Survey of Accounting for Non-Accountants, 1e

by DeFond

| ISBN: 978-1-61853-567-2 | Copyright 2024

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Click on a Chapter 7 eLecture or Guided Example to preview the related video.

Road Map
LO Learning Objective Page eLecture Guided Example Assignments
LO1

Explain how inventories differ between merchandisers, manufacturers, and wholesalers.

216

SE1, E2

LO2

Describe inventory costing under specific identification, weighted-average cost, FIFO, and LIFO.

221

SE4, SE8, SE9, SE11, E3, E5, E8, E9, P2, P4, P5

LO3

Analyze the effects of different inventory costing methods on company profit.

225

SE12, E13, P4, P6

LO4

Apply the lower of cost or net realizable value rule.

230

SE3, SE6, E7, E12

LO5

Define the gross profit percentage and explain its use.

231

SE2, E1, P1 

LO6

Define inventory turnover and days’ sales in inventory and explain their use.

233

SE7, E10, E12, P7 

LO7

Appendix 7A: Describe inventory costing under a perpetual inventory system.

235

SE10, E4, E6, P3 

LO8

Appendix 7B: Define the LIFO reserve and explain its use.

239

SE5, E11, P8 

Data Analytics & Excel Skill Development for Career Readiness

The basics of accounting havent changed much in hundreds of years, but businesses have experienced significant change in the last decade due to the increased use of new technologies ranging from data analytics and Blockchain to machine learning and artificial intelligence. Technology is rapidly altering how accounting is performed and what can be done with the data once they are collected.

In addition to data analytics skills, employers expect prospective employees to be proficient with Excel. In recognition of the increasing importance of data analytics and the need for Excel proficiency, included with this text are several features to enhance students’ career readiness.

  • We include Data Analytics boxes throughout the text to expose students to techniques that are used by businesses in areas related to the topic being discussed. The following box appears in the chapter on inventory.


  • Appendix D at the end of the book provides an overview of data analytics, data visualization, and best practices for the effective display of data.



  • Data Analytics and Data Visualization assignments are available in myBusinessCourse. The assignments develop Excel, Tableau, and Data Analytics skills, which will enhance students’ career readiness.



  • myBusinessCourse (MBC) now contains a series of short videos that demonstrate the basic functions of Excel. These videos can be accessed within MBC as part of your MBC course





Introducing myBusinessCourse

myBusinessCourse is a complete, secure, web-based training and e-Learning solution. There is nothing to download or install; it is accessible through any modern web browser and most mobile devices.

Request a One-on-One Demo


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  • Quickly review the performance of entire class
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Welcome to Survey of Accounting for Non-Accountants by Mark DeFond

Welcome to the first edition of Survey of Accounting for Non-Accountants. The objective of this text is to expose students with diverse educational backgrounds to the fundamental concepts of financial and managerial accounting without overwhelming them with the mechanics and procedures more appropriate for future accountants. This book makes extensive use of real-world companies to help students understand how to use accounting information. To further aid student success in the course, we provide a wealth of resources through our online learning and homework system, myBusinessCourse (MBC). Access to MBC is included for free with the purchase of each new copy of the text and can be purchased separately. (For more information on MBC see page x of the preface.)

Target Audience

Survey of Accounting for Non-Accountants is an ideal text for use in a course that emphasizes a succinct overview of accounting for students who intend to pursue careers outside accounting. This book is intended to provide students with a working knowledge of the underlying concepts of financial and managerial accounting. With a strong emphasis on the interpretation of real-world financial statements, the book teaches students how to read, analyze, and interpret financial and managerial accounting data to make informed business decisions. The book is filled with examples that use reports from actual companies, an approach that students find engaging.


Transaction Analysis Template

The most important difference between this textbook and traditional introductory accounting texts is that this textbook does not use debits and credits to teach accounting. While Appendix C, “The Language of Accountants: Debits and Credits, describes the system of debits and credits, students are not required to learn this system and it is not discussed in the body of the text. Knowledge of debits and credits is not required because the focus is on teaching students how to understand and analyze the financial statements. This contrasts sharply with traditional introductory textbooks, which focus primarily on teaching students how to prepare financial statements.

In place of debits and credits, the book uses a creative new tool that is designed to teach students how economic transactions translate into the financial reports. This tool is called the Transaction Analysis Template, or TAT for short. The TAT is an abbreviated version of a horizontal worksheet and provides students with a “shorthand” way of understanding and interpreting accounting reports. Once students learn the basic structure of a balance sheet and income statement, the TAT becomes a simple and highly intuitive technique for learning financial accounting.



Dropping the use of debits and credits in an introductory class has many advantages. One is that it frees up time for the instructor to focus on what the financial reports and accounting actually mean. Learning the system of debits and credits is time consuming for even the brightest student, and a significant amount of the instructors time can be spent explaining mechanical rules. Replacing debits and credits with the TAT allows time for deeper class discussions of important accounting concepts. Most students will not go on to become accountants, and for them, learnings the system of debits and credits is of limited value. The TAT is a mechanism that allows these students to get much more out of their introductory accounting course. Rather than take up precious course time learning a set of mechanical rules, students are allowed to concentrate on the concepts that underlie the accounting, and what the accounting information means.

Real Companies' Financial Statements

A feature that really brings accounting alive for students is seeing the accounting practices and reports of companies with which they are familiar. To this end, each chapter incorporates examples using real companies that students know. For example, we discuss accounting issues related to Apple, Microsoft, Amazon, Tesla, Panera Bread, MGM Resorts, and many others.


