Skip to content
Class Notes

Lecture Notes for Financial and Managerial Accounting, 8th Edition

Lecture Notes for Financial and Managerial Accounting, 8th Edition offers expertly curated lecture summaries, helping you understand key concepts with ease.

Preview 16 of 269 pages

See the first 16 pages exactly as they appear in the document.

  1. Page 1
    Read page 1 as text

    Financial and Managerial Accounting, 8 th Edition 1-1 CHAPTER 1 ACCOUNTING IN BUSINESS Related Assignment Materials Student Learning Objectives Questions Quick Studies * Exercises * Problems* AA and BTN Conceptual objectives: C1. Explain the purpose and importance of accounting 1, 2, 4, 5, 1 - 1 1 - 1, 1 - 4, 1 - 6 BTN 1 - 4 C2. Identify users and uses of, and opportunities, in accounting. 3, 6, 7, 8, 9, 10, 12, 23 1 - 2 1 - 2, 1 - 3, 1 - 4 BTN 1 - 2, BTN 1 - 6 C3. Explain why ethics are crucial to accounting. 11, 14 1 - 3 1 - 4, 1 - 5 BTN 1 - 1 C4. Explain generally accepted accounting principles and define and apply several accounting principles. 13, 14, 15, 19 1 - 4, 1 - 5, 1 - 6 1 - 6, 1 - 7 1 - 9, SP BTN 1 - 6 C5. B Identify and describe the three major activities of organizations. (Appendix 1B) 14, 16, 30, 31 1 - 21 1 - 13, 1 - 14 Analytical objectives: A1. Define and interpret the accounting equation and each of its components. 17, 20, 24 1 - 7, 1 - 8, 1 - 9, 1 - 17 1 - 8, 1 - 9, 1 - 23 1 - 1, 1 - 2, 1 - 8, 1 - 10 AA 1 - 1, AA 1 - 2, BTN 1 - 5 A2. Compute and interpret return on assets. 28 1 - 16 1 - 14, 1 - 18 1 - 10, 1 - 11 AA 1 - 1, AA 1 - 2, AA 1 - 3, B TN 1 - 5 A3. A Explain the relation between return and risk. (Appendix 1A) 29 1 - 12 Procedural objectives: P1. Analyze business transactions using the accounting equation. 18 1 - 10, 1 - 11 1 - 10, 1 - 11, 1 - 12, 1 - 13 1 - 1, 1 - 2, 1 - 7, 1 - 8, 1 - 9, SP BTN 5 P2. Identify and prepare basic financial statements and explain how they interrelate. 21, 22, 23, 24, 25, 26, 27, 32, 33 1 - 12, 1 - 13, 1 - 14, 1 - 15 1 - 15, 1 - 16, 1 - 17, 1 - 18, 1 - 19, 1 - 20, 1 - 22 1 - 3, 1 - 4, 1 - 5, 1 - 6, 1 - 7, 1 - 9 *See additional information on next page that pertains to these quick studies, exercises , and problems. SP refers to the Serial Problem A A refers to Accounting Analysis BTN refers to Beyond the Numbers Questions with Guided Exampl e videos

