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Charles T. Horngren
Stanford University
Walter T. Harrison Jr.
Baylor University
M. Suzanne Oliver
University of West Florida
Financial & Managerial
Accounting
T H I R D E D I T I O N
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Library of Congress Cataloging-in-Publication Data Horngren, Charles T.
Financial & managerial accounting / Charles T. Horngren, Walter T. Harrison Jr., M. Suzanne Oliver.—3rd ed. p. cm. Rev. ed. of: Financial and managerial accounting. 2nd ed. 2009. Includes index.
ISBN 978-0-13-249799-2 (casebound)—ISBN 978-0-13-249794-7 (pbk.)—ISBN 978-0-13-249792-3 (pbk.)
1. Accounting. 2. Managerial accounting. I. Harrison, Walter T. II. Oliver, M. Suzanne. III. Title. IV. Title: Financial and managerial accounting. HF5636.H67 2012 657—dc22
2010047843 10 9 8 7 6 5 4 3 2 1 About the Authors
is the Edmund W. Littlefield professor of accounting, emeritus, at
Charles T. Horngren Stanford University. A graduate of Marquette University, he received his MBA from Harvard University and his PhD from the University of Chicago. He is also the recipient of honorary doctor- ates from Marquette University and DePaul University.
A CPA, Horngren served on the Accounting Principles Board for six years, the Financial Accounting Standards Board (FASB) Advisory Council for five years, and the Council of the AICPA for three years. For six years he served as a trustee of the Financial Accounting Foundation, which oversees the FASB and the Government Accounting Standards Board.
Horngren is a member of the Accounting Hall of Fame. A member of the AAA, Horngren has been its president and its director of research. He received its first annual Outstanding Accounting Educator Award.
The California Certified Public Accountants Foundation gave Horngren its Faculty Excellence Award and its Distinguished Professor Award. He is the first person to have received both awards.
The AICPA presented its first Outstanding Educator Award to Horngren. Horngren was named Accountant of the Year, in Education, by the national professional accounting fraternity, Beta Alpha Psi.
Professor Horngren is also a member of the IMA, from whom he has received its Distinguished Service Award. He was a member of the institute’s Board of Regents, which adminis- ters the CMA examinations. is professor emeritus of accounting at the Hankamer School of
Walter T. Harrison, Jr., Business, Baylor University. He received his BBA degree from Baylor University, his MS from Oklahoma State University, and his PhD from Michigan State University.
Professor Harrison, recipient of numerous teaching awards from student groups as well as from university administrators, has also taught at Cleveland State Community College, Michigan State University, the University of Texas, and Stanford University.
A member of AAA and the AICPA, Professor Harrison has served as chairman of the Financial Accounting Standards Committee of AAA, on the Teaching/Curriculum Development Award Committee, on the Program Advisory Committee for Accounting Education and Teaching, and on the Notable Contributions to Accounting Literature Committee.
Professor Harrison has lectured in several foreign countries and published articles in numer- ous journals, including Journal of Accounting Research, Journal of Accountancy, Journal of Accounting and Public Policy, Economic Consequences of Financial Accounting Standards, Accounting Horizons, Issues in Accounting Education, and Journal of Law and Commerce.
Professor Harrison has received scholarships, fellowships, and research grants or awards from PriceWaterhouse Coopers, Deloitte & Touche, the Ernst & Young Foundation, and the KPMG Foundation.
is an accounting instructor at the University of West Florida in
M. Suzanne Oliver Pensacola, Florida. She received her BA in accounting information systems and her MA in accoun- tancy from the University of West Florida.
Oliver began her career in the tax department of a regional accounting firm, specializing in benefit plan administration. She has served as a software analyst for a national software develop- ment firm and as the Oracle fixed assets analyst for Spirit Energy, formerly part of Unocal. A CPA, Oliver is a member of the AAA, AICPA, FICPA, IAAER, IMA, TACTYC, and the Florida Association of Accounting Educators.
Oliver has taught accounting courses of all levels for the University of West Florida, state col- leges, community colleges, and to practitioners since 1988. She has developed and instructed online courses using MyAccountingLab, WebCT, D2L, and other proprietary software.