Real Data and Examples

A number of assignments require students to use year-end financial statements of Columbia Sportswear, Under Armour, and others.



Accounting in Practice

Boxed inserts are included throughout the text to help bridge the gap between the classroom and what students encounter in the real world. Accounting In Practice illustrations document situations a reader is likely to encounter and present the choices that companies make in reporting financial results.



Environmental, Social, and Governance (ESG)

Increasingly, companies have found that “doing good” leads to a more successful, profitable enterprise. These boxed inserts help students understand how corporate reporting on ESG is being embraced by forward-thinking enterprises as part of their long-term business models.



Organizing for Student Success

To help students succeed in the course, we include many features that provide direction to students and require them to recall and apply the accounting techniques and concepts described in each chapter.


Putting Each Chapter in Context

Often, lose sight of the big picture. The Past/Present/Future feature provides students with an overview of where the chapter fits within the whole course.



Mapping Each Chapter

Each chapter begins with a Road Map highlighting the chapters learning objectives and corresponding eLecture videos, Guided Example videos, and assignments. The Chapter Organization chart provides an overview that visually depicts the layout of the chapter.




Reviews

Review boxes are integrated throughout each chapter as a means of reinforcing the material just presented. Solutions are provided at the end of the chapter so students can check their work. The reviews are also illustrated through “Guided Example” videos accessible directly from the eBook and via MBC.



A.K.A. Sidebars

A.K.A. (Also Known As) notations inform students of commonly used alternative terms that they may encounter.



Takeaways

These in-chapter summaries ensure that students grasp key concepts before proceeding to the next topic.



Ethics

In In todays post-Sarbanes-Oxley world, ethical decision-making has never been more pertinent to business and students studying accounting. We discuss ethics where appropriate in the text, and we have included assignments that raise ethical issues. Assignments involving ethics are identified by the icon in the margin.



Thinking Globally

Thinking Globally inserts emphasize the similarities and differences in accounting practices between the United States and other countries.




Teaching Supplements

Solutions Manual: Created by the authors, the solutions manual contains complete solutions to all assignments.

Test Bank: Written by the authors, the test bank includes multiple choice items, true/false, exercises, and problems.

PowerPoint: Created by the authors, the PowerPoint slides outline key elements of each chapter.

myBusinessCourse: An online learning and assessment program intended to complement your textbook and classroom instruction (see page ix for more details.) Access to myBusinessCourse is FREE with the purchase of a new textbook and can also be purchased separately.


