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Table of contents
  1. Preface
  2. 1 Role of Accounting in Society
    1. Why It Matters
    2. 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting
    3. 1.2 Identify Users of Accounting Information and How They Apply Information
    4. 1.3 Describe Typical Accounting Activities and the Role Accountants Play in Identifying, Recording, and Reporting Financial Activities
    5. 1.4 Explain Why Accounting Is Important to Business Stakeholders
    6. 1.5 Describe the Varied Career Paths Open to Individuals with an Accounting Education
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
  3. 2 Introduction to Financial Statements
    1. Why It Matters
    2. 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate
    3. 2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses
    4. 2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Analyzing and Recording Transactions
    1. Why It Matters
    2. 3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements
    3. 3.2 Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing Transactions
    4. 3.3 Define and Describe the Initial Steps in the Accounting Cycle
    5. 3.4 Analyze Business Transactions Using the Accounting Equation and Show the Impact of Business Transactions on Financial Statements
    6. 3.5 Use Journal Entries to Record Transactions and Post to T-Accounts
    7. 3.6 Prepare a Trial Balance
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  5. 4 The Adjustment Process
    1. Why It Matters
    2. 4.1 Explain the Concepts and Guidelines Affecting Adjusting Entries
    3. 4.2 Discuss the Adjustment Process and Illustrate Common Types of Adjusting Entries
    4. 4.3 Record and Post the Common Types of Adjusting Entries
    5. 4.4 Use the Ledger Balances to Prepare an Adjusted Trial Balance
    6. 4.5 Prepare Financial Statements Using the Adjusted Trial Balance
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  6. 5 Completing the Accounting Cycle
    1. Why It Matters
    2. 5.1 Describe and Prepare Closing Entries for a Business
    3. 5.2 Prepare a Post-Closing Trial Balance
    4. 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. 5.4 Appendix: Complete a Comprehensive Accounting Cycle for a Business
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  7. 6 Merchandising Transactions
    1. Why It Matters
    2. 6.1 Compare and Contrast Merchandising versus Service Activities and Transactions
    3. 6.2 Compare and Contrast Perpetual versus Periodic Inventory Systems
    4. 6.3 Analyze and Record Transactions for Merchandise Purchases Using the Perpetual Inventory System
    5. 6.4 Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory System
    6. 6.5 Discuss and Record Transactions Applying the Two Commonly Used Freight-In Methods
    7. 6.6 Describe and Prepare Multi-Step and Simple Income Statements for Merchandising Companies
    8. 6.7 Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the Periodic Inventory System
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  8. 7 Accounting Information Systems
    1. Why It Matters
    2. 7.1 Define and Describe the Components of an Accounting Information System
    3. 7.2 Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders
    4. 7.3 Analyze and Journalize Transactions Using Special Journals
    5. 7.4 Prepare a Subsidiary Ledger
    6. 7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Fraud, Internal Controls, and Cash
    1. Why It Matters
    2. 8.1 Analyze Fraud in the Accounting Workplace
    3. 8.2 Define and Explain Internal Controls and Their Purpose within an Organization
    4. 8.3 Describe Internal Controls within an Organization
    5. 8.4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries
    6. 8.5 Discuss Management Responsibilities for Maintaining Internal Controls within an Organization
    7. 8.6 Define the Purpose of a Bank Reconciliation, and Prepare a Bank Reconciliation and Its Associated Journal Entries
    8. 8.7 Describe Fraud in Financial Statements and Sarbanes-Oxley Act Requirements
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  10. 9 Accounting for Receivables
    1. Why It Matters
    2. 9.1 Explain the Revenue Recognition Principle and How It Relates to Current and Future Sales and Purchase Transactions