Oliver lives in Niceville, FL, with her husband, Greg, and son, CJ. She especially thanks her husband, Greg, her son, CJ, and her uncle and aunt, Jimmy and Lida Lewis, for their unwavering Brief Contents
CHAPTER 1 Accounting and the Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 CHAPTER 2 Recording Business Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 CHAPTER 3 The Adjusting Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 CHAPTER 4 Completing the Accounting Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 CHAPTER 5 Merchandising Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 CHAPTER 6 Merchandise Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311 CHAPTER 7 Internal Control and Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355 CHAPTER 8 Receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404 CHAPTER 9 Plant Assets and Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 452 CHAPTER 10 Current Liabilities and Payroll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496 CHAPTER 11 Long-Term Liabilities, Bonds Payable, and Classification of Liabilities on the Balance Sheet . . . . . . . . . . . 529 CHAPTER 12 Corporations: Paid-In Capital and the Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 581 CHAPTER 13 Corporations: Effects on Retained Earnings and the Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 623 CHAPTER 14 The Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 661 CHAPTER 15 Financial Statement Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 722 CHAPTER 16 Introduction to Managerial Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 773 CHAPTER 17 Job Order and Process Costing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813 CHAPTER 18 Activity-Based Costing and Other Cost Management Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 880 CHAPTER 19 Cost-Volume-Profit Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924 CHAPTER 20 Short-Term Business Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962 CHAPTER 21 Capital Investment Decisions and the Time Value of Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1010 CHAPTER 22 The Master Budget and Responsibility Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1050 CHAPTER 23 Flexible Budgets and Standard Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1105 CHAPTER 24 Performance Evaluation and the Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1151 APPENDIX A
2009 Amazon.com Annual Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
APPENDIX B
Present Value Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1 Glindex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . G-1 Company Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
ONLINE MATERIAL: located at pearsonhighered.com/horngren APPENDIX C—Check Figures SPECIAL JOURNALS
INVESTMENTS PARTNERSHIPS
CHAPTER
Preparing the Trial Balance from the T-Accounts
63 Assets 63 Liabilities 64 Stockholders’ Equity 64 Chart of Accounts 65
Debits, Credits, and Double-Entry Accounting
67 The T-Account 67 Increases and Decreases in the Accounts 68
List the Steps of the Transaction Recording Process 69 Posting (Copying Information) from the Journal to the Ledger 70 Expanding the Rules of Debit and Credit: Revenues and Expenses 71 The Normal Balance of an Account 72 Source Documents—The Origin of the Steps 73
Journalizing Transactions and Posting
73 Practice Journalizing with Specific Examples 73 The Ledger Accounts After Posting 79
80 Correcting Trial Balance Errors 81 Details of Journals and Ledgers 81 The Four-Column Account: An Alternative to the
CHAPTER
T-Account 82 䊏 Decision Guidelines 2-1 84 䉴 Summary Problem 2-1 85 䉴
Chapter 2: Demo Doc: Debit/Credit Transaction Analysis 89 Review and Assignment Material
