Table of Content
FINANCE CHAPTER 1 - USES OF ACCOUNTING INFORMATION AND THE
FINANCIAL STATEMENT........................................................................5
FORMATION AND ORGANIZATION OF A CORPORATION.......................................................5
CONCEPTS UNDERLYING FINANCIAL POSITION.................................................................5
FINANCIAL STATEMENTS............................................................................................ 6
Relationships among the financial statements...............................................6
GENERALLY ACCEPTED ACCOUNTING RULES..........................................6
PROFESSIONAL CONDUCT.......................................................................................... 7
DECISION MAKERS: THE USERS OF ACCOUNTING INFORMATION.........................................7
Management:.................................................................................................. 7
Users with a direct financial interest...............................................................7
Users with a indirect financial interest............................................................7
Governmental and not-for-profit organizations...............................................8
Financial analysis -.......................................................................................... 8
Ethical financial reporting...............................................................................8
RATIOS...............................................................................................8
CHAPTER 2 - MEASUREMENT CONCEPTS: RECORDING BUSINESS
TRANSACTIONS...................................................................................9
CONCEPTS UNDERLYING BUSINESS TRANSACTIONS..........................................................9
T-account......................................................................................................... 9
Rules of double-entry accounting..................................................................10
Normal balance............................................................................................. 10
Stockholder equity accounts.........................................................................10
Accounting cycle........................................................................................... 10
Business transaction analysis.......................................................................11
Summary of this transactions.......................................................................12
Trial balance.................................................................................................. 13
Preparation and use of a trial balance..........................................................13
Finding trial balance errors...........................................................................13
Recording and posting transactions..............................................................13
Ethical financial reporting and business transactions...................................14
CHAPTER 4 - FOUNDATIONS OF FINANCIAL REPORTING AND CLASSIFIED
BALANCE SHEET................................................................................15
CONCEPTS UNDERLYING FINANCIAL REPORTING............................................................15
OBJECTIVE FINANCIAL REPORT.................................................................................. 15
QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION........................................15
Enhancing qualitative characteristics...........................................................16
ACCOUNTING CONVENTIONS.................................................................................... 16
CLASSIFIED BALANCE SHEET.................................................................................... 16
Assets........................................................................................................... 16
Liabilities....................................................................................................... 17
Stockholders equity...................................................................................... 17
USING CLASSIFIED FINANCIAL STATEMENTS..................................................................18
CHAPTER 5 - ACCOUNTING FOR MERCHANDISING OPERATIONS........................................20
Concepts underlying merchandising accounting...........................................20
Terms of Sale................................................................................................. 22
CHAPTER 13 - STATEMENT OF CASH FLOWS........................................25
CONCEPTS UNDERLYING THE STATEMENT OF CASH FLOW..............................................25
Relevance of the statement of cash flow......................................................25
1
, Classification of Cash Flows..........................................................................25
Required Disclosure of non cash investing and financing Transactions........27
Alternative Presentation of operating activities............................................27
Step 1: Determining Cash Flows from operating activities............................28
Depreciation, Amortization and depletion.....................................................29
Gains and Losses.......................................................................................... 29
Changes in Current assets............................................................................29
Changes in current liabilities.........................................................................29
Schedule of Cash Flows form operating activities.........................................30
STEP 2:DETERMINING CASH FLOWS FORM INVESTING ACTIVITIES.....................................30
STEP 3: DETERMINING CASH FLOW FROM FINANCING ACTIVITIES.....................................30
STEP 4: PREPARING THE STATEMENTS OF CASH FLOWS..................................................31
Cash Flows and the financial statement........................................................31
ANALYZING THE CASH FLOWS.................................................................................. 32
Free cash flow............................................................................................... 32
CHAPTER 6 - INVENTORIES.................................................................33
CONCEPT UNDERLYING INVENTORY ACCOUNTING..........................................................33
Accrual Accounting and valuation of inventories..........................................33
Goods flows and costs flows.........................................................................33
Conservatism and the Lower-of-Cost-or-Market (LCM) rule...........................33
INVENTORY COST UNDER THE PERIODIC INVENTORY SYSTEM...........................................34