Expand/Collapse All
About the Author (pg. iii)
Preface (pg. iv)
Brief Contents (pg. xi)
Contents (pg. xii)
Chapter 1: Financial Accounting and Business Decisions (pg. 2)
Business Organization (pg. 4)
Review 1.1 (pg. 5)
Activities of a Business (pg. 5)
Operating Activities (pg. 5)
Investing Activities (pg. 5)
Financing Activities (pg. 6)
Review 1.2 (pg. 6)
Accounting Information and Its Use (pg. 6)
External Users of Accounting (pg. 7)
Internal Users of Accounting (pg. 8)
Review 1.3 (pg. 8)
Ethics and Accounting (pg. 8)
Review 1.4 (pg. 9)
The Accounting Process (pg. 10)
Generally Accepted Accounting Principles (pg. 10)
International Financial Reporting Standards (pg. 11)
Review 1.5 (pg. 11)
Financial Statements (pg. 12)
Balance Sheet (pg. 12)
Income Statement (pg. 13)
Statement of Stockholders’ Equity (pg. 14)
Statement of Cash Flows (pg. 16)
Relations Among the Financial Statements (pg. 17)
Review 1.6 (pg. 18)
Additional Information (pg. 18)
Management Discussion and Analysis (pg. 18)
Notes to Financial Statements (pg. 19)
Auditor’s Report (pg. 19)
Review 1.7 (pg. 20)
Accounting and Technology (pg. 20)
Data Analytics and Data Visualization (pg. 20)
Blockchain (pg. 20)
Review 1.8 (pg. 21)
Summary of Learning Objectives (pg. 21)
Key Terms (pg. 23)
Self-Study Questions (pg. 24)
Questions (pg. 25)
Data Analytics (pg. 26)
Short Exercises (pg. 26)
Exercises (pg. 28)
Problems (pg. 30)
Serial Problem: Angel City Greetings (pg. 33)
Beyond The Numbers (pg. 34)
Answers to Self-Study Questions (pg. 37)
Review Solutions (pg. 37)
Chapter 2: Processing Accounting Information (pg. 40)
Accounting Cycle (pg. 42)
Review 2.1 (pg. 43)
Analyze Transactions (pg. 43)
Accounting Equation Expanded (pg. 43)
Record Transactions (pg. 44)
Transaction 1. Issued Stock (pg. 44)
Transaction 2. Paid Rent in Advance (pg. 45)
Transaction 3. Purchased Office Supplies on Account (pg. 45)
Transaction 4. Signed Note Payable in Exchange for Cash (pg. 45)
Transaction 5. Purchased Equipment with Cash (pg. 46)
Transaction 6. Received Customer Prepayment (pg. 46)
Transaction 7. Provided Services for Customers (pg. 47)
Transaction 8. Performed Services for Both Cash and on Account (pg. 47)
Non-Accounting Transaction. Hired an Employee (pg. 47)
Transaction 9. Paid Employee Wages (pg. 47)
Transaction 10. Received Payment on Account from Customer (pg. 48)
Transaction 11. Paid Cash Dividend (pg. 48)
Transaction Summary (pg. 48)
Review 2.2 (pg. 50)
Transaction Analysis Template (pg. 51)
Horizontal Worksheet for Transaction 7 (pg. 51)
Transaction Analysis Template (TAT) for Transaction 7 (pg. 51)
Review 2.3 (pg. 52)
The “Account” System (pg. 52)
Source Documents (pg. 52)
Chart of Accounts (pg. 53)
The General Ledger (pg. 53)
Review 2.4 (pg. 53)
Summary of Learning Objectives (pg. 54)
Key Terms (pg. 54)
Self-Study Questions (pg. 54)
Questions (pg. 55)
Data Analytics (pg. 56)
Short Exercises (pg. 56)
Exercises (pg. 57)
Problems (pg. 60)
Serial Problem: Angel City Greetings (pg. 64)
Beyond the Numbers (pg. 65)
Answers to Self-Study Questions (pg. 67)
Review Solutions (pg. 67)
Chapter 3: Accrual Basis of Accounting (pg. 70)
Accrual Basis of Accounting (pg. 72)
Revenue Recognition Principle (pg. 72)
Expense Recognition (Matching) Principle (pg. 74)
Review 3.1 (pg. 76)
Accounting Adjustments (pg. 76)
Types of Adjustments (pg. 77)
Recognizing Previously Deferred Revenue (pg. 78)
Recognizing Previously Deferred Expenses (pg. 79)
Recognizing Accrued Revenue (pg. 81)
Preparing The Financial Statements (pg. 84)
Income Statement (pg. 86)
Statement of Stockholders’ Equity (pg. 86)
Balance Sheet (pg. 86)
Statement of Cash Flows (pg. 86)
Review 3.3 (pg. 86)
Quality of Accounting Numbers (pg. 87)
Close Temporary Accounts (pg. 87)
Summary of the Accounting Cycle (pg. 88)
Review 3.4 (pg. 88)
Summary of Learning Objectives (pg. 89)
Key Terms (pg. 90)
Study Questions (pg. 90)
Questions (pg. 91)
Data Analytics (pg. 92)
Short Exercises (pg. 92)
Exercises (pg. 93)
Problems (pg. 95)
Serial Problem: Angel City Greetings (pg. 99)
Beyond The Numbers (pg. 100)
Answers to Self-Study Questions (pg. 102)
Review Solutions (pg. 102)
Chapter 4 :Understanding Accounting Information (pg. 106)
Financial Reporting Quality (pg. 108)
Objectives of Financial Reporting (pg. 108)
Qualities of Useful Accounting Information (pg. 109)
Review 4.1 (pg. 110)
Finding Financial Accounting Information (pg. 110)
Balance Sheet Classification (pg. 111)
Current Assets (pg. 111)
Long-Term Assets (pg. 112)
LongTerm Liabilities (pg. 114)
Stockholders’ Equity (pg. 114)
Presentation Format (pg. 114)