98 CHAPTER
3 The Adjusting Process 130 Accrual Accounting Versus Cash-Basis Accounting 131 Other Accounting Principles 132
The Accounting Period Concept 132 The Revenue Recognition Principle 133 The Matching Principle 134 The Time-Period Concept 134
Why We Adjust the Accounts 135 Two Categories of Adjusting Entries 136 Prepaid Expenses 136 Depreciation 138 Accrued Expenses 140 Accrued Revenues 142 Unearned Revenues 143
The Adjusted Trial Balance 147 The Financial Statements 149 Preparing the Statements 149 Relationships Among the Financial Statements 149
2 Recording Business Transactions 62 The Account, the Journal, and the Ledger
23 䊏 Decision Guidelines 1-1 25
1 Accounting and the Business Environment 1 Accounting Vocabulary: The Language of Business
Distinguishing Characteristics and Organization of a Corporation
2 Decision Makers: The Users of Accounting Information
2 Individuals 2 Businesses 3 Investors 3 Creditors 3 Taxing Authorities 3
The Accounting Profession and the Organizations that Govern It
4 Governing Organizations 4 Ethics in Accounting and Business 5 Standards of Professional Conduct 5
Types of Business Organizations
5 Proprietorships 6 Partnerships 6 Corporations 6 Limited-Liability Partnerships (LLPs) and Limited- Liability Companies (LLCs) 6 Not-for-Profits 6
7 Separate Legal Entity 7 Continuous Life and Transferability of Ownership 8 No Mutual Agency 8 Limited Liability of Stockholders 8 Separation of Ownership and Management 8 Corporate Taxation 8 Government Regulation 8 Organization of a Corporation 9
Using Financial Statements to Evaluate Business Performance
Accounting Concepts and Principles
9 The Entity Concept 10 The Faithful Representation Principle 10 The Cost Principle 10 The Going-Concern Concept 10 The Stable Monetary Unit Concept 11
The Accounting Equation
11 Assets and Liabilities 11 Equity 12
Accounting for Business Transactions
13 Transaction Analysis for Smart Touch Learning 14 Preparing the Financial Statements—The User Perspective of Accounting
18 The Financial Statements 20 Headings 20
Contents
䊏 Decision Guidelines 3-1 152 䉴 Summary Problem 3-1 153 䉴
The Gross Profit Percentage 274 The Rate of Inventory Turnover 274 Days in Inventory 275 䊏
Accounting for Inventory in a Periodic System 349 CHAPTER
Review and Assignment Material 330 APPENDIX 6A:
Decision Guidelines 6-1 328 䉴 Summary Problem 6-2 329
Lower-of-Cost-or-Market Rule 324 Effects of Inventory Errors 325 Estimating Ending Inventory 326 Ethical Issues 327 䊏
Comparing FIFO, LIFO, and Average Cost 321 䉴 Summary Problem 6-1 322
First-In, First-Out (FIFO) Method 316 Last-In, First-Out (LIFO) Method 318 Average-Cost Method 319
6 Merchandise Inventory 311 Accounting Principles and Inventories 313 Inventory Costing Methods 314 Inventory Accounting in a Perpetual System 316
CHAPTER
APPENDIX 5B: Worksheet for a Merchandising Business— Perpetual online at pearsonhighered.com/horngren
COMPREHENSIVE PROBLEM FOR CHAPTERS 1–5: Completing a Merchandiser’s Accounting Cycle 309
APPENDIX 5A: Accounting for Merchandise in a Periodic Inventory System 303
Review and Assignment Material 281
Decision Guidelines 5-1 276 䉴 Summary Problem 5-2 278
Income Statement Formats: Multi-Step and Single-Step 273 Three Ratios for Decision Making 274
Chapter 3: Demo Doc: Preparation of Adjusting Entries, Adjusted Trial Balance, and Financial Statements 157 Review and Assignment Material 166 APPENDIX 3A: Alternative Treatment of Prepaid Expenses and Unearned Revenues online at pearsonhighered.com/horngren
Adjusting Inventory Based on a Physical Count 269 Closing the Accounts of a Merchandiser 270 Preparing a Merchandiser’s Financial Statements 271
