Accounting Volume 1: Financial Accounting

Principles of Accounting is designed to meet the scope and sequence requirements of a two-semester accounting course that covers the fundamentals of financial and managerial accounting. Due to the comprehensive nature of the material, we are offering the book in two volumes. This book is specifically designed to appeal to both accounting and non-accounting majors, exposing students to the core concepts of accounting in familiar ways to build a strong foundation that can be applied across business fields. Each chapter opens with a relatable real-life scenario for today’s college student. Thoughtfully designed examples are presented throughout each chapter, allowing students to build on emerging accounting knowledge. Concepts are further reinforced through applicable connections to more detailed business processes. Students are immersed in the "why” as well as the "how” aspects of accounting in order to reinforce concepts and promote comprehension over rote memorization.

Senior Contributing Authors

Mitchell Franklin, LeMoyne College (Financial Accounting)
Patty Graybeal, University of Michigan-Dearborn (Managerial Accounting)
Dixon Cooper, Ouachita Baptist University


Contributing Authors

LuAnn Bean, Florida Institute of Technology
Ian Burt, Niagara University
Shana Carr, San Diego City College
David T. Collins, Bellarmine University
Shawna Coram, Florida State College at Jacksonville
Kenneth Creech, Briar Cliff University
Alan Czyzewski, Indiana State University
Michael Gauci, Florida Atlantic University
Cindy Greenman, Embry-Riddle Aeronautical University
Michael Haselkorn, Bentley University
Christine Irujo, Westfield State University
Cynthia Johnson, University of Arkansas at Little Rock
Cynthia Khanlarian, North Carolina Agricultural and Technical State University
Terri Lukshaitis, Ferris State University
Debra Luna, Southwest University
Bill Nantz, Houston Community College
Tatyana Pashnyak, Bainbridge State College
Brian Pusateri, University of Scranton
Ellen Rackas, Muhlenberg College
Marianne Rexer, Wilkes University
Roslyn Roberts, California State University, Sacramento
Rebecca Rosner, Long Island University
Jeffrey J. Sabolish, University of Michigan-Flint
Jason E. Swartzlander, Bluffton University
Diane Tanner, University of North Florida
Mark M. Ulrich, Queensborough Community College
Janis Weber, University of Louisiana Monroe
Linda Williams, Tidewater Community College
Darryl Woolley, University of Idaho

Chapter 1 Role of Accounting in Society
• Why It Matters
• 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting
• 1.2 Identify Users of Accounting Information and How They Apply Information
• 1.3 Describe Typical Accounting Activities and the Role Accountants Play in Identifying, Recording, and Reporting Financial Activities
• 1.4 Explain Why Accounting Is Important to Business Stakeholders
• 1.5 Describe the Varied Career Paths Open to Individuals with an Accounting Education
• Key Terms
• Summary
• Multiple Choice
• Questions