    3. 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches
    4. 9.3 Determine the Efficiency of Receivables Management Using Financial Ratios
    5. 9.4 Discuss the Role of Accounting for Receivables in Earnings Management
    6. 9.5 Apply Revenue Recognition Principles to Long-Term Projects
    7. 9.6 Explain How Notes Receivable and Accounts Receivable Differ
    8. 9.7 Appendix: Comprehensive Example of Bad Debt Estimation
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  11. 10 Inventory
    1. Why It Matters
    2. 10.1 Describe and Demonstrate the Basic Inventory Valuation Methods and Their Cost Flow Assumptions
    3. 10.2 Calculate the Cost of Goods Sold and Ending Inventory Using the Periodic Method
    4. 10.3 Calculate the Cost of Goods Sold and Ending Inventory Using the Perpetual Method
    5. 10.4 Explain and Demonstrate the Impact of Inventory Valuation Errors on the Income Statement and Balance Sheet
    6. 10.5 Examine the Efficiency of Inventory Management Using Financial Ratios
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  12. 11 Long-Term Assets
    1. Why It Matters
    2. 11.1 Distinguish between Tangible and Intangible Assets
    3. 11.2 Analyze and Classify Capitalized Costs versus Expenses
    4. 11.3 Explain and Apply Depreciation Methods to Allocate Capitalized Costs
    5. 11.4 Describe Accounting for Intangible Assets and Record Related Transactions
    6. 11.5 Describe Some Special Issues in Accounting for Long-Term Assets
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Current Liabilities
    1. Why It Matters
    2. 12.1 Identify and Describe Current Liabilities
    3. 12.2 Analyze, Journalize, and Report Current Liabilities
    4. 12.3 Define and Apply Accounting Treatment for Contingent Liabilities
    5. 12.4 Prepare Journal Entries to Record Short-Term Notes Payable
    6. 12.5 Record Transactions Incurred in Preparing Payroll
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  14. 13 Long-Term Liabilities
    1. Why It Matters
    2. 13.1 Explain the Pricing of Long-Term Liabilities
    3. 13.2 Compute Amortization of Long-Term Liabilities Using the Effective-Interest Method
    4. 13.3 Prepare Journal Entries to Reflect the Life Cycle of Bonds
    5. 13.4 Appendix: Special Topics Related to Long-Term Liabilities
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  15. 14 Corporation Accounting
    1. Why It Matters
    2. 14.1 Explain the Process of Securing Equity Financing through the Issuance of Stock
    3. 14.2 Analyze and Record Transactions for the Issuance and Repurchase of Stock
    4. 14.3 Record Transactions and the Effects on Financial Statements for Cash Dividends, Property Dividends, Stock Dividends, and Stock Splits
    5. 14.4 Compare and Contrast Owners’ Equity versus Retained Earnings
    6. 14.5 Discuss the Applicability of Earnings per Share as a Method to Measure Performance
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  16. 15 Partnership Accounting
    1. Why It Matters
    2. 15.1 Describe the Advantages and Disadvantages of Organizing as a Partnership
    3. 15.2 Describe How a Partnership Is Created, Including the Associated Journal Entries
    4. 15.3 Compute and Allocate Partners’ Share of Income and Loss
    5. 15.4 Prepare Journal Entries to Record the Admission and Withdrawal of a Partner
    6. 15.5 Discuss and Record Entries for the Dissolution of a Partnership
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  17. 16 Statement of Cash Flows
    1. Why It Matters
    2. 16.1 Explain the Purpose of the Statement of Cash Flows
    3. 16.2 Differentiate between Operating, Investing, and Financing Activities
    4. 16.3 Prepare the Statement of Cash Flows Using the Indirect Method
    5. 16.4 Prepare the Completed Statement of Cash Flows Using the Indirect Method
    6. 16.5 Use Information from the Statement of Cash Flows to Prepare Ratios to Assess Liquidity and Solvency
    7. 16.6 Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  18. A | Financial Statement Analysis
  19. B | Time Value of Money
  20. C | Suggested Resources
  21. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
    14. Chapter 14
    15. Chapter 15
    16. Chapter 16
  22. Index
1.