The Operating Cycle of a Merchandising Business 257 Inventory Systems: Perpetual and Periodic 257 Adjusting and Closing the Accounts of a Merchandiser 269
5 Merchandising Operations 255 What Are Merchandising Operations? 256
Reversing Entries: An Optional Step online at pearsonhighered.com/horngren CHAPTER
Journalizing, Posting, Worksheet, Adjusting, Closing the Financial Statements 253 APPENDIX 4A:
Chapter 4: Demo Doc: Accounting Worksheets and Closing Entries 220 Review and Assignment Material 228 COMPREHENSIVE PROBLEM FOR CHAPTERS 1–4:
Decision Guidelines 4-1 215 䉴 Summary Problem 4-2 216 䉴
Accounting Ratios 213 Current Ratio 214 Debt Ratio 214 䊏
Post-Closing Trial Balance 210 Classifying Assets and Liabilities 210 Assets 210 Liabilities 211 The Classified Balance Sheet 211 Balance Sheet Forms 212
Closing the Accounts 207 Closing Temporary Accounts 208
Completing the Accounting Cycle 204 Preparing the Financial Statements from a Worksheet 204 Recording the Adjusting Entries from a Worksheet 204
Net Income 202 Net Loss 202 䉴 Summary Problem 4-1 202
4 Completing the Accounting Cycle 198 The Worksheet 200
CHAPTER
7 Internal Control and Cash 355 Internal Control 356 The Sarbanes-Oxley Act (SOX) 357 The Components of Internal Control 357
The Bank Account as a Control Device 362 The Bank Reconciliation 364 Preparing the Bank Reconciliation 364 Online Banking 368 䉴
Land and Land Improvements 454 Buildings 455 Machinery and Equipment 455 Furniture and Fixtures 456 A Lump-Sum (Basket) Purchase of Assets 456 Capital Expenditures 457
Decision Guidelines 10-2 512
Journalizing Payroll Transactions 509 Internal Control over Payroll 511 䊏
Accounting for Payroll 505 Gross Pay and Net (Take-Home) Pay 505 Payroll Withholding Deductions 506 Employer Payroll Taxes 508
Contingent Liabilities 501 䊏 Decision Guidelines 10-1 503 䉴 Summary Problem 10-1 504
Current Liabilities that Must Be Estimated 500 Estimated Warranty Payable 500
Accounts Payable 497 Short-Term Notes Payable 498 Sales Tax Payable 498 Current Portion of Long-Term Notes Payable 499 Accrued Liabilities 499 Unearned Revenues 500
10 Current Liabilities and Payroll 496 Current Liabilities of Known Amount 497
Review and Assignment Material 479 CHAPTER
Decision Guidelines 9-1 477 䉴 Summary Problem 9-2 478
Specific Intangibles 473 Accounting for Research and Development Costs 475 Ethical Issues 476 䊏
Summary Problem 9-1 466 Disposing of a Plant Asset 468 Accounting for Natural Resources 472 Accounting for Intangible Assets 473
Depreciation 458 Causes of Depreciation 459 Measuring Depreciation 459 Depreciation Methods 459 Comparing Depreciation Methods 463 Other Issues in Accounting for Plant Assets 465 䉴
9 Plant Assets and Intangibles 452 Measuring the Cost of a Plant Asset 454
Summary Problem 7-1 369 Internal Control over Cash Receipts 371 Internal Control over Cash Payments 372
Decision Guidelines 8-1 426 CHAPTER
Using Accounting Information for Decision Making 423 Acid-Test (or Quick) Ratio 424 Days’ Sales in Receivables 424 Accounts Receivable Turnover Ratio 425 䊏
Identifying Maturity Date 419 Computing Interest on a Note 419 Accruing Interest Revenue 420 Dishonored Notes Receivable 422 Computers and Receivables 423
Summary Problem 8-1 416 Notes Receivable 418
Credit-Card and Debit-Card Sales 414 Credit-Card Sales 415 Debit-Card Sales 415 Credit-/Debit-Card Sales 415 䉴
The Direct Write-Off Method 413 Recovery of Accounts Previously Written Off—Direct Write-Off Method 413
Accounts 411 Recovery of Accounts Previously Written Off— Allowance Method 411
Accounting for Uncollectibles (Bad Debts) 407 The Allowance Method 407 Estimating Uncollectibles 408 Identifying and Writing Off Uncollectible
Receivables: An Introduction 405 Types of Receivables 405 Internal Control over Receivables 406
Review and Assignment Material 381 CHAPTER