  2. Page 2
  3. Page 3
    Read page 3 as text

    Financial and Managerial Accounting, 8 th Edition 1-2 Additional Information on Related Assignment Material available in Connect ® Available on the instructor ’ s course - specific website, Connect repeats all numerical Quick Studies, all Exercises, and Problem Set A. Connect also provides algorithmic versions for Quick Study, Exercises, and Problems. It allows instructors to monitor, promote, and assess student learning. It can be used in practice, homework, or exam mode. W e have a variety of tools available to make updating your course as painless as possible. Our latest tool is the Connect Pre - Built Course Package. The package includes three tools to get you started with Connect for the new edition. You can use the pre - built course as is or customize it to meet your needs. Connect Pre - Built Course Package (formerly called Library course) • Connect course: Pre - built courses include reading, homework, and assessment for each chapter. Pre - built courses are designed and created by a digital faculty consultant that uses the product in the course. • Key: a spreadsheet that lists all the assignments (organized by type and learning objective) and policy settings to make it quick and easy to see what is included in the pre - built course. • Sample syllabi: customizable document that highlights the assignments and policy settings in the pre - built course . The Connect Orientation Videos provide an introduction for your students for using Connect to complete assignments to help get your students up and running in the system. There are videos covering: • End - of - Chapter Assignments • General Ledger • Concept Overview Videos • Excel Simulations • LearnSmart and Smartbook General Ledger Problems Assignable within Connect, General Ledger (GL) problems offer students the ability to see how transactions post from the gene ral journal all the way through the financial statements. Critical thinking and analysis components are added to each GL problem to ensure understanding of the entire process . GL problems are auto - graded and provide instant feedback to the student. Excel Simulations Assignable within Connect, Excel Simulations allow students to practice their Excel skills — such as basic formulas and formatting — within the context of accounting. These questions feature animated, narrated Help and Show Me tutorials (when enabled). Excel Simulations are auto - graded and provide instant feedback to the student. LearnSmart/Smartbook Available within Connect, SmartBook makes study time as productive and efficient as possible. SmartBook identifies and closes knowledge gaps through a continually adapting reading experience that provides personalized learning resources at the precise moment of need. This ensures that every minute spent with SmartBook is returned to the student as the most value - added minute possible. The result? More confidence, better grades, and greater success. Chapter Videos A growing number of students now learn accounting online. To aid instructors and students completing their accounting courses in person, fully online, and in hybrid formats, we offer a large set of learning resource including nearly 500 videos to ensure student success. There are also instructor resources to add a personal touch to these learning aids. Need - to - Know Need - to - Know demonstrations are located at key junctures in each chapter. These demonstrations pose questions about the material just presented — content that students “ need to know ” to learn accounting. Accompanying solutions walk students through key procedures and analysis necessary to be successful with homework and test materials. Need - to -

  4. Page 4
    Read page 4 as text

    Financial and Managerial Accounting, 8 th Edition 1-3 Know demonstrations are supplemented with narrated, animated, step - by - step walk - through videos led by an instructor and available via Connect. Select chapters also include Comprehensive Need - to - Knows that draw on materials from the entire chapter. LO Need - to - Know Title Time C1, C2 1 - 1 Accounting Users 1:29 C3, C4 1 - 2 Accounting Guidance 3:59 A1 1 - 3 Accounting Equation 1:51 P1 1 - 4 Transaction Analysis 3:11 P2 1 - 5 Financial Statements 4:26 Concept Overview The Concept Overview Videos (COV ’ s) provide engaging narratives of all chapter learning objectives in an assignable and interactive online format. The concept overview videos replace the previous edition interactive presentations. They follow the structure of the text and are organized to match the specific learning objectives within each chapter. The concept overview videos provide additional explanation and enhancement of material from the chapter, allowing students to learn, study, and practice with instant feedback, at their own pace. Each video is paired with a Knowledge Check question. LO Title Time C1 Explain the purpose and importance of accounting Importance of Accounting 0:50 Definition Importance of Accounting 0:41 Accounting Versus Recordkeeping 0:58 C2 Identify users and uses of, and opportunities in, accounting. Information Users 1:34 Opportunities in Accounting 0:45 Public versus Private Accounting Opportunities in Accounting 0:45 Opportunities for in Accounting Professionals 1:00 C3 Explain why ethics are crucial to accounting

  5. Page 5
    Read page 5 as text

    Financial and Managerial Accounting, 8 th Edition 1-4 The Importance of Ethics 0:45 Ethical Decision Making 0:55 Sarbanes - Oxley Act 1.44 C4 Explain generally accepted accounting principles and define and apply several accounting principles Generally Accepted Accounting Principles 1:12 International Standards and Convergence 1:41 Principles of Accounting 1:44 Assumptions and Constraints 1:17 Sarbanes - Oxley Act 1:58 C5 Appendix 1B — Identify and describe the three major activities of organizations Business Activities 1:11 A1 Define and interpret the accounting equation and each of its components Accounting Equation 1:02 The Expanded Accounting Equation 2:07 A2 Compute and interpret return on assets Financial Statement Analysis 1:15 Return on Assets 2:11 Return on Assets Illustration 2:07 A3 Appendix 1A — Explain the relation between return and risk Return and Risk 1:04 P1 Analyze business transactions using the accounting equation Transaction Analysis 0:52 Illustration 1:15 Transaction Summary 2:58 P2 Identify and prepare basic financial statements and explain how they interrelate

