accounting, 9th edition · 2020. 8. 31. · connect to: accounting information systems 14 1.5 how...
TRANSCRIPT
ACCOUNTINGMILLER-NOBLES • MATTISON • MATSUMURA
BEST • KEENE • TAN • WILLETT
vi
Preface xv
Guided tour xvi
Educator resources xxi
About the Australian authors xxii
About the US authors xxiii
Reviewers xxv
Acknowledgements xxvi
1 THE ROLE OF ACCOUNTING IN DECISION MAKING 1
1.1 Why is accounting important? 2
Concepts in action 2
Connect to: Ethics 4
Concepts in action 5
1.2 What is the accounting equation? 6
Connect to: Accounting standards 7
1.3 How do you analyse transactions? 7
1.4 How do you prepare financial statements? 14
Connect to: Accounting information systems 14
1.5 How do you use financial statements to evaluate business performance? 16
1.6 What are the organisations and principles that govern accounting? 17
Connect to: Accounting standards 21
1.7 What are the main types of business organisation? 21
1.8 How do ethics and sustainability relate to accounting? 23
Connect to: Ethics 24
Sustainability in action 25
Decision Guidelines 1.1: Major business decisions 26
Excel Exercise 1.1 27
Summary Problem 1.1 27
DEMO DOC: TRANSACTION ANALYSIS USING ACCOUNTING EQUATION/FINANCIAL STATEMENT PREPARATION 29
REVIEW Accounting vocabulary 36Student success tips 37
ASSESS Quick check 37Starters 38Exercises 42Problems 47Continuing exercise 51Continuing problem 51
APPLY Decision case 52Focus on ethics 52Fraud case 52Financial statement case 53
2 RECORDING BUSINESS TRANSACTIONS 54
2.1 The account, the ledger and journal entries 55
Connect to: Accounting standards 56
Connect to: Accounting standards 58
2.2 Debits, credits and double-entry accounting 58
2.3 Recording transactions using journal entries 62
2.4 Transaction analysis, journalising and posting to the accounts 66
Connect to: Accounting information systems 70
2.5 The trial balance 71
Decision Guidelines 2.1: Analysing and recording transactions 75
Excel Exercise 2.1 75
Summary Problem 2.1 76
DEMO DOC: DEBIT/CREDIT TRANSACTION ANALYSIS 79
REVIEW Accounting vocabulary 87Student success tips 87
ASSESS Quick check 88Starters 89Exercises 92Problems 97Continuing exercise 102Continuing problem 102
APPLY Decision case 103Focus on ethics 103Fraud case 103Financial statement case 104
3 THE ADJUSTING PROCESS 105
3.1 Accrual versus cash-basis accounting 106
Sustainability in action 107
3.2 Why we adjust the accounts 108
3.3 Two categories of adjusting entry 109
Connect to: Ethics 116
DETAILED CONTENTS
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DETAILED CONTENTS vii
3.4 The adjusted trial balance 121
3.5 The financial statements 122
3.6 Ethical issues in accrual accounting 124
Decision Guidelines 3.1: Accounting basis and the adjusting process 124
Excel Exercise 3.1 125
Summary Problem 3.1 126
DEMO DOC: PREPARATION OF ADJUSTING ENTRIES, ADJUSTED TRIAL BALANCE AND FINANCIAL STATEMENTS 130
REVIEW Accounting vocabulary 139Student success tips 139
ASSESS Quick check 139Starters 141Exercises 143Problems 148Continuing exercise 151Continuing problem 151
APPLY Decision case 152Focus on ethics 153Fraud case 153Financial statement case 154
4 COMPLETING THE ACCOUNTING CYCLE 155
4.1 The accounting worksheet 157
Summary Problem 4.1 163
4.2 Completing the accounting cycle 165
4.3 Closing the accounts 168
4.4 Post-closing trial balance 171
4.5 Presentation of assets and liabilities in the balance sheet 171
Connect to: Ethics 173
4.6 Using accounting information in decision making: accounting ratios 176
Sustainability in action 177
Decision Guidelines 4.1: Completing the accounting cycle 177
Excel Exercise 4.1 178
Summary Problem 4.2 179
DEMO DOC: ACCOUNTING WORKSHEETS AND CLOSING ENTRIES 183
REVIEW Accounting vocabulary 190Student success tips 190
ASSESS Quick check 190Starters 192Exercises 194Problems 201
Continuing exercise 205Continuing problem 206
APPLY Comprehensive problem 1 for Chapters 1–4 207Comprehensive problem 2 for Chapters 1–4 208Decision case 209Focus on ethics 209Fraud case 210Financial statement case 210
5 RETAILING OPERATIONS 211
5.1 What are retailing operations? 212
Connect to: Technology 215
5.2 Accounting for inventory in the perpetual system 216
5.3 Sale of inventory 221
Connect to: Accounting standards 222
Sustainability in action 226
