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Part One Bookkeeping Cycle
Chapter 1 Introduction to Accounting 3
1.1 Concepts of Accounting 3
1.2 Financial Accounting and Managerial Accounting 3
1.2.1 Financial Accounting 3
1.2.2 Managerial Accounting 4
1.3 Types of Business Entity and Accounting Profession 4
1.3.1 Types of Business Entity 4
1.3.2 Procedure of Business Transaction 5
1.3.3 Accounting Profession 5
1.4 Accounting Principles 6
1.4.1 Accounting Entity Principle 6
1.4.2 Going-Concern Principle 6
1.4.3 Accounting Period Principle 6
1.4.4 Monetary Unit Principle 7
1.4.5 Historical Cost Principle 7
1.4.6 The Consistent Principle 7
1.4.7 The Conservatism Principle 7
1.4.8 The Objectivity Principle 8
Key Words and Phrases 8
Exercises 9
Reading Materials 11
Chapter 2 Accounting Elements and Accounting Equation 13
2.1 The Accounting Bases 13
2.1.1 Cash Basis 13
2.1.2 Accrual Basis 14
2.2 Accounting Elements 14
2.3 The Calculation Method for Accounting 17
2.4 Accounting Equation 18
2.4.1 The Content of Accounting Equation 18
2.4.2 The Effects of Economic Transactions on the Accounting Equation 19
Key Words and Phrases 21
Exercises 22
Reading Materials 23
Chapter 3 Double-Entry Bookkeeping 25
3.1 Accounts 25
3.1.1 Account Titles 26
3.1.2 Types of Commonly Used Accounts 26
3.2 Debit and Credit Principle 27
3.3 Double-Entry Bookkeeping 28
3.3.1 The Nature and Function of Double-Entry Bookkeeping 28
3.3.2 Basic Rules for Double-Entry Bookkeeping 28
3.4 The Bookkeeping for Assets, Liabilities and Capital 29
3.5 The Bookkeeping for Expenses and Revenues 31
Key Words and Phrases 32
Exercises 33
Reading Materials 35
Quiz 1 35
Chapter 4 Journalizing and Posting Transaction 42
4.1 Journals 42
4.1.1 General Journal 42
4.1.2 Special Journal 44
4.2 Posting Transaction 45
Key Words and Phrases 48
Exercises 49
Reading Materials 50
Quiz 2 51
Chapter 5 Trial Balance and Adjustment 54
5.1 Introduction to Trial Balance 54
5.1.1 The Content of the Trial Balance 54
5.1.2 The Classification of the Trial Balance 55
5.1.3 The Balance of the Account 55
5.1.4 The Functions of a Trial Balance 55
5.1.5 Procedures for Preparing a Trial Balance 55
5.2 Identification of Errors 56
5.2.1 The Classifications of Errors 56
5.2.2 Other Errors 56
5.3 The Treatment of Errors 56
5.3.1 Errors in the Account Balances or Preparing the Trial Balance 56
5.3.2 Errors Recognized by the Trial Balance 57
5.3.3 Errors Unidentified by the Trial Balance 57
5.4 Suspense Accounts 57
5.5 Adjustments for Transactions 58
5.5.1 Principle for Adjustments 58
5.5.2 The Procedure 58
5.5.3 Preparation of the Income Statement and Balance Sheet 59
5.5.4 Analyzing the Characteristic of the Extra Event 63
5.5.5 Showing Them in the Working Paper as Changes 64
Key Words and Phrases 66
Exercises 66
Reading Materials 68
Quiz 3 69
Chapter 6 Financial Statement 71
6.1 Balance Sheet 71
6.2 Income Statement 73
6.2.1 Single-Step Form 73
6.2.2 Multiple-Step Income Statement 73
6.3 Cash Flow Statement 74
6.3.1 Structure of the Cash Flow Statement 75
6.3.2 Preparing a Complete Statement of Cash Flows 77
Key Words and Phrases 78
Exercises 78
Reading Materials 80
Part Two Special Topics of Assets
Chapter 7 Cash and Its Control 85
7.1 Cash 85
7.2 The Transactions about Cash Receipts and Cash Payments 86
7.2.1 Cash Receipts 86
7.2.2 Cash Payments 87
7.3 Internal Control over Cash 88
7.3.1 The Characteristics of an Effective System of Internal Control 88
7.4 Petty Cash Fund 89
7.4.1 The Purpose of Petty Cash 90
7.4.2 Documentation and Authorization 90
7.4.3 Accounting System Relative to Cash Book 91
7.5 Bank Reconciliations 92
7.5.1 General Bank Service and Operation of Bank Clearing System 92
7.5.2 Reconciling the Bank Balance 93
7.5.3 Steps in Reconciling the Bank Balance 94
Key Words and Phrases 95
Exercises 96
Reading Materials 97
Quiz 4 98
Chapter 8 Inventories 102
8.1 Inventory 102
8.2 Periodic and Perpetual Inventory System 102
8.2.1 Periodic Inventory System 103
8.2.2 Perpetual Inventory System 103
8.2.3 Differences between Perpetual and Periodic System 103
8.3 Inventory Costing Methods 105
8.3.1 Specific Identification 105
8.3.2 First-in, First-out (FIFO) 105
8.3.3 Last-in, First-out (LIFO) 106
8.3.4 The Weighted-average Method 107
8.4 Comparing FIFO, LIFO and Average Cost 107
Key Words and Phrases 108
Exercises 108
Reading Materials 111
Chapter 9 Receivables 113
9.1 Notes Receivable 113
9.1.1 Determining Maturity Date and Computing Maturity Value 114