  6. Page 6
    Read page 6 as text

    Financial and Managerial Accounting, 8 th Edition 1-5 Financial Statements 0:17 Income Statement 0:42 Statement of Retained Earnings 1:46 Balance Sheet 1:38 Statement of Cash Flows 2:18 Hints/ Guided Examples The Guided Examples in Connect provide a narrated, animated, step - by - step walk - through of select quick studies, exercises, and general ledger problems similar to those assigned. These short presentations can be turned on or off by instructors and provide reinforcement when students need it most. Please note that they are labeled as “Hints” in Connect assignments. The animated PowerPoints without the video and audio functions for the Guided Examples are also available in the Connect Instructor Library and Exercise Presentations. These are indicated in the Related Assignment Materials grid on page 1 in blue bold font. Synopsis of Chapter Revisions Updated opener — Apple and entrepreneurial assignment. Updated salary info for accountants. Revised business entity section along with adding LLC. Updated section on FASB objectives and accounting constraints. New layout for introducing the expanded accounting equation. New layout for introducing financial statements. Updated Apple numbers for NTK 1 - 5. New Cheat Sheet reinforces chapter content. Global View moved to text - end appendix — for all chapters. Sustainability section moved to text - end appendix — for all chapters. Updated return on assets analysis using Nike and Under Armour. Added a new Exercise assignment and Quick Study assignment. Added new analysis assignments: Company Analysis, Comparative Analysis, and Global Analysis. Chapter Outline I. Importance of Accounting — we live in the information age in which information, and its reliability, impacts the financial well - being of us all. Accounting is an information and measurement system that identifies, records, and communicates an organization’s business activities. II. Users of Accounting Information – accounting is called the language of business because it communicates data the helps users make better decisions. People using accounting information are divided into two groups: 1. External Users — those not directly involved with running the company. Examples: shareholders (investors), lenders, directors, external auditors, nonmanagerial and nonexecutive employees, labor unions, regulators, voters, legislators, government officials, customers, suppliers, etc.

  7. Page 7
    Read page 7 as text

    Financial and Managerial Accounting, 8 th Edition 1-6 a. Financial Accounting — area of accounting aimed at serving external users by providing them with general - purpose financial statements . 2. Internal Users — those directly involved in managing and operating an organization. Internal users include research and development, purchasing, human resource, production, distribution, marketing, and service managers. a. Managerial Accounting — area of accounting that serves the decision - making needs of internal users. b. Internal Reports — are designed for the special needs of internal user s . 3 . Opportunities in Accounting — - f our broad areas of opportunities are financial, managerial, taxation, and accounting - related. a . Private accounting , which are employees working for businesses, offers the most opportunities. b . Public accounting offers the next largest number of opportunities . Opportunities include auditing and taxation. c . Government (and not - for - profit) agencies, including business regulation and investigation of law violations, also offer opportunities. d. Accounting specialists include certified public accountants, CPAs. Certifications include certified management accounting, CMA, and certified internal auditors, CIA. Specialists include certified bookkeeper, CB, certified payroll professional, CPP, certified fraud examiner, CFE, and certified forensic accountant, CrFA. I I I. Fundamentals of Accounting A. Ethics — A Key concept — Ethics are beliefs that separate right from wrong. 1. Fraud Triangle: Ethics under Attack — model that asserts three factors must exist for a person to commit fraud: opportunity, pressure, and rationalization. a. Internal Controls — procedures to protect company property and equipment and ensure reliable accounting reports, promote efficiency, and encourage adherence to company policies. b. Enforcing Ethics: Congress passed the Sarbanes - Oxley Act (SOX) and the Dodd - Frank Wall Street Reform and Consumer Protection Act to help enforce ethics at publicly traded companies. IV. Generally Accepted Accounting Principles (GAAP) — concepts and rules that govern financial accounting. The purpose of GAAP is to make information in accounting statements relevant, reliable, and comparable. A. T he Financial Accounting Standards Board (FASB) is given the task of setting GAAP from the Securities and Exchange Commission ( SEC ) . The SEC oversees proper use of GAAP. B . International Standards — The International Accounting Standards Board (IASB) issues standards (International Financial Reporting Standards, or IFRS) that identify preferred accounting practices in the global economy. IFRS are similar but sometimes different from U.S. GAAP. C. Conceptual Framework — FASB Conceptual Framework consists of: a. Objectives — to provide information useful to investors, creditors, and others. b. Qualitative Characteristics — to require information that is relevant, reliable , and comparable. c. Elements — to define items in financial statements. d. Recognition and Measurement — to set criteria that an item must meet for it to be recognized as an element; and how to measure that element.