Summary Problem 5.1 227
5.4 Adjusting and closing the accounts of a retailer 228
5.5 Preparing a retailer’s financial statements 231
Connect to: Accounting standards 234
5.6 Three ratios for decision making 234
Decision Guidelines 5.1: Retailing operations and the accounting cycle 235
Excel Exercise 5.1 236
Summary Problem 5.2 237
REVIEW Accounting vocabulary 240Student success tips 241
ASSESS Quick check 241Starters 243Exercises 246Problems 250Continuing exercise 253Continuing problem 254
APPLY Decision case 255Focus on ethics 255Fraud case 256Financial statement case 256
5.7 Accounting for inventory in a periodic inventory system (Appendix 5A) 257
ASSESS Starter 260Exercises 261Problem 261Comprehensive Problem for
Chapters 1–5 262
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ACCOUNTINGviii
6 RETAIL INVENTORY 264
6.1 Accounting principles and inventories 265
6.2 The different inventory costing methods in a perpetual system 266
Connect to: Accounting standards 268
Connect to: Accounting standards 271
6.3 Comparing FIFO, LIFO and average cost 273
Sustainability in action 275
Summary Problem 6.1 275
6.4 Lower-of-cost-and-net-realisable-value rule 277
6.5 Effects of inventory errors 278
6.6 Estimating ending inventory 280
Decision Guidelines 6.1: Guidelines for inventory management 281
Excel Exercise 6.1 282
Summary Problem 6.2 283
REVIEW Accounting vocabulary 284Student success tips 284
ASSESS Quick check 284Starters 286Exercises 288Problems 292Continuing exercise 293Continuing problem 294
APPLY Decision case 294Fraud case 295Focus on ethics 295Financial statement case 296
6.7 Accounting for inventory in a periodic system (Appendix 6A) 297
ASSESS Starters 300Exercises 301Problem 302
7 ACCOUNTING INFORMATION SYSTEMS 303
Connect to: Technology 304
7.1 Effective accounting information systems 305
7.2 How accounting systems work 306
Sustainability in action 309
7.3 General ledger journal entries 310
7.4 Accounts receivable transactions 312
7.5 Accounts payable transactions 316
Decision Guidelines 7.1: Using an accounting information system 321
Excel Exercise 7.1 321
Summary Problem 7.1 322
REVIEW Accounting vocabulary 325Student success tips 325
ASSESS Quick check 325Starters 326Exercises 328Problems 331Continuing exercise 334Continuing problem 335
APPLY Decision cases 335Focus on ethics 336Fraud case 336
8 INTERNAL CONTROL AND CASH 337
8.1 Internal control 338
8.2 The components of internal control 339
Sustainability in action 344
8.3 Internal controls for e-commerce 344
8.4 The bank account as a control device 346
8.5 The bank reconciliation 348
Connect to: Technology 355
Summary Problem 8.1 356
8.6 Internal control over cash receipts 358
8.7 Internal control over cash payments 360
8.8 The petty cash fund 363
8.9 Ethics and accounting 365
Decision Guidelines 8.1: Framework for making ethical judgements 367
Excel Exercise 8.1 367
Summary Problem 8.2 369
REVIEW Accounting vocabulary 370Student success tips 370
ASSESS Quick check 371Starters 372Exercises 373Problems 377Continuing exercise 381Continuing problem 381
APPLY Decision cases 382Focus on ethics 383Fraud case 383Financial statement case 383Endnotes 384
8.10 The voucher system (Appendix 8A) 385
ASSESS Starters 386Exercise 386
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DETAILED CONTENTS ix
9 RECEIVABLES 387
9.1 Receivables: an introduction 388
Decision Guidelines 9.1: Controlling, managing and accounting for receivables 390
9.2 Accounting for bad debts (uncollectable accounts) 393
9.3 The allowance method 394
9.4 The direct write-off method 399
Summary Problem 9.1 402
9.5 Bills receivable 404
Sustainability in action 410
9.6 Using accounting information for decision making 410
Connect to: Accounting standards 410
Decision Guidelines 9.2: Accounting for receivables 414
Excel Exercise 9.1 415
Summary Problem 9.2 416
REVIEW Accounting vocabulary 417Student success tips 417
ASSESS Quick check 418Starters 419Exercises 422Problems 425Continuing exercise 429Continuing problem 430
APPLY Decision cases 430Focus on ethics 431Fraud case 431Financial statement case 432Endnotes 432
10 NON-CURRENT ASSETS: PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLES 433
10.1 Measuring the cost of property, plant and equipment 435