LO 3.1That a business may only report activities on financial statements that are specifically related to company operations, not those activities that affect the owner personally, is known as which of the following?

  1. separate entity concept
  2. monetary measurement concept
  3. going concern assumption
  4. time period assumption
2.

LO 3.1That companies can present useful information in shorter time periods such as years, quarters, or months is known as which of the following?

  1. separate entity concept
  2. monetary measurement concept
  3. going concern assumption
  4. time period assumption
3.

LO 3.1The system of using a monetary unit, such as the US dollar, to value the transaction is known as which of the following?

  1. separate entity concept
  2. monetary measurement concept
  3. going concern assumption
  4. time period assumption
4.

LO 3.1Which of the following terms is used when assuming a business will continue to operate in the foreseeable future?

  1. separate entity concept
  2. monetary measurement concept
  3. going concern assumption
  4. time period assumption
5.

LO 3.1The independent, nonprofit organization that sets financial accounting and reporting standards for both public- and private-sector businesses that use generally accepted accounting principles (GAAP) in the United States is which of the following?

  1. Financial Accounting Standards Board (FASB)
  2. generally accepted accounting principles (GAAP)
  3. Securities and Exchange Commission (SEC)
  4. conceptual framework
6.

LO 3.1The standards, procedures, and principles companies must follow when preparing their financial statements are known as which of the following?

  1. Financial Accounting Standards Board (FASB)
  2. generally accepted accounting principles (GAAP)
  3. Securities and Exchange Commission (SEC)
  4. conceptual framework
7.

LO 3.1These are used by the FASB, and it is a set of concepts that guide financial reporting.

  1. Financial Accounting Standards Board (FASB)
  2. generally accepted accounting principles (GAAP)
  3. Securities and Exchange Commission (SEC)
  4. conceptual framework
8.

LO 3.1This is the independent federal agency protecting the interests of investors, regulating stock markets, and ensuring companies adhere to GAAP requirements.

  1. Financial Accounting Standards Board (FASB)
  2. generally accepted accounting principles (GAAP)
  3. Securities and Exchange Commission (SEC)
  4. conceptual framework
9.

LO 3.1Which of the following is the principle that a company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided?

  1. revenue recognition principle
  2. expense recognition (matching) principle
  3. cost principle
  4. full disclosure principle
10.

LO 3.1Which of the following is the principle that a business must report any business activities that could affect what is reported on the financial statements?

  1. revenue recognition principle
  2. expense recognition (matching) principle
  3. cost principle
  4. full disclosure principle
11.

LO 3.1Also known as the historical cost principle, ________ states that everything the company owns or controls (assets) must be recorded at their value at the date of acquisition.

  1. revenue recognition principle
  2. expense recognition (matching) principle
  3. cost principle
  4. full disclosure principle
12.

LO 3.1Which of the following principles matches expenses with associated revenues in the period in which the revenues were generated?

  1. revenue recognition principle
  2. expense recognition (matching) principle
  3. cost principle
  4. full disclosure principle
13.

LO 3.2Which of the following does not accurately represent the accounting equation?

  1. Assets – Liabilities = Stockholders’ Equity
  2. Assets – Stockholders’ Equity = Liabilities
  3. Assets = Liabilities + Stockholders’ Equity
  4. Assets + Liabilities = Stockholders’ Equity
14.

LO 3.2Which of these statements is false?

  1. Assets = Liabilities + Equity
  2. Assets – Liabilities = Equity
  3. Liabilities – Equity = Assets
  4. Liabilities = Assets – Equity
15.

LO 3.2Which of these accounts is an asset?

  1. Common Stock
  2. Supplies
  3. Accounts Payable
  4. Fees Earned
16.

LO 3.2Which of these accounts is a liability?

  1. Accounts Receivable
  2. Supplies
  3. Salaries Expense
  4. Accounts Payable
17.

LO 3.2If equity equals $100,000, which of the following is true?

  1. Assets exceed liabilities by $100,000.
  2. Liabilities exceed equity by $100,000.
  3. Assets + liabilities equal $100,000.
  4. None of the above is true.
18.

LO 3.3Which process of the accounting cycle often requires the most analytical thought?

  1. making a journal entry
  2. posting transactions to accounts
  3. summarizing the trial balance
  4. preparing the financial statements
19.

LO 3.3The step-by-step process to record business activities and events to keep financial records up to date is ________.

  1. day-to-day cycle
  2. accounting cycle
  3. general ledger
  4. journal
20.

