,BRIEF CONTENTS
Preface xx
Visual Walk-Through xxiii
1 Conceptual Framework and Financial Statements 1
2 Recording Business Transactions 58
3 Accrual Accounting 129
4 Presentation of Financial Statements 207
5 Internal Control, Cash, and Receivables 253
6 Inventory and Merchandising Operations 328
7 PPE and Intangibles 389
8 Investments and International Operations 449
9 Liabilities 503
10 Stockholders’ Equity 568
11 Cash Flows 631
12 Financial Statement Analysis 702
Appendices on the Web (Available at www.pearsonglobaleditions.com/Harrison)
APPENDIX A: Nestlé Annual Report Excerpts
APPENDIX B: Time Value of Money: Future Value and Present Value
APPENDIX C: Typical Charts of Accounts for Different Types of Businesses
APPENDIX D: International Financial Reporting Standards (IFRS)
Glindex 766
Company Index 777
xi
, CONTENTS
Preface xx Identify Financial Statements and Their
Inter-Relationships 22
Visual Walk-Through xxiii
Understand the Role of Ethics in Accounting 24
Chapter 1 Code of Ethics for Professional Accountants 26
Conceptual Framework End-of-Chapter Summary Problem 27
and Financial Statements 1
S P OTLI G H T Alibaba Group www Chapter 2
.alibabagroup.com 1 Recording Business Transactions 58
Understand the Role of Accounting in
Communicating Financial Information 3 S P OT L IG H T Daimler AG www.daimler
.com/en/ 58
Business Decisions 3
Explain What a Business Transaction Is 60
Accounting Is the Language of Business 3
Keep Track of Financial Statement Items 60
Two Perspectives of Accounting: Financial Accounting
and Management Accounting 4 Assets 61
Organizing a Business 4 Liabilities 62
Role of Accounting Standards 6 Equity 62
Understand the Underlying Accounting Analyze the Impact of Business
Concepts in the IFRS Conceptual Framework 8 Transactions on Accounts 63
The Conceptual Framework 8 Example: RedLotus Travel, Inc. 63
Why Is Financial Reporting Important? 8 Transactions and Financial Statements 68
Who Are the Users of Financial Reports? 9 Mid-Chapter Summary Problem 71
What Makes Financial Information Useful? 9 Double-Entry Accounting 72
What Constraints Do We Face in Providing The T-Account 73
Useful Information? 11 Increases and Decreases in the Accounts:
What Are Our Assumptions in Financial Reporting? 11 The Rules of Debit and Credit 73
What Exactly Are We Accounting For? 11 Additional Shareholders’ Equity Accounts:
Accounting Equations 12 Income and Expenses 74
Obtain Insights into Business Operations Record (Journalize and Post)
through Financial Statements 14 Transactions in the Books 76
The Income Statement Shows a Company’s Financial Copying Information (Posting) from the Journal to the
Performance 15 Ledger 76
The Statement of Changes in Equity Shows a Company’s The Flow of Accounting Data 77
Transactions with its Owners 17 Accounts after Posting to the Ledger 82
The Balance Sheet Shows a Company’s Financial Construct and Use a Trial Balance 83
Position 18
Analyzing Accounts 83
The Statement of Cash Flows Shows a Company’s Cash
Correcting Accounting Errors 84
Receipts and Payments 21
Chart of Accounts 85
xiii
, xiv Contents
The Normal Balance of an Account 86 Obtaining Annual Reports 210
Account Formats 86 Typical Structure of an Annual Report 212
Analyzing Transactions Using Only T-Accounts 87 Corporate Information 213
End-of-Chapter Summary Problem 89 Analysis and Commentaries 214
Other Statements and Disclosures 215
Chapter 3 Financial Statements 216
Accrual Accounting 129 Know the General Presentation Requirements
S POT LIG H T Richemont of Financial Statements 219
www.richemont.com 129 Complete Set of Financial Statements 219
Explain How Accrual Accounting Differs from Fair Presentation and Compliance with IFRS 220