Corporate and Professional Codes of Ethics 377 Ethical Issues in Accounting 377 䊏 Decision Guidelines 7-1 379 䉴 Summary Problem 7-2 380
Controls over Payment by Check 372 Controlling Small Cash Payments 374 The Petty Cash Fund 374 Ethics and Accounting 377
8 Receivables 404
CHAPTER
11 Long-Term Liabilities, Bonds Payable,
and Classification of Liabilities on the Balance Sheet 529 Long-Term Notes Payable and Mortgages Payable 530
Cash Equivalents 663 Operating, Investing, and Financing Activities 663
14 The Statement of Cash Flows 661 Introduction: The Statement of Cash Flows 662
CHAPTER
Review and Assignment Material 645
Decision Guidelines 13-2 642 䉴 Summary Problem 13-2 643
The Corporate Income Statement 636 Continuing Operations 637 Special Items 637 Earnings per Share 639 Statement of Retained Earnings 640 Combined Statement of Income and Retained Earnings 640 Prior-Period Adjustments 640 Reporting Comprehensive Income 641 䊏
Decision Guidelines 13-1 634 䉴 Summary Problem 13-1 635
Restrictions on Retained Earnings 632 Variations in Reporting Stockholders’ Equity 633 䊏
Treasury Stock Basics 629 Purchase of Treasury Stock 629 Sale of Treasury Stock 630 Retirement of Stock 631
Stock Dividends and Stock Splits Compared 628 Treasury Stock 629
13 Corporations: Effects on Retained Earnings and the Income Statement 623 Stock Dividends 624 Stock Splits 627
Compare Issuing Bonds to Issuing Stocks online at pearsonhighered.com/horngren CHAPTER
Review and Assignment Material 603
Accounting for Income Taxes by Corporations 600 䊏 Decision Guidelines 12-2 601 䉴 Summary Problem 12-2 602
Evaluating Operations 598 Rate of Return on Total Assets 598 Rate of Return on Common Stockholders’ Equity 599
Different Values of Stock 596 Market Value 596 Liquidation Value 597 Book Value 597
Long-Term Notes Payable 530 Mortgages Payable 532 Bonds: An Introduction 535
Types of Bonds 536 Bond Prices 537 Present Value 538 Bond Interest Rates 538
APPENDIX 12A:
Stockholders’ Rights 584 Classes of Stock 584 Issuing Stock 585
Balance Sheet 581 Corporations: An Overview 582 Stockholders’ Equity Basics 583
Comparing Two Businesses 579 CHAPTER
Retiring Bonds Payable 577 COMPREHENSIVE PROBLEM FOR CHAPTERS 7–11:
The Time Value of Money: Present Value of a Bond and Effective-Interest Amortization 565
Issuing Common Stock 585 Issuing Preferred Stock 588 Review of Accounting for Paid-In Capital 589 䊏
Reporting Liabilities on the Balance Sheet 546 䊏 Decision Guidelines 11-2 548 䉴 Summary Problem 11-1 549
Decision Guidelines 11-1 543 Issuing Bonds Payable at a Premium 544 Adjusting Entries for Bonds Payable 545 Issuing Bonds Payable Between Interest Dates 546
Accounting for Bonds Payable: Straight-Line Method 539 Issuing Bonds Payable at Maturity (Par) Value 539 Issuing Bonds Payable at a Discount 540 䊏
APPENDIX 11A:
APPENDIX 11B:
12 Corporations: Paid-In Capital and the
Decision Guidelines 12-1 590 䉴 Summary Problem 12-1 591
Retained Earnings 592 Accounting for Cash Dividends 593 Dividend Dates 593
Review and Assignment Material 550
Cash Flows from Investing Activities 669 Cash Flows from Financing Activities 671 Net Change in Cash and Cash Balances 674
16 Introduction to Managerial Accounting 773 Management Accountability: Financial vs. Managerial Accounting 774 Today’s Business Environment 776 Manufacturing Companies 783
Smart Touch Learning 883 Activity-Based Management: Using ABC for Decision Making 886
Sharpening the Focus: Assigning Costs Based on the Activities That Caused the Costs 881 Developing an Activity-Based Costing System 883 Traditional Versus Activity-Based Costing Systems:
18 Activity-Based Costing and Other Cost Management Tools 880 Refining Cost Systems 881
CHAPTER
APPENDIX 17A: Process Costing—Weighted-Average Method 856