LO 3.3One operating cycle of a business, which could be a month, quarter, or year, is commonly referred to as which of the following?

  1. period
  2. round
  3. tally
  4. mark
21.

LO 3.3 ________ takes all transactions from the journal during a period and moves the information to a general ledger (ledger).

  1. Hitching
  2. Posting
  3. Vetting
  4. Laxing
22.

LO 3.4Which of these events will not be recognized?

  1. A service is performed, but the payment is not collected on the same day.
  2. Supplies are purchased. They are not paid for; the company will be billed.
  3. A copy machine is ordered. It will be delivered in two weeks.
  4. Electricity has been used but has not been paid for.
23.

LO 3.4A company purchased a building twenty years ago for $150,000. The building currently has an appraised market value of $235,000. The company reports the building on its balance sheet at $235,000. What concept or principle has been violated?

  1. separate entity concept
  2. recognition principle
  3. monetary measurement concept
  4. cost principle
24.

LO 3.4What is the impact on the accounting equation when a current month’s utility expense is paid?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. neither side changes
25.

LO 3.4What is the impact on the accounting equation when a payment of account payable is made?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. neither side changes
26.

LO 3.4What is the impact on the accounting equation when an accounts receivable is collected?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. the total of neither side changes
27.

LO 3.4What is the impact on the accounting equation when a sale occurs?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. neither side changes
28.

LO 3.4What is the impact on the accounting equation when stock is issued, in exchange for assets?

  1. both sides increase
  2. both sides decrease
  3. only the Asset side changes
  4. neither side changes
29.

LO 3.5Which of the following accounts is increased by a debit?

  1. Common Stock
  2. Accounts Payable
  3. Supplies
  4. Service Revenue
30.

LO 3.5Which of the following accounts does not increase with a debit entry?

  1. Retained Earnings
  2. Buildings
  3. Prepaid Rent
  4. Electricity Expense
31.

LO 3.5Which of the following pairs increase with credit entries?

  1. supplies and retained earnings
  2. rent expense and unearned revenue
  3. prepaid rent and common stock
  4. unearned service revenue and accounts payable
32.

LO 3.5Which of the following pairs of accounts are impacted the same with debits and credits?

  1. Cash and Unearned Service Revenue
  2. Electricity Expense and Office Supplies
  3. Accounts Receivable and Accounts Payable
  4. Buildings and Common Stock
33.

LO 3.5Which of the following accounts will normally have a debit balance?

  1. Common Stock
  2. Fees Earned
  3. Supplies
  4. Accounts Payable
34.

LO 3.5What type of account is prepaid insurance?

  1. Stockholders’ Equity
  2. Expense
  3. Liability
  4. Asset
35.

LO 3.5Unearned service revenue occurs when which of the following occurs?

  1. company receives cash from a customer before performing the service
  2. company pays cash before receiving a service from a supplier
  3. company pays cash after receiving a service from a supplier
  4. company receives cash from a customer after performing a service
36.

LO 3.5Which set of accounts has the same type of normal balance?

  1. Cash, accounts payable
  2. Prepaid rent, unearned service revenue
  3. Dividends, common stock
  4. Accounts payable, retained earnings
37.

LO 3.5Which of these transactions requires a debit entry to Cash?

  1. paid balance due to suppliers
  2. sold merchandise on account
  3. collected balance due from customers
  4. purchased supplies for cash
38.

LO 3.5Which of these transactions requires a credit entry to Revenue?

  1. received cash from services performed this month
  2. collected balance due from customers
  3. received cash from bank loan
  4. refunded a customer for a defective product
39.

LO 3.5Which of these accounts commonly requires both debit and credit entries?

  1. Sales Revenue
  2. Utilities Expense
  3. Accounts Receivable
  4. Common Stock
40.

LO 3.5Which of the following accounting records is the main source of information used to prepare the financial statements?

  1. journal entries
  2. T-accounts
  3. trial balance
  4. chart of accounts
41.

LO 3.5Which of the following financial statements should be prepared first?

  1. Balance Sheet
  2. Income Statement
  3. Retained Earnings Statement
  4. Statement of Cash Flows
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