CONTENTS PART 1 Accounting for a Service Business Organized as a Proprietorship CHAPTER 1 Starting a Proprietorship: Changes That Affect the Accounting Equation .............................................. 4 Accounting in the Real World: Gold’s Gym .............................. 5 1-1 The Accounting Equation................................................... 6 1-2 How Business Activities Change the Accounting Equation ................................................................................. 10 1-3 How Transactions Change Owner’s Equity in an Accounting Equation ......................................................... 14 End of Chapter Problems............................................................ 19 CHAPTER 2 Analyzing Transactions into Debit and Credit Parts .................................................................. 26 Accounting in the Real World: American Automobile Association (AAA) .......................................................................... 27 2-1 Using T Accounts ................................................................. 28 2-2 Analyzing How Transactions Affect Accounts .......... 32 2-3 Analyzing How Transactions Affect Owner’s Equity Accounts ................................................................... 38 End of Chapter Problems............................................................ 46 CHAPTER 3 Journalizing Transactions ........................................... 54 Accounting in the Real World: Travelocity ............................ 55 3-1 Journals, Source Documents, and Recording Entries in a Journal.............................................................. 56 3-2 Journalizing Buying Insurance, Buying on Account, and Paying on Account .................................. 63 3-3 Journalizing Transactions That Affect Owner’s Equity and Receiving Cash on Account ...................... 67 3-4 Proving and Ruling a Journal .......................................... 73 End of Chapter Problems............................................................ 80 CHAPTER 4 Posting to a General Ledger ....................................... 88 Accounting in the Real World: AMAZON.COM ..................... 89 4-1 Preparing a Chart of Accounts........................................ 90 Contents
4-2 Posting Separate Amounts from a Journal to a General Ledger ............................................................ 96 4-3 Posting Column Totals from a Journal to a General Ledger................................................................... 100 4-4 Completed Accounting Forms and Making Correcting Entries ............................................................. 105 End of Chapter Problems.......................................................... 111 CHAPTER 5 Cash Control Systems ................................................ 116 Accounting in the Real World: Hard Rock Cafe .................. 117 5-1 Checking Accounts ........................................................... 118 5-2 Bank Reconciliation .......................................................... 124 5-3 Dishonored Checks and Electronic Banking ........... 129 5-4 Petty Cash ............................................................................ 134 End of Chapter Problems.......................................................... 140 REINFORCEMENT ACTIVITY 1PART A An Accounting Cycle for a Proprietorship: Journalizing and Posting Transactions .................... 147
CHAPTER 6 Work Sheet for a Service Business ........................... 150 Accounting in the Real World: The AICPA ............................ 151 6-1 Creating a Work Sheet ..................................................... 152 6-2 Planning Adjusting Entries on a Work Sheet ........... 157 6-3 Extending Financial Statement Information on a Work Sheet ................................................................. 162 6-4 Finding and Correcting Errors on the Work Sheet .......................................................................... 167 End of Chapter Problems.......................................................... 172 CHAPTER 7 Financial Statements for a Proprietorship .............. 178 Accounting in the Real World: American Eagle Outfitters .........................................................179 7-1 Preparing an Income Statement.................................. 180 7-2 Balance Sheet Information on a Work Sheet ........... 187 xi
End of Chapter Problems.......................................................... 194 CHAPTER 8 Recording Adjusting and Closing Entries for a Service Business ........................................................ 200 Accounting in the Real World: The Walt Disney Company ......................................................................................... 201
8-1 Recording Adjusting Entries.......................................... 202 8-2 Recording Closing Entries .............................................. 206 8-3 Preparing a Post-Closing Trial Balance ...................... 213 End of Chapter Problems.......................................................... 221 REINFORCEMENT ACTIVITY 1PART B An Accounting Cycle for a Proprietorship: End-of-Fiscal-Period Work ........................................ 228