Connect to: Ethics 439
10.2 Depreciation 439
Connect to: Taxes 445
Summary Problem 10.1 446
10.3 Disposing of a non-current asset 450
Concepts in action 454
10.4 Revaluation of non-current assets 455
10.5 Accounting for natural resources 456
10.6 Accounting for intangible assets 458
Sustainability in action 458
Connect to: Accounting standards 461
Decision Guidelines 10.1: Accounting for non-current assets and related expenses 461
Excel Exercise 10.1 462
Summary Problem 10.2 463
REVIEW Accounting vocabulary 464Student success tips 464
ASSESS Quick check 465Starters 466Exercises 469Problems 472Continuing exercise 475Continuing problem 475
APPLY Decision cases 476Focus on ethics 477Fraud case 477Financial statement case 477Endnotes 478
11 CURRENT LIABILITIES AND PAYROLL 479
11.1 Current liabilities of known amount 480
11.2 Current liabilities that must be estimated 484
Connect to: Accounting standards 484
Connect to: Ethics 485
Connect to: Accounting standards 486
Decision Guidelines 11.1: Accounting for current liabilities 487
11.3 Accounting for payroll 487
11.4 Journalising payroll transactions 491
Sustainability in action 491
Concepts in action 492
11.5 Reporting current liabilities 493
Decision Guidelines 11.2: Accounting for payroll 494
Excel Exercise 11.1 494
Summary Problem 11.1 495
REVIEW Accounting vocabulary 497Student success tips 497
ASSESS Quick check 498Starters 499Exercises 500Problems 503Continuing exercise 505Continuing problem 505
APPLY Decision cases 505Focus on ethics 506Fraud case 506Financial statement case 506
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ACCOUNTINGx
12 NON-CURRENT LIABILITIES, DEBENTURES PAYABLE AND CLASSIFICATION OF LIABILITIES ON THE BALANCE SHEET 507
12.1 Unsecured loans payable and mortgages payable 508
12.2 Debentures: an introduction 512
12.3 Accounting for debentures payable: straight-line method 516
Connect to: Accounting standards 517
Decision Guidelines 12.1: Non-current liabilities—Part A 519
12.4 Reporting liabilities on the balance sheet 523
Decision Guidelines 12.2: Non-current liabilities—Part B 524
Summary Problem 12.1 525
REVIEW Accounting vocabulary 526Student success tips 526
ASSESS Quick check 526Starters 528Exercises 530Problems 533Continuing exercise 534Continuing problem 535
APPLY Decision case 535Focus on ethics 535Fraud case 536Financial statement case 536
12.5 The time value of money: present value of a debenture and effective interest amortisation (Appendix 12A) 537
Connect to: Accounting standards 540
Excel Exercise 12A.1 543
ASSESS Problems 543
12.6 Redeeming debentures (Appendix 12B) 546
ASSESS Starters 547Exercises 547
13 PARTNERSHIPS 549
13.1 What are the characteristics and types of partnerships? 550
13.2 How are partnerships organised? 552
13.3 Allocating profits and losses, and partner drawings 553
13.4 Partnership financial statements 557
13.5 Admission of a partner 557
13.6 Withdrawal of a partner 561
13.7 Liquidation of a partnership 563
Decision Guidelines 13.1: Accounting for partnerships 567
Excel Exercise 13.1 569
Summary Problem 13.1 569
REVIEW Accounting vocabulary 572Student success tips 572
ASSESS Quick check 572Starters 574Exercises 576Problems 579Continuing exercise 584Continuing problem 584
APPLY Decision cases 585Focus on ethics 585Fraud case 586Financial statement case 586
14 COMPANIES: FORMATION AND SHAREHOLDERS’ EQUITY 587
14.1 Companies: an overview 588
14.2 Shareholders’ equity basics 591
14.3 Issuing shares 592
Connect to: Accounting standards 593
Concepts in action 594
Connect to: Ethics 595
Decision Guidelines 14.1: The shareholders’ equity of a company 596
Summary Problem 14.1 597
14.4 Retained earnings 598
14.5 Accounting for cash dividends 599
14.6 Different values of shares 602
14.7 Evaluating operations 604
14.8 Accounting for income tax by companies 605
Sustainability in action 606
Decision Guidelines 14.2: Dividends, share values, evaluating operations and company income tax 607
Excel Exercise 14.1 608
Summary Problem 14.2 609
REVIEW Accounting vocabulary 610Student success tips 611
ASSESS Quick check 611Starters 613Exercises 616Problems 619
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DETAILED CONTENTS xi
Continuing exercise 622Continuing problem 622