Review and Assignment Material 834
Job Order Costing in a Service Company 828 䊏 Decision Guidelines 17-2 830 䉴 Summary Problem 17-2 831
Job Order Costing: Allocating Manufacturing Overhead 822 Accounting for Completion and Sale of Finished Goods and Adjusting Manufacturing Overhead 825 Accounting for the Completion and Sale of Finished Goods 825 Adjusting Manufacturing Overhead at the End of the Period 826
Decision Guidelines 17-1 820 䉴 Summary Problem 17-1 821
Job Order Costing 814 Process Costing 814 How Job Costs Flow Through the Accounts: An Overview 815 䊏
17 Job Order and Process Costing 813 How Much Does It Cost to Make a Product? Two Approaches 814
Review and Assignment Material 794 CHAPTER
Types of Costs 784 䊏 Decision Guidelines 16-1 791 䉴 Summary Problem 16-2 793
CHAPTER
Noncash Investing and Financing Activities 674 Measuring Cash Adequacy: Free Cash Flow 676 䊏 Decision Guidelines 14-1 677 䉴 Summary Problem 14-1 678
COMPREHENSIVE PROBLEM FOR CHAPTER 15: Analyzing a Company for Its Investment Potential 772
Review and Assignment Material 749
Decision Guidelines 15-1 745 䉴 Summary Problem 15-2 747
Evaluating Profitability 739 Evaluating Stock Investments 741 Red Flags in Financial Statement Analyses 744 䊏
Evaluating the Ability to Pay Current Liabilities 733 Evaluating the Ability to Sell Inventory and Collect Receivables 735 Evaluating the Ability to Pay Long-Term Debt 737
Summary Problem 15-1 731 Using Ratios to Make Decisions 732
Vertical Analysis 727 How Do We Compare One Company with Another? 728 Benchmarking 729 䉴
Illustration: Smart Touch Learning, Inc. 724 Horizontal Analysis of the Income Statement 726 Horizontal Analysis of the Balance Sheet 726 Trend Analysis 726
15 Financial Statement Analysis 722 Horizontal Analysis 723
CHAPTER
APPENDIX 14B: Preparing the Indirect Statement of Cash Flows Using a Spreadsheet 717
APPENDIX 14A: Preparing the Statement of Cash Flows by the Direct Method 701
Review and Assignment Material 681
Pricing and Product Mix Decisions 886 Cutting Costs 887 䊏 Decision Guidelines 18-1 891 䉴 Summary Problem 18-1 892
Continuous Improvement and the Management of Quality 897 The Four Types of Quality Costs 898 Deciding Whether to Adopt a New Quality
Program 899 䊏 Decision Guidelines 18-2 900 䉴 Summary Problem 18-2 901
22 The Master Budget and Responsibility Accounting 1050 Why Managers Use Budgets 1051
Review and Assignment Material 1037 CHAPTER
Comparing Capital Budgeting Methods 1033 䊏 Decision Guidelines 21-2 1035 䉴 Summary Problem 21-2 1036
Using Discounted Cash Flow Models to Make Capital Investment Decisions 1026 Net Present Value (NPV) 1026 Internal Rate of Return (IRR) 1031
Time Line 1022 Future Value and Present Value Factors 1023 Calculating Future Values of Single Sums and Annuities Using FV Factors 1023 Calculating Present Values of Single Sums and Annuities Using PV Factors 1024
A Review of the Time Value of Money 1021 Factors Affecting the Time Value of Money 1021 Future Values and Present Values: Points Along the
Decision Guidelines 21-1 1019 䉴 Summary Problem 21-1 1020
Using Payback Period and Rate of Return to Make Capital Investment Decisions 1013 Payback Period 1013 Rate of Return (ROR) 1016 䊏
Four Methods of Capital Budgeting Analysis 1011 Focus on Cash Flows 1012 Capital Budgeting Process 1012
21 Capital Investment Decisions and the Time Value of Money 1010 Capital Budgeting 1011
CHAPTER
Review and Assignment Material 991
Decision Guidelines 20-2 988 䉴 Summary Problem 20-2 989
Outsourcing and Sell as Is or Process Further Decisions 982 When to Outsource 982 Sell As Is or Process Further? 985 䊏
When to Drop Products, Departments, or Territories 977 Dropping Products Under Various Assumptions 978 Product Mix: Which Product to Emphasize? 980