Review 4.3 (pg. 115)
Income Statement Classification (pg. 116)
Review 4.4 (pg. 118)
Working with Financial Statements (pg. 118)
Ratio Analysis (pg. 118)
Working with the Balance Sheet (pg. 119)
Working with the Income Statement (pg. 121)
Review 4.5 (pg. 122)
Working with the Statement of Stockholders’ Equity (pg. 122)
Working with the Statement of Cash Flows (pg. 123)
Review 4.7 (pg. 124)
Summary of Learning Objectives (pg. 125)
Key Terms (pg. 126)
Self-Study Questions (pg. 126)
Questions (pg. 128)
Data Analytics (pg. 128)
Short Exercises (pg. 129)
Exercises (pg. 130)
Problems (pg. 131)
Serial Problem: Angel City Greetings (pg. 134)
Beyond the Numbers (pg. 135)
Answers to Self-Study Questions (pg. 137)
Review Solutions (pg. 137)
Chapter 5: Internal Control and Cash (pg. 140)
Fraud (pg. 142)
Pressure (pg. 142)
Rationalization (pg. 142)
Opportunity (pg. 143)
Review 5.1 (pg. 143)
Internal Control (pg. 143)
COSO Framework (pg. 143)
Control Failures (pg. 145)
The Sarbanes-Oxley Act (pg. 145)
Review 5.2 (pg. 146)
Accounting for Cash (pg. 146)
Reporting Cash (pg. 147)
Cash and Cash Equivalents (pg. 147)
Review 5.3 (pg. 147)
Internal Controls over Cash (pg. 147)
Payments from Customers (pg. 148)
Cash Disbursements (pg. 149)
Bank Reconciliation as a Cash Control (pg. 149)
Review 5.4 (pg. 150)
Effective Cash Management (pg. 150)
Monitoring Cash (pg. 150)
Primary Activities of Effective Cash Management (pg. 151)
Review 5.5 (pg. 151)
Appendix 5A: Preparing the Bank Reconciliation (pg. 152)
Review 5.6 (pg. 156)
Summary of Learning Objectives (pg. 157)
Key Terms (pg. 158)
Self-Study Questions (pg. 158)
Questions (pg. 159)
Data Analytics (pg. 160)
Short Exercises (pg. 160)
Exercises (pg. 161)
Problems (pg. 162)
Serial Problem: Angel City Greetings (pg. 165)
Beyond The Numbers (pg. 166)
Answers to Self-Study Questions (pg. 168)
Review Solutions (pg. 168)
Chapter 6: Receivables (pg. 170)
Receivables (pg. 172)
Accounts Receivable (pg. 172)
Losses from Valuing Accounts Receivable (pg. 173)
Allowance Method (pg. 174)
Review 6.1 (pg. 175)
Estimating Credit Losses (pg. 175)
Percentage of Net Sales Method (pg. 175)
Review 6.2 (pg. 176)
Accounts Receivable Aging Method (pg. 176)
Writing Off Specific Accounts Receivable under the Allowance Method (pg. 178)
Review 6.3 (pg. 179)
Credit Card Sales (pg. 180)
Review 6.4 (pg. 181)
Notes Receivable (pg. 181)
Interest on Notes Receivable (pg. 181)
Adjusting Entry for Interest (pg. 183)
Review 6.5 (pg. 184)
Reporting Notes Receivable on the Balance Sheet (pg. 184)
Review 6.6 (pg. 185)
Analyzing and Managing Receivables (pg. 185)
Review 6.7 (pg. 186)
Summary of Learning Objectives (pg. 187)
Key Terms (pg. 188)
Self-Study Questions (pg. 188)
Questions (pg. 189)
Data Analytics (pg. 190)
Short Exercises (pg. 190)
Exercises (pg. 191)
Problems (pg. 194)
Serial Problem: Angel City Greetings (pg. 196)
Beyond the Numbers (pg. 197)
Answers to Self-Study Questions (pg. 199)
Review Solutions (pg. 199)
Chapter 7: Inventory (pg. 204)
The Nature of Inventory (pg. 206)
Categories of Inventory (pg. 207)
Costs Included in Inventory (pg. 207)
Inventory Management (pg. 207)
Cost of Goods Sold (pg. 208)
Physical Count of Inventory (pg. 209)
Inventory Costing Systems (pg. 209)
Review 7.1 (pg. 210)
Inventory Costing Methods (pg. 210)
Goods Flow vs. Cost Flow (pg. 211)
Data for Illustration of Cost Flow Assumptions (pg. 211)
Specific Identification Method (pg. 212)
FirstIn, FirstOut (FIFO) Method (pg. 212)
LastIn, FirstOut (LIFO) Method (pg. 213)
Weighted-Average Cost Method (pg. 213)
Inventory Costing Under the Perpetual Versus the Periodic Method (pg. 214)
How Inventory Methods Affect the Financial Statements (pg. 215)
How Managers Choose an Inventory Method (pg. 215)
The Effects of Inventory Method Choice on Gross Profit Analysis (pg. 216)
Lower of Cost or Net Realizable Value (pg. 218)
Net Realizable Value (pg. 218)
Review 7.3 (pg. 219)
Inventory Analysis (pg. 219)
Gross Profit Analysis (pg. 219)
Review 7.4 (pg. 220)
Inventory Turnover and Days Sales in Inventory (pg. 221)
Review 7.5 (pg. 222)
Review 7.6 (pg. 222)
Summary of Learning Objectives (pg. 223)
Key Terms (pg. 224)
Self-Study Questions (pg. 225)
Questions (pg. 226)
Data Analytics (pg. 227)
Short Exercises (pg. 227)
Exercises (pg. 228)
Problems (pg. 230)
Serial Problem: Angel City Greetings (pg. 231)
Beyond the Numbers (pg. 232)
Answers to Self-Study Questions (pg. 234)
Review Solutions (pg. 234)
Chapter 8: Long-Lived Assets (pg. 236)
Tesla Motors INc. (pg. 236)
Overview of Long-Lived Assets (pg. 238)