APPLY Decision cases 623Focus on ethics 623Fraud case 624Financial statement case 624
15 COMPANIES: CAPITAL MANAGEMENT AND THE INCOME STATEMENT 625
15.1 Share dividends 626
15.2 Share splits 628
Connect to: Technology 629
15.3 Share buy-backs 630
Concepts in action 631
15.4 Transfers to reserves 631
Decision Guidelines 15.1: Accounting for share dividends, share splits, share buy-backs and transfers to reserves 633
Summary Problem 15.1 633
15.5 The company income statement 634
Connect to: Accounting standards 636
Connect to: Accounting standards 636
Connect to: Accounting standards 637
Decision Guidelines 15.2: Analysing a company income statement 641
Excel Exercise 15.1 641
Summary Problem 15.2 642
REVIEW Accounting vocabulary 644Student success tips 644
ASSESS Quick check 644Starters 645Exercises 648Problems 651Continuing exercise 653Continuing problem 654
APPLY Decision cases 654Focus on ethics 655Fraud case 655Financial statement case 656
16 THE CASH FLOW STATEMENT 657
16.1 Introduction: the cash flow statement 658
16.2 Operating, investing and financing activities 659
16.3 Format of the cash flow statement 662
16.4 Preparing the cash flow statement by the direct method 662
Summary Problem 16.1 665
16.5 Calculating individual amounts for the cash flow statement 668
16.6 Preparing the cash flow statement by the indirect method 676
Connect to: Accounting standards 677
16.7 Supplementary disclosures 681
16.8 Measuring cash adequacy: free cash flow 683
Decision Guidelines 16.1: Using cash flow and related information to evaluate investments 684
Excel Exercise 16.1 684
Summary Problem 16.2 686
REVIEW Accounting vocabulary 688Student success tips 688
ASSESS Quick check 688Starters 690Exercises 693Problems 700Continuing exercise 703Continuing problem 704
APPLY Decision cases 705Focus on ethics 707Fraud case 708Financial statement case 708
16.9 The worksheet approach to preparing the cash flow statement (Appendix 16A) 709
ASSESS Problems 713
17 THE FRAMEWORK OF ACCOUNTING 717
17.1 Setting accounting standards in Australia 718
17.2 The conceptual framework 721
17.3 The objective of financial reporting 724
17.4 General principles of reporting 724
Sustainability in action 725
Concepts in action 726
17.5 Recognising revenue 731
Connect to: Ethics 736
Concepts in action 737
17.6 Disclosing financial information 737
17.7 The use of market values in financial statements 742
Decision Guidelines 17.1: The framework of accounting 744
Summary Problem 17.1 745
REVIEW Accounting vocabulary 746Student success tips 746
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ACCOUNTINGxii
ASSESS Quick check 746Starters 748Exercises 749Problems 752Continuing exercise 755Continuing problem 756
APPLY Decision cases 756Focus on ethics 757Financial statement case 757Endnotes 757
18 FINANCIAL STATEMENT ANALYSIS 758
18.1 Horizontal analysis 759
18.2 Vertical analysis 763
18.3 How do we compare one company with another? 765
Summary Problem 18.1 767
Sustainability in action 768
18.4 Using ratios to make decisions 770
Connect to: Ethics 776
18.5 Analysis of non-financial data 782
Sustainability in action 783
Decision Guidelines 18.1: Using ratios in financial statement analysis 785
Excel Exercise 18.1 787
Summary Problem 18.2 787
REVIEW Accounting vocabulary 789Student success tips 789
ASSESS Quick check 790Starters 791Exercises 794Problems 798Continuing exercise 802Continuing problem 803
APPLY Decision cases 803Focus on ethics 804Fraud case 804Financial statement case 805
Comprehensive Problem for Chapter 18 805
19 INTRODUCTION TO MANAGERIAL ACCOUNTING AND THE MASTER BUDGET 807
19.1 Management accountability: financial versus managerial accounting 808
19.2 Today’s business environment 810
Connect to: Accounting information systems 811
19.3 Service companies 811
19.4 Retailing companies 812
Summary Problem 19.1 814
19.5 Manufacturing companies 815
Decision Guidelines 19.1: Building blocks of managerial accounting 822
Summary Problem 19.2 823
Sustainability in action 824
19.6 The master budget: why managers use budgets 825
19.7 Understanding the components of the master budget 828
19.8 Preparing the operating budget 831
Summary Problem 19.3 834
19.9 Preparing the financial budget 836
Summary Problem 19.4 842