Cash-Basis Accounting 132 Going Concern 220
Accrual Accounting and Cash Flows 133 Accrual Basis of Accounting 220
The Time-Period Concept 133 Materiality and Aggregation 220
Apply the Revenue and Expense Recognition Offsetting 222
Principles 134
Frequency of Reporting 222
The Revenue Recognition Principle 134
Comparative Information 223
The Expense Recognition Principle 136
Consistency of Presentation 223
The Matching Concept 136
Notes to the Accounts 223
Ethics in Business and Accounting Decisions 137
Mid-Chapter Summary Problem 225
Mid-Chapter Summary Problem 138
Understand the Presentation Requirements for
Adjust the Accounts 141 Statement of Financial Position 226
Which Accounts Need to Be Updated (Adjusted)? 141 Understand Presentation Requirements for Statement
Categories of Adjusting Entries 142 of Comprehensive Income 228
Prepaid Expenses 143 Understand Presentation Requirements for Statement
Unearned Revenues 145 of Changes in Equity 232
Accrued Expenses 147 Evaluate a Company’s Short-Term Liquidity 234
Accrued Revenues 148 Current Ratio 234
Depreciation of Property, Plant and Equipment 149 End-of-Chapter Summary Problem 235
Summary of the Adjusting Process 152
Chapter 5
The Adjusted Trial Balance 154
Internal Control, Cash,
Prepare Updated Financial Statements 154 and Receivables 253
Close the Books 156
S P OT L IG HT LEGO www.lego.com 253
End-of-Chapter Summary Problem 158
Understand the Role of Internal Controls and
Corporate Governance 255
Chapter 4 Fraud and Its Impact 255
Presentation of Financial Statements 207 Ethics in Business and Accounting
S POT LIG H T BASF www.basf.com 207 Decisions 259
Appreciate the Role of Annual Reports as a Internal Control 259
Communication Tool 209 The Sarbanes-Oxley Act (SOX) 260
Substance Over Style 209 Internal Control Procedures 262
Preface xx
Visual Walk-Through xxiii
1 Conceptual Framework and Financial Statements 1
2 Recording Business Transactions 58
3 Accrual Accounting 129
4 Presentation of Financial Statements 207
5 Internal Control, Cash, and Receivables 253
6 Inventory and Merchandising Operations 328
7 PPE and Intangibles 389
8 Investments and International Operations 449
9 Liabilities 503
10 Stockholders’ Equity 568
11 Cash Flows 631
12 Financial Statement Analysis 702
Appendices on the Web (Available at www.pearsonglobaleditions.com/Harrison)
APPENDIX A: Nestlé Annual Report Excerpts
APPENDIX B: Time Value of Money: Future Value and Present Value
APPENDIX C: Typical Charts of Accounts for Different Types of Businesses
APPENDIX D: International Financial Reporting Standards (IFRS)
Glindex 766
Company Index 777
xi
, CONTENTS
Preface xx Identify Financial Statements and Their
Inter-Relationships 22
Visual Walk-Through xxiii
Understand the Role of Ethics in Accounting 24
Chapter 1 Code of Ethics for Professional Accountants 26
Conceptual Framework End-of-Chapter Summary Problem 27
and Financial Statements 1
S P OTLI G H T Alibaba Group www Chapter 2
.alibabagroup.com 1 Recording Business Transactions 58
Understand the Role of Accounting in
Communicating Financial Information 3 S P OT L IG H T Daimler AG www.daimler
.com/en/ 58
Business Decisions 3
Explain What a Business Transaction Is 60
Accounting Is the Language of Business 3
Keep Track of Financial Statement Items 60
Two Perspectives of Accounting: Financial Accounting
and Management Accounting 4 Assets 61
Organizing a Business 4 Liabilities 62
Role of Accounting Standards 6 Equity 62
Understand the Underlying Accounting Analyze the Impact of Business
Concepts in the IFRS Conceptual Framework 8 Transactions on Accounts 63
The Conceptual Framework 8 Example: RedLotus Travel, Inc. 63