  8. Page 8
    Read page 8 as text

    Financial and Managerial Accounting, 8 th Edition 1-7 D . Principles , Assumptions and Constraint — two types are general principles (assumptions, concepts, and guidelines for preparing financial statements; stem from long - used accounting practices) and specific principles (detailed rules used in reporting transactions and events). Accounting Principles — General principles consist of four general principles: a. Measurement principle (cost principle) — accounting information is based on actual costs incurred in business transactions. Cost is measured on a cash or equal - to - cash basis. Information based on cost is considered objective. Objectivity means information is supported by independent, unbiased evidence. b. Revenue recognition principle — revenue is recognized (recorded) (1) when goods or services are provided to customers and (2) at the amount expected to be received from the customer. c. Expense recognition principle (matching principle) — a company record expenses it incurred to generate revenues it reported. d. Full disclosure principle — a company r ecords the details behind financial statements that would impact users’ decisions; often in footnotes to the statements. Accounting Assumptions - a. Going - concern assumption — accounting information presumes that the business will continue operating instead of being closed or sold. b . Monetary unit assumption — transactions and events are expressed in monetary, or money, units. Generally , this is the currency of the country in which it operates, but today some companies express reports in more than one monetary unit. c . Time period assumption — the life of the company can be divided into time periods, such as months and years, and useful reports can be prepared for those periods. d . Business entity a ssumption — a business is accounted for separately from other business entities and its owner. Necessary for good decisions . e. Exhibit 1.8: Types and Attributes of Businesses i. Sole proprietorship is a business owned by one person that has unlimited liability. It is not a separate legal entity. The owner has unlimited liability and is, therefore, personally liable for the business debts. ii. Partnership is a business owned by two or more people, called partners, who are subject to unlimited liability. The business is not subject to an income tax, but the owners are responsible for personal income tax on their individual share of the net income of entity. iii. Limited Liability Company (LLC) is a business owned by one or more members. It offers limited liability to the members who are not personally liable for the debts of the LLC, and is a separate entity with the same rights and responsibilities as a person. IV. Corporation is a business that is a separate legal entity whose owners are called shareholders or stockholders. These owners have limited liability. The entity is responsible for a business income tax, and the owners are responsible for personal income tax on profits that are distributed to them in the form of dividends. f. Accounting Constraints - t here are basic constraints on financial reporting. i. The cost - benefit constraint says that information disclosed by the entity must have benefits to the user that are greater than the costs of providing it. ii. The materiality constraint is the ability of information to influence decisions.

  9. Page 9
    Read page 9 as text

    Financial and Managerial Accounting, 8 th Edition 1-8 iii. Conservatism and industry practices are sometimes referred to as constraints as well. V . Business Transactions and Accounting A. Accounting Equation (Assets = Liabilities + Equity) — elements of the equation include: 1. Assets — resources a company owns or controls that are expected to carry future benefits . Examples: cash, accounts receivable, supplies, equipment , and land) . 2. Liabilities — creditors’ claims on assets. These claims reflect obligations to transfer assets or provide products or services to others. Examples: wages payable, accounts payable, notes payable, and taxes payable. 3. Equity — owner’s claim on assets; assets minus liabilities. Also called net assets or residual equity. Increases in equity result from owner investments and revenues . Decreases results from dividends and expenses. Equity consists of: a. Common Stock — owner investments are inflows of cash and other net assets from stockholders , which increase equity. b. Revenues — increase equity from sales of products and services to customers. Revenues increase equity (via net income) and result from a company’s earnings activities . c. Dividends — outflows of cash and other assets to stockholders . d. Expenses — cost of assets or services used to earn revenues Expenses decrease equity. e. Expanded Accounting Equation: Assets = Liabilities + Owner, Capital – Owner, Withdrawals + Revenues – Expenses. Net income occurs when revenues exceed expenses. Net income increases equity. A net loss occurs when expenses exceed revenues, which decreases equity. VI. Transaction Analysis — each transaction and event always leaves the equation in balance. (Assets = Liabilities + Equity) 1. Investment by owner in exchange for common stock: ASSET = LIABILITIES + EQUITY + Cash + Common Stock Increase on both sides of equation keeps equation in balance. 2. Purchase supplies for cash: ASSET = LIABILITIES + EQUITY + Supplies − Cash Increase and decrease on one side of the equation keeps equation in balance. 3. Purchase equipment for cash: ASSET = LIABILITIES + EQUITY + Equipment – Cash Increase and decrease on one side of the equation keeps equation in balance. 4. Purchase supplies on credit: ASSET = LIABILITIES + EQUITY + Supplies + Accounts Payable Increase on both sides of equation keeps equation in balance. 5. Provide services for cash: ASSET = LIABILITIES + EQUITY + Cash + Revenue Earned

