Page 3 - Accounting Principles (A Business Perspective)

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Table of Contents
Accounting principles:A business perspective.................................................................................................8
The accounting environment..........................................................................................................................18
Accounting defined.........................................................................................................................................19
Financial accounting versus managerial accounting.....................................................................................23
Development of financial accounting standards............................................................................................25
Ethical behavior of accountants.....................................................................................................................26
1. Accounting and its use in business decisions.......................................................................30
Forms of business organizations....................................................................................................................31
Types of activities performed by business organizations..............................................................................32
Financial statements of business organizations............................................................................................33
The financial accounting process...................................................................................................................37
Analyzing and using the financial results—the equity ratio..........................................................................46
2. Recording business transactions...........................................................................................65
The account and rules of debit and credit......................................................................................................66
The accounting cycle.......................................................................................................................................72
The journal...................................................................................................................................................... 73
The ledger........................................................................................................................................................ 76
The accounting process in operation..............................................................................................................76
3. Adjustments for financial reporting....................................................................................116
Cash versus accrual basis accounting............................................................................................................117
Classes and types of adjusting entries..........................................................................................................120
Adjustments for deferred items....................................................................................................................122
Adjustments for accrued items.....................................................................................................................129
4. Completing the accounting cycle.........................................................................................150
The accounting cycle summarized................................................................................................................151
The work sheet............................................................................................................................................... 151
Preparing financial statements from the work sheet....................................................................................157
Journalizing adjusting entries......................................................................................................................158
The closing process.......................................................................................................................................159
Accounting systems: From manual to computerized...................................................................................164
A classified balance sheet..............................................................................................................................169
Analyzing and using the financial results — the current ratio.....................................................................175
5. Accounting theory................................................................................................................198
Traditional accounting theory......................................................................................................................199
Other basic concepts.....................................................................................................................................201
The measurement process in accounting.....................................................................................................202
The major principles....................................................................................................................................203
Modifying conventions (or constraints)......................................................................................................209
The financial accounting standards board's conceptual framework project...............................................212
Objectives of financial reporting...................................................................................................................212
Qualitative characteristics............................................................................................................................214
Recognition and measurement in financial statements...............................................................................218
6. Merchandising transactions................................................................................................236
Introduction to inventories and the classified income statement...............................................................236
Two income statements compared— Service company and merchandising company...............................237
Sales revenues...............................................................................................................................................238
Cost of goods sold.........................................................................................................................................244
Classified income statement.........................................................................................................................252
Analyzing and using the financial results—Gross margin percentage........................................................256
7. Measuring and reporting inventories..................................................................................279

Accounting Principles: A Business Perspective 4 A Global Text