Accounting for Long-lived Assets (pg. 239)
Acquisition Cost of Property, Plant and Equipment (pg. 239)
Review 8.1 (pg. 241)
Nature of Depreciation (pg. 241)
Allocation versus Valuation: Depreciation Accounting (pg. 241)
Calculating Depreciation Expense (pg. 242)
Alternative Depreciation Methods (pg. 243)
A Comparison of Depreciation Methods (pg. 245)
Depreciation Method Estimate Changes (pg. 246)
Revenue Expenditures Versus Capital Expenditures (pg. 247)
Maintenance and Repairs (pg. 247)
LowCost Items (pg. 247)
Capital Expenditures (pg. 247)
Review 8.3 (pg. 248)
Disposals Of Property, Plant and Equipment (pg. 248)
Sale of Property, Plant and Equipment (pg. 248)
Review 8.4 (pg. 250)
Intangible Assets (pg. 250)
Measurement of Intangible Assets (pg. 251)
Amortization refers to the periodic expensing of an intangible asset over its expected useful life. (pg. 251)
Examples of Intangible Assets (pg. 251)
Patents (pg. 251)
Copyright (pg. 252)
Franchises (pg. 252)
Trademarks (pg. 252)
Goodwill (pg. 252)
Review 8.5 (pg. 253)
Balance Sheet Presentation (pg. 253)
Review 8.6 (pg. 254)
Return on Assets and Asset Turnover (pg. 254)
Review 8.7 (pg. 255)
Summary of Learning Objectives (pg. 256)
Key Terms (pg. 257)
Self-Study Questions (pg. 257)
Questions (pg. 258)
Data Analytics (pg. 259)
Short Exercises (pg. 259)
Exercises (pg. 260)
Problems (pg. 261)
Serial Problem: Angel City Greetings (pg. 264)
Beyond the Numbers (pg. 264)
Answers to Self-Study Questions (pg. 267)
Review Solutions (pg. 267)
Chapter 9: Liabilities (pg. 270)
Current Liabilities (pg. 272)
Accounts Payable (pg. 272)
Notes Payable and Interest (pg. 272)
Review 9.1 (pg. 275)
Current Portion of LongTerm Debt (pg. 275)
Income Taxes Payable (pg. 275)
Unearned Revenue (pg. 275)
Long-Term Liabilities (pg. 276)
Advantages of Bonds and Long-Term Notes (pg. 276)
Disadvantages of Bonds and Long-Term Notes (pg. 277)
Types of Bonds (pg. 277)
Bond Ratings (pg. 278)
Bond Features (pg. 278)
Bond Prices (pg. 279)
Financial Statement Effect of Issuing Bonds (pg. 281)
Review 9.2 (pg. 287)
Review 9.3 (pg. 287)
Long-Term Notes (Term Loans) (pg. 288)
Leases (pg. 288)
Accounting for Leases (pg. 288)
Finance Leases (pg. 289)
Operating Leases (pg. 289)
Contingent Liabilities (pg. 289)
Examples of Contingent Liabilities (pg. 290)
Review 9.4 (pg. 292)
Analyzing Liabilities (pg. 293)
Current Ratio and Quick Ratio (pg. 293)
Times-Interest-Earned Ratio (pg. 294)
Review 9.5 (pg. 294)
Appendix 9A: Interest Calculations Using Excel (pg. 295)
Using an Electronic Spreadsheet (pg. 295)
Summary of Learning Objectives (pg. 297)
Key Terms (pg. 299)
Self-Study Questions (pg. 299)
Questions (pg. 300)
Data Analytics (pg. 300)
Short Exercises (pg. 300)
Exercises (pg. 302)
Problems (pg. 305)
Serial Problem: Angel City Greetings (pg. 307)
Beyond the Numbers (pg. 307)
Answers to Self-Study Questions (pg. 309)
Review Solutions (pg. 309)
Chapter 10: Stockholders’ Equity (pg. 312)
Nature and Formation of a Corporation (pg. 314)
Advantages of the Corporate Form of Organization (pg. 314)
Disadvantages of the Corporate Form of Organization (pg. 315)
Accounting for Equity in Alternative Organizational Forms (pg. 316)
Review 10.1 (pg. 317)
Par Value Stock and NoPar Value Stock (pg. 317)
Types of Capital Stock (pg. 318)
Common Stock (pg. 318)
Preferred Stock (pg. 319)
Review 10.2 (pg. 320)
Stock Issuances for Cash (pg. 321)
Issuing Par Value Stock (pg. 321)
Issuing No-Par Stock (pg. 321)
Noncash Stock Issuances (pg. 322)
Review 10.3 (pg. 322)
Stock Splits (pg. 323)
Accounting For Stock Repurchases (pg. 323)
Accounting for Treasury Stock (pg. 323)
Accounting for Repurchase and Retirement of Stock (pg. 325)
Review 10.4 (pg. 326)
Cash Dividends and Stock Dividends (pg. 326)
Cash Dividends (pg. 326)
Stock Dividends (pg. 327)
Review 10.5 (pg. 328)
Retained Earnings and the Statement of Stockholders’ Equity (pg. 328)
Statement of Stockholders’ Equity (pg. 328)
Review 10.6 (pg. 329)
Review 10.7 (pg. 329)
Analyzing Stockholders’ Equity (pg. 330)
Return on Common Stockholders’ Equity (pg. 330)
Dividend Yield and Dividend Payout Ratio (pg. 330)
Review 10.8 (pg. 332)
Summary of Learning Objectives (pg. 332)
Key Terms (pg. 333)
Self-Study Questions (pg. 334)
Questions (pg. 334)
Data Analytics (pg. 335)
Short Exercises (pg. 335)
Exercises (pg. 337)
Problems (pg. 338)
Serial Problem: Angel City Greetings (pg. 342)
Beyond the Numbers (pg. 343)
Answers to Self-Study Questions (pg. 345)
Review Solutions (pg. 345)
Chapter 11: Analysis and Interpretation of Financial Statements (pg. 348)