IMPACT OF INVENTORY DECISIONS............................................................................. 36
Effects on financial Statement......................................................................36
Effects on Income Taxes................................................................................ 36
Effects on cash flows..................................................................................... 36
INVENTORY COST UNDER THE PERPETUAL INVENTORY SYSTEM.........................................37
Specific identification method.......................................................................37
Average-Cost method................................................................................... 37
Fifo method................................................................................................... 38
Lifo method................................................................................................... 38
CHAPTER 9 - LONG-TERM ASSETS.......................................................39
CONCEPTS UNDERLYING LONG-TERM ASSETS...............................................................39
ACQUISITION COST OF PROPERTY, PLANT AND EQUIPMENT..............................................39
DEPRECIATION...................................................................................................... 40
Straight line method:.................................................................................... 40
Production method........................................................................................ 40
DISPOSAL OF DEPRECIABLE ASSETS...........................................................................41
Plant assets sold for cash..............................................................................41
Exchange of plant assets.............................................................................. 43
Natural resources.......................................................................................... 43
Depreciation of plants assets related to natural resources...........................43
INTANGIBLE ASSETS................................................................................................ 43
Long-term assets and financial statement....................................................44
CHAPTER 15 - MANAGERIAL ACCOUNTING AND COST CONCEPTS..........45
ROLE OF MANAGERIAL ACCOUNTING..........................................................................45
MANAGERIAL ACCOUNTING AND FINANCIAL ACCOUNTING COMPARISON..............................45
CONCEPTS UNDERLYING COSTS................................................................................. 45
Cost measurement........................................................................................ 45
Financial reporting........................................................................................ 45
INVENTORY ACCOUNTS IN MANUFACTURING ORGA.........................................................46
Manufacturing costs flow..............................................................................46
Financial statements and the reporting of costs...........................................48
Statement of cost of goods manufactured....................................................49
MEASUREMENT OF PRODUCT COSTS..........................................................................50
2
, Computing product unit................................................................................50
Product cost measurement methods............................................................50
MANAGERIAL ACCOUNTING AND THE MANAGEMENT PROCESS..........................................51
Communicating............................................................................................. 51
STANDARD OF ETHICAL CONDUCT............................................................................. 52
CHAPTER 16 - COSTING SYSTEM: JOB ORDER SYSTEM..........................54
CONCEPTS UNDERLYING PRODUCT COSTING SYSTEMS..................................................54
Matching revenue with Costs........................................................................54
JOB ORDER COSTING IN A MANUFACTURING COMPANY....................................................54
Materials....................................................................................................... 55
Labour........................................................................................................... 55
Job order in service orga...............................................................................56
Allocating cost of overhead...........................................................................56
Step 4............................................................................................................ 57
CHAPTER 17 - COSTING SYSTEMS: PROCESS COSTING.........................59
CONCEPT UNDERLYING THE PROCESS COSTING SYSTEM..................................................59
PATTERNS OF PRODUCT FLOWS AND COST FLOW METHODS............................................59
Cost flows through the work in process inventory accounts.........................59
COMPUTING EQUIVALENT PRODUCTION.......................................................................60
Equivalent production for direct materials....................................................60
Equivalent production for conversion costs..................................................60
Summary of equivalent production...............................................................61
PREPARING A PROCESS COST REPORT USING THE FIFO COSTING METHOD.........................61
Example 2..................................................................................................... 62
Preparing a process cost report using the average costing method.............64
CHAPTER 18 - VALUE-BASED SYSTEMS: ACTIVITY-BASED COSTING AND
LEAN ACCOUNTING............................................................................68
CONCEPTS UNDERLYING VALUE-BASED SYSTEMS...........................................................68
Value Chain analysis..................................................................................... 68
Supply chain................................................................................................. 68
Process value analysis..................................................................................68
ACTIVITY-BASED MANAGEMENT................................................................................. 69
Bill of Activities.............................................................................................. 70
THE NEW OPERATING ENVIRONMENT AND LEAN OPERATIONS.........................................71
JUST IN TIME......................................................................................................... 71
CONTINUOUS IMPROVEMENT OF THE WORK ENVIRONMENT.............................................71