PART 2 Accounting for a Merchandising Business Organized as a Corporation CHAPTER 9 Journalizing Purchases and Cash Payments ........... 232 Accounting in the Real World: OfficeMax ........................... 233 9-1 Journalizing Purchases Using a Purchases Journal................................................................................... 234 9-2 Journalizing Cash Payments Using a Cash Payments Journal .............................................................. 242 9-3 Performing Additional Cash Payments Journal Operations ........................................................................... 248 9-4 Journalizing Other Transactions Using a General Journal .................................................................. 254 End of Chapter Problems.......................................................... 260 CHAPTER 10 Journalizing Sales and Cash Receipts Using Special Journals ......................................................... 268 Accounting in the Real World: Best Buy ............................... 269 10-1 Journalizing Sales on Account Using a Sales Journal ....................................................................... 270 10-2 Journalizing Cash Receipts Using a Cash Receipts Journal................................................................. 276 10-3 Recording Transactions Using a General Journal................................................................................... 285 End of Chapter Problems.......................................................... 289 CHAPTER 11 Posting to General and Subsidiary Ledgers ............ 296 Accounting in the Real World: palmONE, INC. ................... 297 11-1 Posting to an Accounts Payable Ledger.................... 298 11-2 Posting to an Accounts Receivable Ledger.............. 307 11-3 Posting from Journals to a General Ledger ............. 315 11-4 Posting Special Journal Totals to a General Ledger ................................................................................... 320
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11-5 Correcting Errors in Subsidiary Ledger Accounts ............................................................................... 327 End of Chapter Problems.......................................................... 331 CHAPTER 12 Preparing Payroll Records ........................................ 338 Accounting in the Real World: The Green Bay Packers .... 339 12-1 Preparing Payroll Time Cards ........................................ 340 12-2 Determining Payroll Tax Withholding ........................ 345 12-3 Preparing Payroll Records .............................................. 351 12-4 Preparing Payroll Checks ................................................ 356 End of Chapter Problems.......................................................... 360 CHAPTER 13 Payroll Accounting, Taxes, and Reports ................... 366 Accounting in the Real World: Intel ....................................... 367 13-1 Recording a Payroll ........................................................... 368 13-2 Recording Employer Payroll Taxes .............................. 373 13-3 Reporting Withholding and Payroll Taxes ................ 378 13-4 Paying Withholding and Payroll Taxes ....................... 383 End of Chapter Problems.......................................................... 391 REINFORCEMENT ACTIVITY 2PART A An Accounting Cycle for a Corporation: Journalizing and Posting Transactions .................... 398
CHAPTER 14 Distributing Dividends and Preparing a Work Sheet for a Merchandising Business ........................ 402 Accounting in the Real World: Lowe’s ................................... 403 14-1 Distributing Corporate Earnings to Stockholders ....................................................................... 404
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14-2 Beginning an 8-Column Work Sheet for a Merchandising Business ................................................. 409 14-3 Planning and Recording a Merchandise Inventory Adjustment ..................................................... 415 14-4 Planning and Recording an Allowance for Uncollectible Accounts Adjustment .......................... 419 14-5 Planning and Recording Depreciation Adjustments ........................................................................ 423 14-6 Calculating Federal Income Tax and Completing a Work Sheet .......................................................................... 427 End of Chapter Problems.......................................................... 438 CHAPTER 15 Financial Statements for a Corporation ................... 444 Accounting in the Real World: Gap, Inc................................ 445 15-1 Preparing an Income Statement.................................. 446 15-2 Analyzing an Income Statement ................................. 455 15-3 Preparing a Statement of Stockholders’ Equity ...... 461