Persistent Earnings and the Income Statement (pg. 350)
Discontinued Operations (pg. 351)
Changes in Accounting Principles (pg. 352)
Comprehensive Income (pg. 352)
Review 11.1 (pg. 352)
Sources of Information (pg. 353)
Analytical Techniques (pg. 353)
Horizontal Analysis (pg. 354)
Trend Analysis (pg. 356)
Review 11.2 (pg. 357)
Vertical Analysis (pg. 358)
Review 11.3 (pg. 358)
Ratio Analysis (pg. 359)
Analyzing Firm Profitability (pg. 359)
Review 11.4 (pg. 363)
Analyzing ShortTerm Firm Liquidity (pg. 363)
Review 11.5 (pg. 367)
Analyzing LongTerm Firm Solvency (pg. 367)
Review 11.6 (pg. 369)
Financial Ratios for Common Stockholders (pg. 369)
Review 11.7 (pg. 371)
Limitations of Financial Statement Analysis (pg. 372)
Review 11.8 (pg. 372)
Appendix 11A: Financial Statement Disclosures (pg. 373)
Notes to the Financial Statements (pg. 374)
Supplementary Information (pg. 376)
Summary of Learning Objectives (pg. 376)
Summary of Financial Statement Ratios (pg. 377)
Key Terms (pg. 379)
Self-Study Questions (pg. 379)
Questions (pg. 381)
Data Analytics (pg. 381)
Short Exercises (pg. 382)
Exercises (pg. 383)
Problems (pg. 386)
Serial Problem: Angel City Greetings (pg. 391)
Beyond the Numbers (pg. 392)
Answers to Self-Study Questions (pg. 397)
Review Solutions (pg. 397)
Chapter 12: Introduction to Managerial Accounting (pg. 400)
Uses of Accounting Information (pg. 402)
Review 12.1 (pg. 403)
Organizations: Mission, Goals, and Strategies (pg. 403)
Strategic Cost Management (pg. 404)
Review 12.2 (pg. 405)
Cost Behavior Analysis (pg. 405)
Four Basic Cost Behavior Patterns (pg. 406)
Factors Affecting Cost Behavior Patterns (pg. 407)
Review 12.3 (pg. 408)
Total Cost Function for an Organization or Segment (pg. 408)
Relevant Range (pg. 409)
Additional Cost Behavior Patterns (pg. 410)
Committed and Discretionary Fixed Costs (pg. 411)
Review 12.4 (pg. 412)
Summary of Learning Objectives (pg. 412)
Key Terms (pg. 413)
Self-Study Questions (pg. 413)
Questions (pg. 414)
Data Analytics (pg. 414)
Short Exercises (pg. 414)
Exercises (pg. 415)
Problems (pg. 416)
Serial Problem: Angel City Greetings (pg. 417)
Beyond The Numbers (pg. 417)
Answers to Self-Study Questions (pg. 417)
Review Solutions (pg. 418)
Chapter 13: Cost-Volume-Profit Analysis and Planning (pg. 420)
Cost-Volume-Profit Analysis (pg. 422)
Key Assumptions (pg. 422)
Profit Formula (pg. 423)
Review 13.1 (pg. 424)
Functional and Contribution Income Statements (pg. 425)
Functional Income Statement (pg. 425)
Contribution Income Statement (pg. 425)
Analysis Using Contribution Margin Ratio (pg. 426)
Review 13.2 (pg. 427)
Break-Even Point and Profit Planning (pg. 427)
Determining Break-Even Point in Units (pg. 427)
Profit Planning (pg. 428)
Cost-Volume-Profit Graph (pg. 429)
Profit-Volume Graph (pg. 430)
Review 13.3 (pg. 431)
Multiple-Product Cost-Volume-Profit Analysis (pg. 432)
Determining Break-Even and Target Profit Sales Dollars (pg. 432)
Sales Mix Analysis (pg. 432)
Review 13.4 (pg. 435)
Analysis of Operating Leverage (pg. 435)
Review 13.5 (pg. 437)
Summary of Learning Objectives (pg. 437)
Key Terms (pg. 438)
Self-Study Questions (pg. 438)
Questions (pg. 439)
Data Analytics (pg. 440)
Short Exercises (pg. 440)
Exercises (pg. 442)
Problems (pg. 445)
Serial Problem: Angel City Greetings (pg. 448)
Beyond The Numbers (pg. 449)
Answers to Self-Study Questions (pg. 450)
Review Solutions (pg. 450)
Chapter 14: Relevant Costs and Benefits for Decision Making (pg. 452)
Identifying Relevant Costs (pg. 454)
Relevance of Future Revenues (pg. 455)
Relevance of Outlay Costs (pg. 455)
Irrelevance of Sunk Costs (pg. 456)
Relevance of Disposal and Salvage Values (pg. 456)
Relevance of Opportunity Costs (pg. 456)
Review 14.1 (pg. 457)
Differential Analysis Of Relevant Costs (pg. 457)
Review 14.2 (pg. 458)
Applying Differential Analysis (pg. 459)
Multiple Changes in Profit Plans (pg. 459)
Review 14.3 (pg. 461)
Evaluating Special Orders (pg. 461)
Importance of Time Span and Opportunity Costs (pg. 462)
Qualitative Considerations (pg. 463)
Review 14.4 (pg. 463)
Evaluating Outsourcing Decisions (pg. 464)
Review 14.5 (pg. 466)
Evaluating Whether to Sell a Product or Process it Further (pg. 466)
Single Product Decisions (pg. 466)
Joint Product Decisions (pg. 467)
Review 14.6 (pg. 468)
Summary of Learning Objectives (pg. 468)
Key Terms (pg. 469)
Self-Study Questions (pg. 470)
Questions (pg. 471)
Data Analytics (pg. 471)
Short Exercises (pg. 471)
Exercises (pg. 474)
Problems (pg. 476)
Serial Problem: Angel City Greetings (pg. 480)
Beyond The Numbers (pg. 480)
Answers to Self-Study Questions (pg. 480)