ACCOUNTING FOR PRODUCT COSTS IN JIT OPERATING ENVIRONMENT................................72
Classifying Costs........................................................................................... 72
COST FLOWS IN TRADITIONAL AND BACKFLUSH COSTING................................................72
Traditional method........................................................................................ 73
Backflush method......................................................................................... 73
JIT costing method........................................................................................ 74
MANAGEMENT TOOLS FOR CONTINUOUS IMPROVEMENT.................................................75
Theory of Constraints.................................................................................... 75
Comparing ABM and Lean operations...........................................................75
CHAPTER 19 - COST VOLUME-PROFIT ANALYSIS...................................77
Scatter plot diagramm method.....................................................................79
Step 1 Find the Variable Rate........................................................................79
Step 2 Find the Total Fixed Costs..................................................................79
Statistical Methods........................................................................................ 80
The Engineering Method............................................................................... 80
Contribution Margin Income Statements.......................................................80
Cost-Volume-Profit Analysis...........................................................................81
3
, Breakeven Analysis....................................................................................... 81
CHAPTER 21 - FLEXIBLE BUDGETS AND PERFORMANCE ANALYSIS........83
PERFORMANCE MEASUREMENT.................................................................................. 83
Types of responsibility cases.........................................................................83
COST CENTER....................................................................................................... 83
Discretionary Cost Center............................................................................. 84
Revenue Center............................................................................................ 84
Profit Center.................................................................................................. 84
Investment Center........................................................................................ 84
FLEXIBLE BUDGET AND PERFORMANCE ANALYSIS..........................................................84
PERFORMANCE EVALUATION OF INVESTMENT CENTERS RETURN ON INVESTMENT IS THE MOST
COMMON PERFORMANCE MEASURE............................................................................86
PERFORMANCE EVALUATION OF INVESTMENT CENTERS..................................................87
Performing.................................................................................................... 88
Evaluating..................................................................................................... 89
Communicating............................................................................................. 89
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FINANCE CHAPTER 1 - USES OF ACCOUNTING INFORMATION AND THE
FINANCIAL STATEMENT........................................................................5
FORMATION AND ORGANIZATION OF A CORPORATION.......................................................5
CONCEPTS UNDERLYING FINANCIAL POSITION.................................................................5
FINANCIAL STATEMENTS............................................................................................ 6
Relationships among the financial statements...............................................6
GENERALLY ACCEPTED ACCOUNTING RULES..........................................6
PROFESSIONAL CONDUCT.......................................................................................... 7
DECISION MAKERS: THE USERS OF ACCOUNTING INFORMATION.........................................7
Management:.................................................................................................. 7
Users with a direct financial interest...............................................................7
Users with a indirect financial interest............................................................7
Governmental and not-for-profit organizations...............................................8
Financial analysis -.......................................................................................... 8
Ethical financial reporting...............................................................................8
RATIOS...............................................................................................8
CHAPTER 2 - MEASUREMENT CONCEPTS: RECORDING BUSINESS
TRANSACTIONS...................................................................................9
CONCEPTS UNDERLYING BUSINESS TRANSACTIONS..........................................................9
T-account......................................................................................................... 9
Rules of double-entry accounting..................................................................10
Normal balance............................................................................................. 10
Stockholder equity accounts.........................................................................10
Accounting cycle........................................................................................... 10
Business transaction analysis.......................................................................11
Summary of this transactions.......................................................................12
Trial balance.................................................................................................. 13
Preparation and use of a trial balance..........................................................13
Finding trial balance errors...........................................................................13
Recording and posting transactions..............................................................13
Ethical financial reporting and business transactions...................................14
CHAPTER 4 - FOUNDATIONS OF FINANCIAL REPORTING AND CLASSIFIED
BALANCE SHEET................................................................................15
CONCEPTS UNDERLYING FINANCIAL REPORTING............................................................15
OBJECTIVE FINANCIAL REPORT.................................................................................. 15
QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION........................................15
Enhancing qualitative characteristics...........................................................16
ACCOUNTING CONVENTIONS.................................................................................... 16
CLASSIFIED BALANCE SHEET.................................................................................... 16
Assets........................................................................................................... 16
Liabilities....................................................................................................... 17
Stockholders equity...................................................................................... 17
USING CLASSIFIED FINANCIAL STATEMENTS..................................................................18
CHAPTER 5 - ACCOUNTING FOR MERCHANDISING OPERATIONS........................................20
Concepts underlying merchandising accounting...........................................20
Terms of Sale................................................................................................. 22
CHAPTER 13 - STATEMENT OF CASH FLOWS........................................25
CONCEPTS UNDERLYING THE STATEMENT OF CASH FLOW..............................................25
Relevance of the statement of cash flow......................................................25
1
, Classification of Cash Flows..........................................................................25
Required Disclosure of non cash investing and financing Transactions........27
Alternative Presentation of operating activities............................................27
Step 1: Determining Cash Flows from operating activities............................28
Depreciation, Amortization and depletion.....................................................29
Gains and Losses.......................................................................................... 29
Changes in Current assets............................................................................29
Changes in current liabilities.........................................................................29
Schedule of Cash Flows form operating activities.........................................30
STEP 2:DETERMINING CASH FLOWS FORM INVESTING ACTIVITIES.....................................30
STEP 3: DETERMINING CASH FLOW FROM FINANCING ACTIVITIES.....................................30
STEP 4: PREPARING THE STATEMENTS OF CASH FLOWS..................................................31
Cash Flows and the financial statement........................................................31
ANALYZING THE CASH FLOWS.................................................................................. 32
Free cash flow............................................................................................... 32
CHAPTER 6 - INVENTORIES.................................................................33
CONCEPT UNDERLYING INVENTORY ACCOUNTING..........................................................33
Accrual Accounting and valuation of inventories..........................................33
Goods flows and costs flows.........................................................................33
Conservatism and the Lower-of-Cost-or-Market (LCM) rule...........................33
INVENTORY COST UNDER THE PERIODIC INVENTORY SYSTEM...........................................34
IMPACT OF INVENTORY DECISIONS............................................................................. 36
Effects on financial Statement......................................................................36
Effects on Income Taxes................................................................................ 36
Effects on cash flows..................................................................................... 36
INVENTORY COST UNDER THE PERPETUAL INVENTORY SYSTEM.........................................37
Specific identification method.......................................................................37
Average-Cost method................................................................................... 37
Fifo method................................................................................................... 38
Lifo method................................................................................................... 38
CHAPTER 9 - LONG-TERM ASSETS.......................................................39
CONCEPTS UNDERLYING LONG-TERM ASSETS...............................................................39
ACQUISITION COST OF PROPERTY, PLANT AND EQUIPMENT..............................................39
DEPRECIATION...................................................................................................... 40
Straight line method:.................................................................................... 40
Production method........................................................................................ 40
DISPOSAL OF DEPRECIABLE ASSETS...........................................................................41
Plant assets sold for cash..............................................................................41
Exchange of plant assets.............................................................................. 43
Natural resources.......................................................................................... 43
Depreciation of plants assets related to natural resources...........................43
INTANGIBLE ASSETS................................................................................................ 43
Long-term assets and financial statement....................................................44
CHAPTER 15 - MANAGERIAL ACCOUNTING AND COST CONCEPTS..........45
ROLE OF MANAGERIAL ACCOUNTING..........................................................................45
MANAGERIAL ACCOUNTING AND FINANCIAL ACCOUNTING COMPARISON..............................45
CONCEPTS UNDERLYING COSTS................................................................................. 45
Cost measurement........................................................................................ 45
Financial reporting........................................................................................ 45
INVENTORY ACCOUNTS IN MANUFACTURING ORGA.........................................................46
Manufacturing costs flow..............................................................................46
Financial statements and the reporting of costs...........................................48
Statement of cost of goods manufactured....................................................49
MEASUREMENT OF PRODUCT COSTS..........................................................................50
2
, Computing product unit................................................................................50