  10. Page 10
    Read page 10 as text

    Financial and Managerial Accounting, 8 th Edition 1-9 Increase on both sides of equation keeps equation in balance. 6,7. Payment of expenses in cash (salaries, rent, etc.): ASSET = LIABILITIES + EQUITY − Cash − (+ Expense) Decrease on both sides of equation keeps equation in balance. 8. Provided services and facilities for credit: ASSET = LIABILITIES + EQUITY + Ac c t. Rec. + Revenue Earned Increase on both sides of equation keeps equation in balance. 9. Receipt of cash from accounts receivable (customers paying on their accounts): ASSET = LIABILITIES + EQUITY + Cash − Acct. Rec Increase and decrease on one side of the equation keeps equation in balance. 10. Payment of accounts payable : ASSET = LIABILITIES + EQUITY − Cash − Accounts Payable Decrease on both sides of equation keeps equation in balance. 11. Dividends paid to stockholder : ASSET = LIABILITIES + EQUITY − Cash − (+ Dividends ) Decrease on both sides of equation keeps equation in balance. (Note: since dividends are not expenses, they are not used in computing net income.) V II . Financial Statements A. The four financial statements and their purposes are: 1 . Income Statement — describes a company’s revenues and expenses along with the resulting net income or loss over a period of time. (Net income occurs when revenues exceed expenses. Net loss occurs when expenses exceed revenues.) 2 . Statement of Retained Earnings — explains changes in equity from net income (or loss) , owner investments, and dividends over a period of time. 3 . Balance Sheet — describes a company’s financial position (types and amounts of assets, liabilities, and equity) at a point in time. 4. Statement of Cash Flows — identifies cash inflows (receipts) and cash outflows (payments) over a period of time. B. Statement Preparation from Transaction Analysis — prepared in the following order using the procedure indicated below. 1. Income Statement ⎯ information about revenues and expenses is conveniently taken from the owner's equity column. Total revenues minus total expenses equals net income or loss. Net income (or net loss) is transferred to the Statement of Owner’s Equity. 2. Statement of Retained Earnings ⎯ reports equity changes over the reporting period. Shows beginning retained earnings balance, dividends and n et income, (or net loss) from the income statement , . Ending retained earnings is added to Balance Sheet. 3. Balance Sheet ⎯ shows the financial position as of the date of the statement. Includes the

  11. Page 11
    Read page 11 as text

    Financial and Managerial Accounting, 8 th Edition 1-10 balance of each asset , liability and the ending retained earnings balance (note that this is taken from the statement of retained earnings), is listed along with common stock and added to total liabilities to get total liabilities and equity. This total must agree with total assets to prove the accounting equation. Either the account form or the report form may be used to prepare the balance sheet. 4. Statement of Cash Flows ⎯ the cash column must be carefully analyzed to organize and report cash flows in categories of operating, investing, and financing. The net change in cash is determined by combining the net cash flow in each of the three categories. This change is combined with the beginning cash. The resulting figure should be the ending cash that was shown on the balance sheet. V II I. Decision Analysis — Return on Assets (ROA) — a profitability measure. Also called Return on Investment (ROI). A. Useful in evaluating management, analyzing and forecasting profits, and planning activities. B. The return on assets is calculated by dividing net income for a period by average total assets. (Average total assets is determined by adding the beginning and ending assets and dividing by 2.) C. As with all analysis tools, results should be compared to previous business results as well as competitor’s results and industry norms. IX . Return and Risk (Appendix 1A) A. Risk — the uncertainty about the return we will earn on an investment. B. The lower the risk, the lower the return. C. Higher risk implies higher, but riskier, returns. X . Business Activities (Appendix 1B) The accounting equation is derived from business activities. Three major business activities are: 1. Financing activities — activities that provide the means organizations use to pay for resources such as land, buildings, and equipment to carry out plans. Two types of financing are: a. Owner financing — refers to resources contributed by owner including income left in the organization. b. Nonowner (or creditor) financing — refers to resources loaned by creditors (lenders). 2. Investing activities — are the acquiring and disposing of resources (assets) that an organization uses to acquire and sell its products or services. a. Investing (assets) is balanced by Financing (liabilities and equity). Operating activities are the result of investing and financing. 3. Operating activities — involve using resources to research, develop, purchase, produce, distribute, and market products and services.