15-4 Preparing a Balance Sheet ............................................. 464 End of Chapter Problems.......................................................... 473 CHAPTER 16 Recording Adjusting and Closing Entries for a Corporation ....................................................... 478 Accounting in the Real World: Apple .................................... 479 16-1 Recording Adjusting Entries.......................................... 480 16-2 Recording Closing Entries for Income Statement Accounts ......................................................... 487 16-3 Preparing a Post-Closing Trial Balance ...................... 494 End of Chapter Problems.......................................................... 500 REINFORCEMENT ACTIVITY 2PART B An Accounting Cycle for a Corporation: End-of-Fiscal Period Work ................................................................ 508
PART 3 Accounting for a Merchandising Business Organized as a Corporation— Adjustments and Valuation CHAPTER 17 Accounting for Uncollectible Accounts Receivable .................................................................. 512
CHAPTER 19 Accounting for Inventory .......................................... 562
Accounting in the Real World: Performance Food Group ........................................................... 513 17-1 Uncollectible Accounts ................................................... 514 17-2 Writing Off and Collecting Uncollectible Accounts Receivable ........................................................ 519 End of Chapter Problems.......................................................... 526
Accounting in the Real World: Fender Guitars ................... 563 19-1 Determining the Quantity of Merchandise Inventory .............................................................................. 564 19-2 Determining the Cost of Merchandise Inventory .............................................................................. 569 19-3 Estimating Inventory........................................................ 574 End of Chapter Problems.......................................................... 578
CHAPTER 18 Accounting for Plant Assets and Depreciation ....... 532
CHAPTER 20 Accounting for Notes and Interest ........................... 586
Accounting in the Real World: Carnival Cruise Lines ........ 533 18-1 Buying Plant Assets and Paying Property Tax ......... 534 18-2 Calculating Depreciation Expense .............................. 538 18-3 Journalizing Depreciation Expense ............................ 542 18-4 Disposing of Plant Assets ............................................... 546 18-5 Declining-Balance Method of Depreciation ............ 551 End of Chapter Problems.......................................................... 556
Accounting in the Real World: Bank of America ................ 587 20-1 Promissory Notes .............................................................. 588 20-2 Notes Payable ..................................................................... 593 20-3 Notes Receivable ............................................................... 598 End of Chapter Problems.......................................................... 604
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REINFORCEMENT ACTIVITY 3PART A An Accounting Cycle for a Corporation: Journalizing and Posting Transactions .................... 610
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CHAPTER 21 Accounting for Accrued Revenue and Expenses ..... 614 Accounting in the Real World: USA Today ........................... 615 21-1 Accrued Revenue .............................................................. 616 21-2 Accrued Expenses ............................................................. 622 End of Chapter Problems.......................................................... 629 CHAPTER 22 End-of-Fiscal-Period Work for a Corporation .......... 634
22-2 Preparing an Income Statement.................................. 645 22-3 Preparing a Statement of Stockholders’ Equity and Balance Sheet ............................................................ 649 22-4 Adjusting, Closing, and Reversing Entries for a Corporation ......................................................................... 654 End of Chapter Problems.......................................................... 662 REINFORCEMENT ACTIVITY 3PART B An Accounting Cycle for a Corporation: End-of-Fiscal-Period Work ........................................ 668
Accounting in the Real World: Chico’s .................................. 635 22-1 Preparing a Work Sheet for a Corporation ............... 636
PART 4 Additional Accounting Procedures CHAPTER 23 Accounting for Partnerships ..................................... 672
CHAPTER 24 Recording International and Internet Sales ............ 700
Accounting in the Real World: Cold Stone Creamery® ..... 673 23-1 Forming a Partnership ..................................................... 674 23-2 Distribution of Net Income and Owners’ Equity Statements .......................................................................... 680 23-3 Dissolving a Partnership ................................................. 686 End of Chapter Problems.......................................................... 692