Product cost measurement methods............................................................50
MANAGERIAL ACCOUNTING AND THE MANAGEMENT PROCESS..........................................51
Communicating............................................................................................. 51
STANDARD OF ETHICAL CONDUCT............................................................................. 52
CHAPTER 16 - COSTING SYSTEM: JOB ORDER SYSTEM..........................54
CONCEPTS UNDERLYING PRODUCT COSTING SYSTEMS..................................................54
Matching revenue with Costs........................................................................54
JOB ORDER COSTING IN A MANUFACTURING COMPANY....................................................54
Materials....................................................................................................... 55
Labour........................................................................................................... 55
Job order in service orga...............................................................................56
Allocating cost of overhead...........................................................................56
Step 4............................................................................................................ 57
CHAPTER 17 - COSTING SYSTEMS: PROCESS COSTING.........................59
CONCEPT UNDERLYING THE PROCESS COSTING SYSTEM..................................................59
PATTERNS OF PRODUCT FLOWS AND COST FLOW METHODS............................................59
Cost flows through the work in process inventory accounts.........................59
COMPUTING EQUIVALENT PRODUCTION.......................................................................60
Equivalent production for direct materials....................................................60
Equivalent production for conversion costs..................................................60
Summary of equivalent production...............................................................61
PREPARING A PROCESS COST REPORT USING THE FIFO COSTING METHOD.........................61
Example 2..................................................................................................... 62
Preparing a process cost report using the average costing method.............64
CHAPTER 18 - VALUE-BASED SYSTEMS: ACTIVITY-BASED COSTING AND
LEAN ACCOUNTING............................................................................68
CONCEPTS UNDERLYING VALUE-BASED SYSTEMS...........................................................68
Value Chain analysis..................................................................................... 68
Supply chain................................................................................................. 68
Process value analysis..................................................................................68
ACTIVITY-BASED MANAGEMENT................................................................................. 69
Bill of Activities.............................................................................................. 70
THE NEW OPERATING ENVIRONMENT AND LEAN OPERATIONS.........................................71
JUST IN TIME......................................................................................................... 71
CONTINUOUS IMPROVEMENT OF THE WORK ENVIRONMENT.............................................71
ACCOUNTING FOR PRODUCT COSTS IN JIT OPERATING ENVIRONMENT................................72
Classifying Costs........................................................................................... 72
COST FLOWS IN TRADITIONAL AND BACKFLUSH COSTING................................................72
Traditional method........................................................................................ 73
Backflush method......................................................................................... 73
JIT costing method........................................................................................ 74
MANAGEMENT TOOLS FOR CONTINUOUS IMPROVEMENT.................................................75
Theory of Constraints.................................................................................... 75
Comparing ABM and Lean operations...........................................................75
CHAPTER 19 - COST VOLUME-PROFIT ANALYSIS...................................77
Scatter plot diagramm method.....................................................................79
Step 1 Find the Variable Rate........................................................................79
Step 2 Find the Total Fixed Costs..................................................................79
Statistical Methods........................................................................................ 80
The Engineering Method............................................................................... 80
Contribution Margin Income Statements.......................................................80
Cost-Volume-Profit Analysis...........................................................................81
3
, Breakeven Analysis....................................................................................... 81
CHAPTER 21 - FLEXIBLE BUDGETS AND PERFORMANCE ANALYSIS........83
PERFORMANCE MEASUREMENT.................................................................................. 83
Types of responsibility cases.........................................................................83
COST CENTER....................................................................................................... 83
Discretionary Cost Center............................................................................. 84
Revenue Center............................................................................................ 84
Profit Center.................................................................................................. 84
Investment Center........................................................................................ 84
FLEXIBLE BUDGET AND PERFORMANCE ANALYSIS..........................................................84
PERFORMANCE EVALUATION OF INVESTMENT CENTERS RETURN ON INVESTMENT IS THE MOST
COMMON PERFORMANCE MEASURE............................................................................86
PERFORMANCE EVALUATION OF INVESTMENT CENTERS..................................................87
Performing.................................................................................................... 88
Evaluating..................................................................................................... 89
Communicating............................................................................................. 89
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