9.1.2 Accounting for Notes Receivable 115
9.1.3 Discounting Notes Receivable 115
9.2 Accounts Receivable 116
9.3 Estimating the Amount of Bad Debt Expense 118
9.3.1 Income Statement Method 118
9.3.2 Balance Sheet Method 119
Key Words and Phrases 120
Exercises 120
Reading Materials 121
Quiz 5 123
Chapter 10 Fixed Assets and Depreciation 127
10.1 Overview 127
10.1.1 Major Categories of Fixed Assets 127
10.1.2 Long-term Assets 128
10.1.3 Capital Expenditures and Revenue Expenditures 128
10.1.4 The Difference between Capital Expenditure and Revenue Expenditure 128
10.1.5 The Nature of the Expenditure 129
10.2 Depreciation for the Fixed Assets 129
10.3 Accounting Entries for the Fixed Assets 129
10.4 Factors Affecting Depreciation 130
10.5 Calculating Depreciation 130
10.5.1 Straight-line Method 130
10.5.2 The Reducing-Balance Method 131
10.6 Controlling Tangible Non-Current Assets 133
10.7 Accounting for Intangibles 134
Key Words and Phrases 135
Exercises 136
Reading Materials 137
Part Three Special Topics of Liability
Chapter 11 Payroll 141
11.1 Payroll Register 141
11.2 Individual Pay Slip 143
11.2.1 Differences between Wages and Salaries 144
11.2.2 Gross Pay, Deductions and Net Pay 144
11.2.3 Net Pay, Take-home Pay 144
11.2.4 The Relationship between Gross Pay and Net Pay 145
11.3 Procedure and Documentations 145
11.3.1 Processing the Payroll 145
11.3.2 Documentations 145
11.4 The Calculations for Pay 145
11.4.1 Basic Pay 146
11.4.2 Supplementary Pay 146
11.4.3 Commissions 147
11.5 Authorization, Security and Control 148
11.6 Accounting Treatment 148
11.6.1 Posting Payroll Details to the Main Ledger 148
11.6.2 Accounting Entries 149
Key Words and Phrases 149
Exercises 150
Reading Materials 151
Chapter 12 Liability 153
12.1 Current Liabilities 153
12.1.1 Definition and Types of Current Liabilities 153
12.1.2 Notes Payable 153
12.1.3 Accounts Payable 155
12.2 Long-term Liabilities 156
12.2.1 The Fundamental Concepts 156
12.2.2 Types of Bonds 157
12.2.3 Accounting for Bonds Payable 158
Key Words and Phrases 160
Exercises 161
Reading Materials 162
Part Four Special Topics of Owners’ Equity
Chapter 13 Owners’ Equity—Partnership Accounting 167
13.1 Characteristics of Partnerships 167
13.1.1 Advantages and Disadvantages of Partnerships 168
13.1.2 Allocating Net Income among the Partners 168
13.2 Admission of a New Partner 170
13.2.1 By Purchase of an Interest 170
13.2.2 By Investing in the Firm 170
13.3 Liquidation of a Partnership 171
13.3.1 Sale of the Business 171
13.3.2 Division of the Gain or Loss from Sale of the Business 172
13.3.3 Distribution of Cash 172
Key Words and Phrases 173
Exercises 173
Reading Materials 174
Chapter 14 Corporation Accounting—Capital Stock 175
14.1 Characteristics of the Corporation 175
14.2 Formation of a Corporation 176
14.2.1 Rights of Stockholders 176
14.2.2 Stockholders’ Equity 177
14.3 Equity Accounting for the Corporation 177
14.4 Authorization and Issuance of Capital Stock 178
14.4.1 Authorization of Stock 178
14.4.2 Par Value 178
14.5 Classes of Shares 179
14.5.1 Common Stocks 179
14.5.2 Preferred Stock 179
14.5.3 Classes of Preferred Stock 179
14.6 Issue of Stock 180
14.6.1 Stock Issuing at Par 180
14.6.2 Stock Issuing at Premium 181
14.7 Treasury Stock 181
Key Words and Phrases 182
Exercises 183
Reading Materials 184
Chapter 15 An Overview of Financial Management 185
15.1 Career Opportunities in Finance 185
15.1.1 Money and Capital Market 185
15.1.2 Investments 186
15.1.3 Financial Management 186
15.2 The Financial Staff’s Responsibilities 187
15.2.1 Forecasting and Planning 187
15.2.2 Major Investment and Financing Decisions 187
15.2.3 Coordination and Control 187
15.2.4 Dealing with Financial Markets 187
15.2.5 Risk Management 188
15.3 The Goals of the Corporation 188
15.3.1 Managerial Incentives to Maximize Shareholder Wealth 188
15.3.2 Stock Price Maximization and Social Welfare 189
Key Words and Phrases 189
Exercises 190
Reading Materials 190
Chapter 16 Analysis of Financial Statements 192
16.1 Introduction to Financial Statement Analysis 192
16.2 Ratio Analysis 193
16.3 Detailed Ratios 193
16.3.1 Short-term Liquidity 193
16.3.2 Long-term Solvency and Capital Structure 194
16.3.3 Profitability 194
16.3.4 Efficiency 195
16.3.5 Growth 195
16.4 The Limitations of Ratio Analysis 195
16.4.1 Historical Cost Accounting 195
16.4.2 Seasonal Fluctuations 196
16.4.3 Non-standardization of Accounting Policies 196
Key Words and Phrases 196
Exercises 197
Reading Materials 198
Quiz 6 200