  12. Page 12
    Read page 12 as text

    Financial and Managerial Accounting, 8 th Edition 2-1 CHAPTER 2 ACCOUNTING FOR BUSINESS TRANSACTIONS Related Assignment Materials Student Learning Objectives Questions Quick Studies* Exercises* Problems* AA and BTN Conceptual objectives: C1. Explain the steps in processing transactions and the role of source documents. 3, 6, 9 2 - 1 2 - 1 2 - 6 BTN 2 - 1, BTN 2 - 2, BTN 2 - 4, BTN 2 - 7 C2. Describe an account and its use in recording transactions. 1, 2, 14 2 - 2 2 - 2 2 - 5 BTN 2 - 2, BTN 2 - 4 C3. Describe a ledger and a chart of accounts. 2 - 3 2 - 3, 2 - 16 2 - 1, 2 - 2, 2 - 3, 2 - 4, 2 - 6, GL : 2 - 4, 2 - 5, 2 - 6, 2 - 7 C4. Define debits and credits and explain double - entry accounting. 7 2 - 4, 2 - 5, 2 - 10 2 - 4 2 - 1, 2 - 2, 2 - 3, GL: 2 - 4, 2 - 5, 2 - 6 BTN 2 - 4 Analytical objectives: A1. Analyze the impact of transactions on accounts and financial statements. . 2 - 7 2 - 5, 2 - 6, 2 - 9, 2 - 13, 2 - 15, 2 - 20 2 - 1, 2 - 2, 2 - 3, 2 - 4, 2 - 5, 2 - 6, SP, GL: 2 - 2, 2 - 4, 2 - 5, 2 - 6, 2 - 7, 2 - 8 AA 2 - 1, AA 2 - 2, BTN 2 - 2, BTN 2 - 3, BTN 2 - 4, BTN 2 - 5, BTN 2 - 6 A2. Compute the debt ratio and describe its use in analyzing financial condition. 2 - 15 2 - 22 2 - 5 AA 2 - 1, AA 2 - 2, AA 2 - 3, BTN: 2 - 5, BTN 2 - 6 Procedural objectives: P1. Record transactions in a journal and post entries to a ledger. 4, 5 2 - 6, 2 - 11 2 - 7, 2 - 11, 2 - 12, 2 - 14, 2 - 19, 2 - 21, 2 - 23 2 - 1, 2 - 2, 2 - 3, 2 - 4, SP, GL: 2 - 1, 2 - 3, 2 - 4, 2 - 5, 2 - 6, 2 - 7, 2 - 8 P2. Prepare and explain the use of a trial balance. 8 2 - 8 2 - 8, 2 - 10, 2 - 20, 2 - 21 2 - 1, 2 - 2, 2 - 3, 2 - 4, 2 - 6, SP, GL: 2 - 4, 2 - 5, 2 - 6, 2 - 7, 2 - 8 P3. Prepare financial statements from business transactions. 10, 11, 12, 13, 15, 16, 17, 18 2 - 9, 2 - 12, 2 - 13, 2 - 14 2 - 16, 2 - 17, 2 - 18, 2 - 19 2 - 7 , ES - 1, ES - 2 BTN 2 - 2, BTN 2 - 5, BTM 2 - 6 *See additional information on next page that pertains to these quick studies, exercises, and problems. SP refers to the Serial Problem AA refers to Accounting Analysis