Review Solutions (pg. 480)
Chapter 15: Pricing and Other Product Management Decisions (pg. 484)
Understanding the Value Chain (pg. 486)
Usefulness of a Value Chain Perspective (pg. 488)
Value-Added and Value Chain Perspectives (pg. 489)
Review 15.1 (pg. 490)
The Pricing Decision (pg. 490)
Economic Approaches to Pricing (pg. 490)
Cost-Based Approaches to Pricing (pg. 490)
Review 15.2 (pg. 493)
Target Costing (pg. 494)
Target Costing Is Proactive for Cost Management (pg. 494)
Target Costing Encourages Design for Production (pg. 495)
Target Costing Reduces Time to Introduce Products (pg. 496)
Target Costing Requires Cost Information (pg. 496)
Target Costing Requires Coordination (pg. 496)
Review 15.3 (pg. 497)
Continuous Improvement Costing (pg. 497)
Review 15.4 (pg. 498)
Benchmarking (pg. 499)
Review 15.5 (pg. 499)
Summary of Learning Objectives (pg. 500)
Key Terms (pg. 501)
Self-Study Questions (pg. 501)
Questions (pg. 502)
Data Analytics (pg. 502)
Short Exercises (pg. 502)
Exercises (pg. 503)
Problems (pg. 505)
Serial Problem: Angel City Greetings (pg. 507)
Beyond The Numbers (pg. 507)
Answers to Self-Study Questions (pg. 508)
Review Solutions (pg. 509)
Chapter 16: Operational Budgeting and Profit Planning (pg. 512)
Reasons for Budgeting (pg. 514)
Compels Planning (pg. 514)
Promotes Communication and Coordination (pg. 514)
Provides a Guide to Action and Basis of Evaluation (pg. 514)
Aids in Risk Management (pg. 515)
Review 16.1 (pg. 515)
General Approaches to Budgeting (pg. 515)
Output/Input Approach (pg. 515)
Activity-Based Approach (pg. 515)
Incremental Approach (pg. 516)
Minimum Level Approach (pg. 516)
Review 16.2 (pg. 517)
Master Budget (pg. 518)
Purchases Budget (pg. 520)
Selling Expense Budget (pg. 521)
General and Administrative Expense Budget (pg. 522)
Cash Budget (pg. 522)
Budgeted Financial Statements (pg. 524)
Finalizing the Budget (pg. 525)
Review 16.3 (pg. 526)
Budget Development in Manufacturing Organizations (pg. 526)
Production Budget (pg. 527)
Manufacturing Cost Budget (pg. 527)
Review 16.4 (pg. 530)
Budget Development and Manager Behavior (pg. 530)
Employee Participation (pg. 530)
Budgeting Periods (pg. 531)
Forecasts (pg. 531)
Ethics (pg. 532)
Open Book Management (pg. 532)
Review 16.5 (pg. 533)
Summary of Learning Objectives (pg. 533)
Key Terms (pg. 535)
Self-Study Questions (pg. 535)
Questions (pg. 536)
Short Exercises (pg. 537)
Exercises (pg. 538)
Problems (pg. 542)
Serial Problem: Angel City Greetings (pg. 547)
Beyond The Numbers (pg. 547)
Answers to Self-Study Questions (pg. 550)
Review Solutions (pg. 550)
Chapter 17: Standard Costs and Performance Reports (pg. 556)
Responsibility Accounting (pg. 558)
Performance Reporting and Organization Structures (pg. 559)
Types of Responsibility Centers (pg. 559)
Financial and Nonfinancial Performance Measures (pg. 561)
Review 17.1 (pg. 561)
Performance Reporting for Cost Centers (pg. 561)
Development of Flexible Budgets (pg. 562)
Flexible Budgets Emphasize Performance (pg. 562)
Standard Costs and Performance Reports (pg. 563)
Review 17.2 (pg. 564)
Variance Analysis for Costs (pg. 564)
Components of Standard Cost Analysis (pg. 564)
Review 17.3 (pg. 566)
Establishing and Using Standards for Direct Materials (pg. 566)
Direct Materials Variances (pg. 566)
Interpreting Materials Variances (pg. 567)
Review 17.4 (pg. 568)
Establishing and Using Standards for Direct Labor (pg. 569)
Direct Labor Variances (pg. 569)
Interpreting Labor Variances (pg. 570)
Review 17.5 (pg. 570)
Establishing and Using Standards for Variable Overhead (pg. 571)
Variable Overhead Variances (pg. 571)
Interpreting Variable Overhead Variances (pg. 572)
Fixed Overhead Variances (pg. 572)
Review 17.6 (pg. 573)
Performance Reports for Revenue Centers (pg. 574)
Inclusion of Controllable Costs (pg. 575)
Revenue Centers as Profit Centers (pg. 575)
Review 17.7 (pg. 577)
Summary of Learning Objectives (pg. 577)
Key Terms (pg. 579)
Self-Study Questions (pg. 579)
Questions (pg. 580)
Data Analytics (pg. 581)
Short Exercises (pg. 581)
Exercises (pg. 582)
Problems (pg. 584)
Serial Problem: Angel City Greetings (pg. 588)
Beyond The Numbers (pg. 588)
Answers to Self-Study Questions (pg. 590)
REVIEW SOLUTIONS (pg. 590)
Chapter 18: Capital Budgeting Decisions (pg. 594)
Long-Range Planning and Capital Budgeting (pg. 596)
Review 18.1 (pg. 599)
Capital Budgeting Models That Consider Time Value of Money (pg. 599)
Expected Cash Flows (pg. 599)
Manager Behavior and Expected Cash Flows (pg. 600)
Net Present Value (pg. 600)
Cost of Capital (pg. 603)