Why Is Financial Reporting Important? 8 Transactions and Financial Statements 68
Who Are the Users of Financial Reports? 9 Mid-Chapter Summary Problem 71
What Makes Financial Information Useful? 9 Double-Entry Accounting 72
What Constraints Do We Face in Providing The T-Account 73
Useful Information? 11 Increases and Decreases in the Accounts:
What Are Our Assumptions in Financial Reporting? 11 The Rules of Debit and Credit 73
What Exactly Are We Accounting For? 11 Additional Shareholders’ Equity Accounts:
Accounting Equations 12 Income and Expenses 74
Obtain Insights into Business Operations Record (Journalize and Post)
through Financial Statements 14 Transactions in the Books 76
The Income Statement Shows a Company’s Financial Copying Information (Posting) from the Journal to the
Performance 15 Ledger 76
The Statement of Changes in Equity Shows a Company’s The Flow of Accounting Data 77
Transactions with its Owners 17 Accounts after Posting to the Ledger 82
The Balance Sheet Shows a Company’s Financial Construct and Use a Trial Balance 83
Position 18
Analyzing Accounts 83
The Statement of Cash Flows Shows a Company’s Cash
Correcting Accounting Errors 84
Receipts and Payments 21
Chart of Accounts 85
xiii
, xiv Contents
The Normal Balance of an Account 86 Obtaining Annual Reports 210
Account Formats 86 Typical Structure of an Annual Report 212
Analyzing Transactions Using Only T-Accounts 87 Corporate Information 213
End-of-Chapter Summary Problem 89 Analysis and Commentaries 214
Other Statements and Disclosures 215
Chapter 3 Financial Statements 216
Accrual Accounting 129 Know the General Presentation Requirements
S POT LIG H T Richemont of Financial Statements 219
www.richemont.com 129 Complete Set of Financial Statements 219
Explain How Accrual Accounting Differs from Fair Presentation and Compliance with IFRS 220
Cash-Basis Accounting 132 Going Concern 220
Accrual Accounting and Cash Flows 133 Accrual Basis of Accounting 220
The Time-Period Concept 133 Materiality and Aggregation 220
Apply the Revenue and Expense Recognition Offsetting 222
Principles 134
Frequency of Reporting 222
The Revenue Recognition Principle 134
Comparative Information 223
The Expense Recognition Principle 136
Consistency of Presentation 223
The Matching Concept 136
Notes to the Accounts 223
Ethics in Business and Accounting Decisions 137
Mid-Chapter Summary Problem 225
Mid-Chapter Summary Problem 138
Understand the Presentation Requirements for
Adjust the Accounts 141 Statement of Financial Position 226
Which Accounts Need to Be Updated (Adjusted)? 141 Understand Presentation Requirements for Statement
Categories of Adjusting Entries 142 of Comprehensive Income 228
Prepaid Expenses 143 Understand Presentation Requirements for Statement
Unearned Revenues 145 of Changes in Equity 232
Accrued Expenses 147 Evaluate a Company’s Short-Term Liquidity 234
Accrued Revenues 148 Current Ratio 234
Depreciation of Property, Plant and Equipment 149 End-of-Chapter Summary Problem 235
Summary of the Adjusting Process 152
Chapter 5
The Adjusted Trial Balance 154
Internal Control, Cash,
Prepare Updated Financial Statements 154 and Receivables 253
Close the Books 156
S P OT L IG HT LEGO www.lego.com 253
End-of-Chapter Summary Problem 158
Understand the Role of Internal Controls and
Corporate Governance 255
Chapter 4 Fraud and Its Impact 255
Presentation of Financial Statements 207 Ethics in Business and Accounting
S POT LIG H T BASF www.basf.com 207 Decisions 259
Appreciate the Role of Annual Reports as a Internal Control 259
Communication Tool 209 The Sarbanes-Oxley Act (SOX) 260
Substance Over Style 209 Internal Control Procedures 262