  13. Page 13
    Read page 13 as text

    Financial and Managerial Accounting, 8 th Edition 2-2 BTN refers to Beyond the Numbers GL refers to General Ledger Problems Questions with Guided Example videos Additional Information on Related Assignment Material See Chapter 1 of the Instructor’s Resource Manual for more information on materials for this text available in Connect . Connect Available on the instructor’s course - specific website, Connect : • A ll numerical Quick Studies, all Exercises and Problems Set A. o Connect also provides algorithmic versions for Quick Study, Exercises, and Problems. • General Ledger Problems • Excel Simulations • LearnSmart/SmartBook Hints/Guided Examples Please note that the Guided Examples are labeled as “Hints” in Connect assignments. The animated PowerPoints without the video and audio functions for the Guided Examples are also available in the Connect Instructor Library and Exercise Presentations. These are indicated in the Related Assignment Materials grid on page 1 in blue bold font. Need - to - Know Videos LO Need - to - Know Title Time C1 , C2, C3 2 - 1 Classifying Accounts 1:34 C4 2 - 2 Normal Account Balance 2:54 P1, A1 2 - 3 Recording Transactions 1:54 P2 2 - 4 Preparing Trial Balance 2:01 Concept Overview Videos Each video is paired with a Knowledge Check question . LO Title Time C1 Explain the steps in processing transactions and the role of source documents. Source Documents 0:58 C2 Describe an account and its use in recording transactions. Types of Accounts 0:52 Asset Accounts 3:48 Liability Accounts 2:35 Equity Accounts 1:29 Decision Insights 0:14 C3 Describe a ledger and a chart of accounts. Chart of Accounts 1:45 Ledger 0:25 C4 Define debits and credits and explain double - entry accounting. T - accounts 0:54

  14. Page 14
    Read page 14 as text

    Financial and Managerial Accounting, 8 th Edition 2-3 Double - Entry Accounting 0:47 Normal Balance Rules 1:33 Normal Balance - Equity 0:43 A1 Analyze the impact of transactions on accounts and financial statements. Receive Investment by Owner 1:00 Purchase Equipment for Cash 0:46 Purchase Supplies for Cash 0:32 Providing Services for Cash 0:32 Payment of Expense on Credit 0:34 Payment of Accounts Payable 0:43 A2 Compute the debt ratio and describe its use in analyzing financial condition. Financial Statement Data 1:25 Debt Ratio 1:13 P1 Record transactions in a journal and post entries to a ledger. Accounting Process 0:20 Journalizing Transactions 1:30 Posting Journal Entries to Ledger Accounts: General Procedures 1:37 Post Entries to Ledger Accounts: Four step Process 0:48 P2 Prepare and explain the use of a trial balance. Trial Balance 1:33 Trial Balance – Searching for Errors 1:04 P3 Prepare financial statements from business transactions. Preparing Financial Statements 2:01 How Financial Statements Link 1:10 Synopsis of Chapter Revisions NEW opener — Fitbit and entrepreneurial assignment. New visual for process to get from transactions to financial statements. New layout on four types of accounts that determine equity. Improved presentation of “Double - Entry System” section. Updated Apple data for NTK 2 - 4. Updated debt ratio analysis using Costco and Walmart. New Cheat Sheet reinforces chapter content. Added four new Quick Studies. Added three new Exercises. Added new analysis assignments: Company Analysis, Comparative Analysis, and Global Analysis.