Chapter 2 Introduction to Financial Statements
• Why It Matters
• 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate
• 2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses
• 2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 3 Analyzing and Recording Transactions
• Why It Matters
• 3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements
• 3.2 Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing Transactions
• 3.3 Define and Describe the Initial Steps in the Accounting Cycle
• 3.4 Analyze Business Transactions Using the Accounting Equation and Show the Impact of Business Transactions on Financial Statements
• 3.5 Use Journal Entries to Record Transactions and Post to T-Accounts
• 3.6 Prepare a Trial Balance
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 4 The Adjustment Process
• Why It Matters
• 4.1 Explain the Concepts and Guidelines Affecting Adjusting Entries
• 4.2 Discuss the Adjustment Process and Illustrate Common Types of Adjusting Entries
• 4.3 Record and Post the Common Types of Adjusting Entries
• 4.4 Use the Ledger Balances to Prepare an Adjusted Trial Balance
• 4.5 Prepare Financial Statements Using the Adjusted Trial Balance
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 5 Completing the Accounting Cycle
• Why It Matters
• 5.1 Describe and Prepare Closing Entries for a Business
• 5.2 Prepare a Post-Closing Trial Balance
• 5.3 Apply the Results from the Adjusted Trial Balance to Compute Current Ratio and Working Capital Balance, and Explain How These Measures Represent Liquidity
• 5.4 Appendix: Complete a Comprehensive Accounting Cycle for a Business
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 6 Merchandising Transactions
• Why It Matters
• 6.1 Compare and Contrast Merchandising versus Service Activities and Transactions
• 6.2 Compare and Contrast Perpetual versus Periodic Inventory Systems
• 6.3 Analyze and Record Transactions for Merchandise Purchases Using the Perpetual Inventory System
• 6.4 Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory System
• 6.5 Discuss and Record Transactions Applying the Two Commonly Used Freight-In Methods
• 6.6 Describe and Prepare Multi-Step and Simple Income Statements for Merchandising Companies
• 6.7 Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the Periodic Inventory System
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 7 Accounting Information Systems
• Why It Matters
• 7.1 Define and Describe the Components of an Accounting Information System
• 7.2 Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders
• 7.3 Analyze and Journalize Transactions Using Special Journals
• 7.4 Prepare a Subsidiary Ledger
• 7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 8 Fraud, Internal Controls, and Cash
• Why It Matters
• 8.1 Analyze Fraud in the Accounting Workplace
• 8.2 Define and Explain Internal Controls and Their Purpose within an Organization
• 8.3 Describe Internal Controls within an Organization
• 8.4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries
• 8.5 Discuss Management Responsibilities for Maintaining Internal Controls within an Organization
• 8.6 Define the Purpose of a Bank Reconciliation, and Prepare a Bank Reconciliation and Its Associated Journal Entries
• 8.7 Describe Fraud in Financial Statements and Sarbanes-Oxley Act Requirements
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 9 Accounting for Receivables
• Why It Matters
• 9.1 Explain the Revenue Recognition Principle and How It Relates to Current and Future Sales and Purchase Transactions
• 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches
• 9.3 Determine the Efficiency of Receivables Management Using Financial Ratios
• 9.4 Discuss the Role of Accounting for Receivables in Earnings Management
• 9.5 Apply Revenue Recognition Principles to Long-Term Projects
• 9.6 Explain How Notes Receivable and Accounts Receivable Differ
• 9.7 Appendix: Comprehensive Example of Bad Debt Estimation
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 10 Inventory
• Why It Matters
• 10.1 Describe and Demonstrate the Basic Inventory Valuation Methods and Their Cost Flow Assumptions
• 10.2 Calculate the Cost of Goods Sold and Ending Inventory Using the Periodic Method
• 10.3 Calculate the Cost of Goods Sold and Ending Inventory Using the Perpetual Method
• 10.4 Explain and Demonstrate the Impact of Inventory Valuation Errors on the Income Statement and Balance Sheet
• 10.5 Examine the Efficiency of Inventory Management Using Financial Ratios
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 11 Long-Term Assets
• Why It Matters
• 11.1 Distinguish between Tangible and Intangible Assets
• 11.2 Analyze and Classify Capitalized Costs versus Expenses
• 11.3 Explain and Apply Depreciation Methods to Allocate Capitalized Costs
• 11.4 Describe Accounting for Intangible Assets and Record Related Transactions
• 11.5 Describe Some Special Issues in Accounting for Long-Term Assets
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 12 Current Liabilities
• Why It Matters
• 12.1 Identify and Describe Current Liabilities
• 12.2 Analyze, Journalize, and Report Current Liabilities
• 12.3 Define and Apply Accounting Treatment for Contingent Liabilities
• 12.4 Prepare Journal Entries to Record Short-Term Notes Payable
• 12.5 Record Transactions Incurred in Preparing Payroll
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 13 Long-Term Liabilities
• Why It Matters
• 13.1 Explain the Pricing of Long-Term Liabilities
• 13.2 Compute Amortization of Long-Term Liabilities Using the Effective-Interest Method
• 13.3 Prepare Journal Entries to Reflect the Life Cycle of Bonds
• 13.4 Appendix: Special Topics Related to Long-Term Liabilities
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 14 Corporation Accounting
• Why It Matters
• 14.1 Explain the Process of Securing Equity Financing through the Issuance of Stock
• 14.2 Analyze and Record Transactions for the Issuance and Repurchase of Stock
• 14.3 Record Transactions and the Effects on Financial Statements for Cash Dividends, Property Dividends, Stock Dividends, and Stock Splits
• 14.4 Compare and Contrast Owners’ Equity versus Retained Earnings
• 14.5 Discuss the Applicability of Earnings per Share as a Method to Measure Performance
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 15 Partnership Accounting
• Why It Matters
• 15.1 Describe the Advantages and Disadvantages of Organizing as a Partnership
• 15.2 Describe How a Partnership Is Created, Including the Associated Journal Entries
• 15.3 Compute and Allocate Partners’ Share of Income and Loss
• 15.4 Prepare Journal Entries to Record the Admission and Withdrawal of a Partner
• 15.5 Discuss and Record Entries for the Dissolution of a Partnership
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers

Chapter 16 Statement of Cash Flows
• Why It Matters
• 16.1 Explain the Purpose of the Statement of Cash Flows
• 16.2 Differentiate between Operating, Investing, and Financing Activities
• 16.3 Prepare the Statement of Cash Flows Using the Indirect Method
• 16.4 Prepare the Completed Statement of Cash Flows Using the Indirect Method
• 16.5 Use Information from the Statement of Cash Flows to Prepare Ratios to Assess Liquidity and Solvency
• 16.6 Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method
• Key Terms
• Summary
• Multiple Choice
• Questions
• Exercise Set A
• Exercise Set B
• Problem Set A
• Problem Set B
• Thought Provokers