Review 18.2 (pg. 603)
Capital Budgeting Models That Do Not Consider Time Value of Money (pg. 604)
Payback Period (pg. 604)
Accounting Rate of Return (pg. 605)
Review 18.3 (pg. 605)
Evaluation of Capital Budgeting Models (pg. 606)
Review 18.4 (pg. 607)
Additional Aspects of Capital Budgeting (pg. 608)
Using Multiple Investment Criteria (pg. 608)
Evaluating Risk (pg. 608)
Differential Analysis of Project Cash Flows (pg. 609)
Predicting Differential Costs and Revenues for High-Tech Investments (pg. 611)
Summary of Learning Objectives (pg. 612)
Key Terms (pg. 614)
Self-Study Questions (pg. 614)
Questions (pg. 615)
Data Analytics (pg. 615)
Short Exercises (pg. 616)
Exercises (pg. 617)
Problems (pg. 619)
Serial Problem: Angel City Greetings (pg. 621)
Beyond The Numbers (pg. 621)
Answers to Self-Study Questions (pg. 622)
Review Solutions (pg. 622)
Appendix A: Columbia Sportswear: Financial Statements (pg. A-1)
Report of Independent Auditors (pg. A-3)
Financial Statements (pg. A-6)
Notes to Financial Statements (pg. A-11)
Report on Internal Control (pg. A-36)
Management’s Certification of Financial Statements (pg. A-37)
Supplemental Information (pg. A-38)
Selected Financial Data Including Earnings Per Share (pg. A-39)
Appendix B: Under Armour Financial Statements (pg. B-1)
Appendix C: The Language of Accountants: Debits and Credits (pg. C-1)
System of Debits and Credits (pg. C-2)
Illustration of the Recording Process (pg. C-3)
Summary Illustration of Journalizing and Posting Transactions (pg. C-7)
Trial Balance (pg. C-9)
Review C.1 (pg. C-10)
Accounting Adjustments (pg. C-11)
Recognizing Previously Deferred Revenue (pg. C-11)
Recognizing Previously Deferred Expenses (pg. C-11)
Recognizing Accrued Revenue (pg. C-13)
Recognizing Accrued Expenses (pg. C-13)
Summary of Accounting Adjustments (pg. C-14)
Review C.2 (pg. C-16)
Adjusted Trial Balance and Financial Statements (pg. C-16)
Preparing the Adjusted Trial Balance (pg. C-17)
Preparing Financial Statements (pg. C-17)
Review C.3 (pg. C-19)
Closing Process (pg. C-19)
Journalizing and Posting the Closing Entries (pg. C-20)
Summary of the Accounting Cycle (pg. C-22)
Review C.4 (pg. C-22)
Summary of Learning Objectives (pg. C-23)
Key Terms (pg. C-23)
Self-Study Questions (pg. C-23)
Questions (pg. C-24)
Short Exercises (pg. C-25)
Exercises (pg. C-26)
Problems (pg. C-27)
Answers to Self-Study Questions (pg. C-33)
Review Solutions (pg. C-33)
Appendix D: Data Analytics and Blockchain Technology (pg. D-1)
Data Analytics (pg. D-2)
Big Data (pg. D-2)
Types of Data Analytics (pg. D-2)
Data Analytics in the Accounting Profession (pg. D-3)
The Analytics Mindset (pg. D-4)
Data Analytic Tools (pg. D-5)
Data Visualization (pg. D-6)
Blockchain Technology (pg. D-10)
Summary (pg. D-12)
Key Concepts and Terms (pg. D-12)
Video Resources For Tableau (pg. D-13)
Multiple Choice (pg. D-13)
Exercises (pg. D-14)
Data Analytics (pg. D-14)
Appendix E: Accounting and the Time Value of Money (pg. E-1)
Time Value of Money Concept (pg. E-2)
Time Value of Money: Simple Interest Model (pg. E-2)
Time Value of Money: Compound Interest Model (pg. E-2)
Future Value of an Amount (pg. E-3)
Future Value of an Annuity (pg. E-5)
Present Value of an Amount (pg. E-6)
Present value of an annuity (pg. E-8)
Calculations Using A Spreadsheet (pg. E-10)
Summary of Learning Objectives (pg. E-10)
Key Terms (pg. E-10)
Self-Study Questions (pg. E-11)
Exercises (pg. E-11)
Answers to Self-Study Questions (pg. E-12)
Index (pg. I-1)

Mark DeFond

Leventhal School of Accounting Marshall School of Business University of Southern California

Mark DeFond is A. N. Mosich Chair in Accounting and Professor of Accounting in the Leventhal School of Accounting at University of Southern California Marshall School of Business. He has taught financial accounting to a variety of audiences, including undergraduates, MBAs, and Executive MBAs. Professor DeFond earned his Ph.D. from the University of Washington and his B.A. from San Franicsco State University. He is widely published and his research is highly cited. Professor DeFond has served on the editorial boards of several leading academic journals and is a recipient of several research awards, including the Notable Contribution to Auditing Literature Award and the Mellon Award for Excellence in Mentoring Faculty. He has held visiting professorships at universities in Hong Kong and Singapore. He is also a CPA (inactive), a four time winner of the MBA Golden Apple teaching award, and was ranked among the ten most outstanding USC MBA faculty by BusinessWeek.