  15. Page 15
    Read page 15 as text

    Financial and Managerial Accounting, 8 th Edition 2-4 Chapter Outline I. Basis of Financial Statements — process to g o from transactions and events to financial statements includes the following: 1. Identify each transaction and event from source documents, which identify and describe transactions and events entering the accounting process. 2. Analyze each transaction and event using the accounting equation. 3. Record relevant transactions and events in a journal. 4. Post journal information to ledger accounts. 5. Prepare and analyze the trial balance and financial statements. A. Source D ocuments — identify and describe transactions and events entering the accounting system. II. The “Account” Underlying Financial Statements An account is a record of increases and decreases in a specific asset, liability, equity, revenue, or expense. Account categories include: 1. Assets — resources owned or controlled by a company that have future economic benefit. Examples include Cash, Accounts Receivable, Note Receivable, Prepaid Expenses, Prepaid Insurance, Supplies, Store Supplies, Equipment, Buildings, and Land. a. Accounts Receivable — promises of payment from customers. b. Prepaid accounts — assets from prepayments of future expenses expected to be incurred in future accounting periods. 2. Liabilities — claims (by creditors) against assets, which means they are obligations to transfer assets or provide products or services to others. Examples include Accounts Payable, Note Payable, Unearned Revenues, and Accrued Liabilities. a. Accounts Payable — promise s to pay later , usually arising from purchase of inventory or other assets. b. Notes Payable — written promissory note to pay a future amount. c. Unearned revenue — revenue collected before it is earned/ before services or goods are provided. d. Accrued liabilities — amounts owed that are not yet paid. 3. Equity — an owner’s claim on a company’s assets is called equity or owner’s equity . Examples include C ommon stock , D ividends (decreases equity), Revenues from providing goods or services; i.e., Sales, Fees Earned, ( increase s equity ) , and Expenses from assets or services used in operation; i.e., Supplies Expense, ( decrease s equity ) . III . Ledger and Chart of Accounts 1. The general ledger or ledger (referred to as the books ) is a collection of all accounts and their balances for an accounting system. 2. The chart of accounts is a list of all accounts in the ledger with their identification numbers. I V . Double - Entry Accounting Double - entry accounting demands the accounting equation remain in balance. This means that for each transaction (1) at least two accounts are involved with at least one debit and one credit and (2) total amount debited must equal the total amount credited. A. Debits and Credit 1. A T - account represents a ledger account and is used to understand the effects of one or more transactions. It is shaped like the letter T with the account title on top.

  16. Page 16
    Read page 16 as text

    Financial and Managerial Accounting, 8 th Edition 2-5 2. The left side of an account is called the debit side. A debit is an entry on the left side of an account. 3. The right side of an account is called the credit side. A credit is an entry on the right side of an account. 4. Accounts are assigned balance sides based on their classification or type. 5. To increase an account, an amount is placed on the balance side, and to decrease an account, the amount is placed on the side opposite its assigned balance side . 6. The account balance is the difference between the total debits and the total credits recorded in that account. When total debits exceed total credits, the account has a debit balance . When total credits exceed total debits , the account has a credit balance . When total debits equal total credits , the account has a zero balance . B. Double - Entry System — requires that each transaction affect, and be recorded in, at least two accounts. The total debits must equal the total credits for each transaction. 1. The assignment of balance sides (debit or credit) follows the accounting equation. a. Assets are on the left side of the equation; therefore, the left, or debit, side is the normal balance for assets. b. Liabilities and equities are on the right side; therefore, the right, or credit , side is the normal balance for liabilities and equity. c. Dividends , revenues, and expenses really are changes in equity, but it is necessary to set up temporary accounts for each of these items to accumulate data for statements. Withdrawals and expense accounts really represent decreases in equity; therefore, they are assigned debit balances. Revenue accounts really represent increases in equity; therefore, they are assigned credit balances. V. Analyzing and Processing Transactions A. Journalizing and Posting Transactions Four steps in processing transactions are as follows: 1. Identify transactions and source documents. 2. Analyze transactions using the accounting equation. Apply double - entry accounting to determine account to be debited and credited. 3. Record journal entry — recorded chronologically. (A journal gives us a complete record of each transaction in one place.) a. A General Journal is the most flexible type of journal because it can be used to record any type of transaction. b. When a transaction is recorded in the General Journal, it is called a journal entry . A journal entry that affects more than two accounts is called a compound journal entry. c. Each journal entry must contain equal debits and credits . 4. Post entry to ledger — process of transferring entries from the journal to the ledger. a. Debits are posted as debit, and credits as credits to the accounts identified in the journal entry. b. Actual accounting systems use balance column accounts rather than T - accounts in the ledger. c. A balance column account has debit and credit columns for recording entries and a third column for showing the balance of the account after each entry is posted. Note: Refer to the 16 basic transactions in the textbook for an illustration of analyzing, journalizing, and posting.

253 more pages in the full document

Unlock it once and it stays in your library, ready to chat with or turn into flashcards.

Unlock the full document

More Accounting study materials

See all

Study this document with CramX

Once it is in your library, every tool can work from it.