting Variances 17-17

Income Statement Presentation of Variances 17-18

Balanced Scorecard 17-19

Appendix 17A: Overhead Controllable and Volume Variances 17-23

Overhead Controllable Variance 17-23

Overhead Volume Variance 17-24

18 Planning for Capital Investments 18-1

Floating Hotels: Holland America Line 18-2

Capital Budgeting and Cash Payback 18-3

Cash Flow Information 18-3

Illustrative Data 18-4

Cash Payback 18-5

Net Present Value Method 18-6

Equal Annual Cash Flows 18-7

Unequal Annual Cash Flows 18-8

Choosing a Discount Rate 18-9

Simplifying Assumptions 18-10

Comprehensive Example 18-10

Capital Budgeting Challenges and Refinements 18-12

Intangible Benefits 18-12

Profitability Index for Mutually Exclusive Projects 18-14

Risk Analysis 18-15

Post-Audit of Investment Projects 18-16

Internal Rate of Return 18-17

Comparing Discounted Cash Flow Methods 18-18

Annual Rate of Return 18-19

Appendix A Specimen Financial Statements: Apple Inc. A-1

Appendix B Specimen Financial Statements: Columbia Sportswear Company B-1

Appendix C Specimen Financial Statements: Under Armour, Inc. C-1

Appendix D Double-Entry Accounting System D-1

Appendix E Time Value of Money E-1

* Appendix F Activity-Based Costing F-1

* Appendix G Cost-Volume-Profit Analysis: Additional Issues G-1

*Appendix H Pricing H-1

COMPANY INDEX / SUBJECT INDEX I-1

The Kimmel approach engages all students.
The Kimmel approach takes a user approach to financial accounting with a focus on financial statements. The authors decided to spend two chapters on introducing and thoroughly looking at financial statements to help students understand how to use accounting information instead of jumping into the procedural aspects right away. This approach recognizes that today’s accounting students have varied academic backgrounds and allows students to clearly see how accounting applies to their everyday lives and future careers.

Data Analytics content prepares students for the future of work.
Data Analytics content integrated throughout the text provides introductory accounting students with an appropriate introduction to data analytics, relevant to their course. This coverage helps ensure students are gaining new skills and knowledge they will need to be successful in their future careers.

Real-world practice and examples make accounting relevant.
Various real-world practice and examples, including Do It! Practice questions and solutions as well as Decision Tools, provide students with an opportunity to apply their understanding of a concept within context. Strategically placed throughout the text, students are building their decision-making skills and overall confidence by ensuring their understanding and gaining valuable knowledge of how to use accounting concepts in the real world.