Accounting in the Real World: Honeywell ........................... 701 24-1 Recording International Sales....................................... 702 24-2 Recording Internet Sales ................................................ 710 End of Chapter Problems.......................................................... 714
APPENDIX A: STATEMENT OF CASH FLOWS ...........A1
APPENDIX E: ANSWERS TO AUDIT YOUR UNDERSTANDING ...................................................... E1
APPENDIX B: BEST BUY’S FISCAL 2007 ANNUAL REPORT SELECTED PAGES ...................................... B1 APPENDIX C: USING A CALCULATOR AND COMPUTER KEYPAD .................................................. C1
GLOSSARY...................................................................G1 INDEX ........................................................................... I1
APPENDIX D: RECYCLING PROBLEMS .....................D1
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ADDITIONAL FEATURES IN THIS BOOK
FEATURES IN EVERY CHAPTER
LESSON REVIEW AND PRACTICE
ACCOUNTING IN THE REAL WORLD 5, 27, 55, 89, 117, 151, 179, 201, 233, 269, 297, 339, 367, 403, 445, 479, 513, 533, 563, 587, 615, 635, 673, 701
TERMS REVIEW 9, 13, 17, 31, 37, 62, 78, 95, 99, 109, 123, 128, 133, 138, 155, 161, 166, 186, 205, 212, 219, 241, 247, 253, 258, 275, 284, 287, 306, 314, 344, 350, 355, 377, 389, 408, 418, 422, 426, 454, 460, 463, 471, 524, 537, 545, 550, 554, 568, 573, 576, 592, 597, 602, 621, 627, 653, 679, 685, 690, 709
ACCOUNTING SOFTWARE 25, 52, 86, 114, 145, 176, 198, 226, 266, 294, 336, 364, 396, 442, 476, 506, 530, 560, 584, 608, 632, 666, 698, 717 BUSINESS STRUCTURES 7, 234, 271, 345, 470, 515, 553, 626, 688 CAREERS IN ACCOUNTING 43, 137, 191, 218, 388, 431, 447, 601 CULTURAL DIVERSITY 94, 323, 540, 596, 681 EXPLORE ACCOUNTING 18, 45, 79, 110, 139, 171, 193, 220, 259, 288, 330, 359, 390, 437, 472, 499, 525, 555, 577, 603, 628, 661, 691, 713 GLOBAL PERSPECTIVE 160, 251, 305, 646, 705 INTERNET ACTIVITY 5, 27, 55, 89, 117, 151, 179, 201, 233, 269, 297, 339, 367, 403, 445, 479, 513, 533, 563, 587, 615, 635, 673, 701 CHARACTER COUNTS 8, 28, 56, 90, 118, 153, 181, 203, 235, 270, 298, 340, 368, 404, 446, 481, 514, 534, 564, 588, 616, 636, 674, 702 SMALL BUSINESS SPOTLIGHT 71, 127, 318, 409, 490, 564
AUDIT YOUR UNDERSTANDING 9, 13, 17, 31, 37, 44, 62, 66, 72, 78, 95, 99, 104, 109, 123, 128, 133, 138, 155, 161, 166, 170, 186, 192, 205, 212, 219, 241, 247, 253, 258, 275, 284, 287, 306, 314, 319, 326, 329, 344, 350, 355, 358, 372, 377, 382, 389, 408, 414, 418, 422, 426, 436, 454, 460, 463, 471, 486, 493, 498, 518, 524, 537, 541, 545, 550, 554, 568, 573, 576, 592, 597, 602, 621, 627, 644, 648, 653, 660, 679, 685, 690, 709, 712 WORK TOGETHER 9, 13, 17, 31, 37, 44, 62, 66, 72, 78, 95, 99, 104, 109, 123, 128, 133, 138, 155, 161, 166, 170, 186, 192, 205, 212, 219, 241, 247, 253, 258, 275, 284, 287, 306, 314, 319, 326, 329, 344, 350, 355, 358, 372, 377, 382, 389, 408, 414, 418, 422, 426, 436, 454, 460, 463, 471, 486, 493, 498, 518, 524, 537, 541, 545, 550, 554, 568, 573, 576, 592, 597, 602, 621, 627, 644, 648, 653, 660, 679, 685, 690, 709, 712 ON YOUR OWN 9, 13, 17, 31, 37, 44, 62, 66, 72, 78, 95, 99,104, 109, 123, 128, 133, 138, 156, 161, 166, 170, 186, 192, 205, 212, 219, 241, 247, 253, 258, 275, 284, 287, 306, 314, 319, 326, 329, 344, 350, 355, 358, 372, 377, 382, 389, 408, 414, 418, 422, 426, 436, 454, 460, 463, 471, 486, 493, 498, 518, 524, 537, 541, 545, 550, 554, 568, 573, 576, 592, 597, 602, 621, 627, 644, 648, 653, 660, 679, 685, 690, 709, 712
FINANCIAL LITERACY 30, 135, 281, 313, 369, 420, 575
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CHAPTER REVIEW AND PRACTICE CHAPTER SUMMARY 18, 45, 79, 110, 139, 171, 193, 220, 259, 288, 330, 359, 390, 437, 472, 499, 525, 555, 577, 603, 628, 661, 691, 713
CASES FOR CRITICAL THINKING 23, 50, 84, 113, 143, 175, 197, 224, 264, 292, 334, 363, 395, 441, 475, 504, 528, 559, 581, 607, 631, 665, 696, 716
APPLICATION PROBLEMS 19, 20, 46, 47, 80, 81, 111, 140, 141, 172, 173, 194, 221, 222, 260, 261, 262, 289, 290, 331, 332, 360, 361, 391, 392, 438, 439, 473, 474, 500, 526, 556, 557, 578, 604, 605, 629, 662, 663, 692, 693, 714
SCANS WORKPLACE COMPETENCY 23, 50, 85, 143, 224, 264, 292, 505, 581, 696
MASTERY PROBLEMS 21, 48, 82, 112, 141, 173, 195, 222, 262, 290, 333, 361, 393, 439, 474, 501, 527, 557, 579, 606, 630, 663, 694, 715
AUDITING FOR ERRORS 51, 175, 225, 335, 395, 441, 505, 559, 697
CHALLENGE PROBLEMS 22, 49, 83, 113, 142, 174, 196, 223, 263, 291, 333, 362, 393, 440, 474, 504, 528, 558, 580, 606, 630, 664, 695, 715 APPLIED COMMUNICATION 22, 50, 84, 113, 143, 175, 197, 224, 264, 292, 334, 363, 395, 440, 475, 504, 528, 558, 581, 607, 631, 665, 696, 716
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GRAPHING WORKSHOP 23, 144, 197, 363, 475, 529, 582, 607, 665, 716
USING SOURCE DOCUMENTS 85, 113, 265, 293 ANALYZING BEST BUY’S FINANCIAL STATEMENTS 23, 51, 85, 113, 144, 175, 197, 225, 265, 293, 335, 363, 395, 441, 475, 505, 529, 559, 583, 607, 631, 665, 697, 716
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