19.10 Using information technology for sensitivity analysis and rolling up unit budgets 847
Connect to: Business 848
Decision Guidelines 19.2: The master budget 850
Excel Exercise 19.1 850
REVIEW Accounting vocabulary 851Student success tips 852
ASSESS Quick check 853Starters 855Exercises 858Problems 863Continuing exercise 867Continuing problem 867
APPLY Decision cases 868Focus on ethics 869Fraud case 870Financial statement case 870
20 JOB COSTING 871
20.1 How much does it cost to make a product? Two approaches 872
20.2 How job costs flow through the accounts: an overview 873
Decision Guidelines 20.1: Job order costing: tracing direct materials and direct labour 877
Summary Problem 20.1 878
Sustainability in action 879
20.3 Job order costing: allocating manufacturing overhead 879
Connect to: Technology 881
20.4 Accounting for completion and sale of finished goods and adjusting manufacturing overhead 883
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DETAILED CONTENTS xiii
20.5 Job order costing in a service company 884
Decision Guidelines 20.2: Job order costing 886
Excel Exercise 20.1 887
Summary Problem 20.2 888
REVIEW Accounting vocabulary 890Student success tips 890
ASSESS Quick check 891Starters 892Exercises 895Problems 899Continuing exercise 903Continuing problem 903
APPLY Decision cases 904Focus on ethics 905Fraud case 905
APPENDIX 20A 906
20.6 Refining cost systems 907
20.7 Activity-based management: Using ABC for decision making 912
Connect to: Business 913
Decision Guidelines 20A.1: Activity-based costing 916
Summary Problem 20A.1 916
REVIEW Student success tips 918
ASSESS Quick check 918Starters 919Exercises 923Problems 925Continuing exercise 927Continuing problem 928
APPLY Decision case 928
21 COST-VOLUME-PROFIT ANALYSIS 930
21.1 Cost behaviour 931
21.2 Basic CVP analysis: what must we sell to break even? 935
21.3 Using CVP to plan profits 939
Summary Problem 21.1 941
21.4 Using CVP for sensitivity analysis 942
Connect to: Technology 944
Sustainability in action 945
21.5 Effect of sales mix on CVP analysis 946
Decision Guidelines 21.1: Cost-volume-profit analysis 948
Excel Exercise 21.1 949
Summary Problem 21.2 950
REVIEW Accounting vocabulary 952Student success tips 952
ASSESS Quick check 953Starters 954Exercises 957Problems 959Continuing exercise 961Continuing problem 962
APPLY Decision case 962Focus on ethics 963Fraud case 963Financial statement case 963
21.6 Variable costing and absorption costing (Appendix 21A) 964
ASSESS Starters 966Exercise 967Problems 967
APPLY Decision case 968
22 SHORT-TERM BUSINESS DECISIONS 970
22.1 How managers make decisions 971
Connect to: Ethics and sustainability 973
22.2 Special sales order and regular pricing decisions 974
Decision Guidelines 22.1: Relevant information for business decisions 981
Summary Problem 22.1 982
22.3 When to drop products, departments or territories 983
22.4 Outsourcing and sell as is or process further decisions 989
Concepts in action 992
Decision Guidelines 22.2: Short-term special business decisions 994
Excel Exercise 22.1 995
Summary Problem 22.2 995
REVIEW Accounting vocabulary 997Student success tips 997
ASSESS Quick check 997Starters 998Exercises 1001Problems 1005Continuing exercise 1008Continuing problem 1009
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ACCOUNTINGxiv
APPLY Decision case 1009Focus on ethics 1010Fraud case 1010
23 CAPITAL INVESTMENT DECISIONS AND THE TIME VALUE OF MONEY 1011
23.1 Capital budgeting 1012
23.2 Using payback period and accounting rate of return to make capital investment decisions 1014
Decision Guidelines 23.1: Capital budgeting 1018
Summary Problem 23.1 1019
23.3 A review of the time value of money 1020
23.4 Using discounted cash flow models to make capital investment decisions 1025
Sustainability in action 1033
Decision Guidelines 23.2: Capital budgeting 1034
Excel Exercise 23.1 1035
Summary Problem 23.2 1035
REVIEW Accounting vocabulary 1036Student success tips 1037
ASSESS Quick check 1037Starters 1038Exercises 1041Problems 1043Continuing exercise 1045Continuing problem 1045
APPLY Decision case 1046Focus on ethics 1046Fraud case 1047Financial statement case 1047Endnotes 1047
Appendix 1048
Glossary 1052
Index 1067
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