19 Cost-Volume-Profit Analysis 924
Assumptions 930 How Much Must Greg Sell to Break Even? Three Approaches 930
Review and Assignment Material 902
CHAPTER
Cost Behavior 925 Variable Costs 925 Fixed Costs 926 Mixed Costs 927 High-Low Method to Separate Fixed Costs from
Variable Costs 927 Relevant Range 929 Basic CVP Analysis: What Must We Sell to Break Even? 929
Using CVP to Plan Profits 933 How Much Must Greg’s Sell to Earn a Profit? 933 Graphing Cost-Volume-Profit Relations 934 䉴
Special Sales Order and Regular Pricing Decisions 966 When to Accept a Special Sales Order 966 How to Set Regular Prices 969
Summary Problem 19-1 935 Using CVP for Sensitivity Analysis 937
Changing the Selling Price 937 Changing Variable Costs 938 Changing Fixed Costs 938 Margin of Safety 939
Effect of Sales Mix on CVP Analysis 940 䊏 Decision Guidelines 19-1 942 䉴 Summary Problem 19-2 944
Review and Assignment Material 946
APPENDIX 19A:
Variable Costing and Absorption Costing online at pearsonhighered.com/horngren CHAPTER
20 Short-Term Business Decisions 962
How Managers Make Decisions 963 Relevant Information 963 Relevant Nonfinancial Information 964 Keys to Making Short-Term Special Decisions 965
Components of the Master Budget 1055 Data for Greg’s Tunes 1056 Preparing the Operating Budget 1058
Measuring the Financial Performance of Cost, Revenue, and Profit Centers 1162 Measuring the Financial Performance of Investment Centers 1164 Return on Investment (ROI) 1166 Residual Income (RI) 1168 Limitations of Financial Performance Measures 1171 䊏
Decision Guidelines 23-2 1129 䉴 Summary Problem 23-2 1130
Standard Cost Accounting Systems 1125 Journal Entries 1125 Standard Cost Income Statement for Management 1128 䊏
The Sales Budget 1058 The Inventory, Purchases, and Cost of Goods Sold Budget 1058 The Operating Expenses Budget 1059
Advantages of Decentralization 1152 Disadvantages of Decentralization 1153 Responsibility Centers 1153
Performance Measurement 1154 Goals of Performance Evaluation Systems 1154 Limitations of Financial Performance
Measurement 1155 The Balanced Scorecard 1155
The Four Perspectives of the Balanced Scorecard 1156 䊏 Decision Guidelines 24-1 1160 䉴 Summary Problem 24-1 1161
CHAPTER
24 Performance Evaluation and the Balanced Scorecard 1151 Decentralized Operations 1152
Review and Assignment Material 1084
Learn about Service Departments 1076 䊏 Decision Guidelines 22-1 1081 䉴 Summary Problem 22-3 1082
Responsibility Accounting 1074 Four Types of Responsibility Centers 1074 Responsibility Accounting Performance Reports 1075
Sensitivity Analysis 1072 Rolling Up Individual Unit Budgets into the Companywide Budget 1073
Summary Problem 22-2 1069 Using Information Technology for Sensitivity Analysis and Rolling Up Unit Budgets 1072
Preparing the Financial Budget 1063 Preparing the Cash Budget 1063 The Budgeted Balance Sheet 1067 The Budgeted Statement of Cash Flows 1067 Getting Employees to Accept the Budget 1068 䉴
The Budgeted Income Statement 1060 䉴 Summary Problem 22-1 1061
Review and Assignment Material 1133 CHAPTER
23 Flexible Budgets and Standard
How Smart Touch Uses Standard Costing: Analyzing the Flexible Budget Variance 1117 Direct Materials Variances 1117 Direct Labor Variances 1120
Standard Costing 1113 Price Standards 1113 Application 1114 Quantity Standards 1114 Why Do Companies Use Standard Costs? 1115 Variance Analysis 1115
Decision Guidelines 23-1 1111 䉴 Summary Problem 23-1 1112
What Is a Flexible Budget? 1106 Using the Flexible Budget: Why Do Actual Results Differ from the Static Budget? 1108 䊏
Costs 1105 How Managers Use Flexible Budgets 1106
Decision Guidelines 24-2 1173 䉴 Summary Problem 24-2 1174
Review and Assignment Material 1176
APPENDIX A: 2009 Amazon.com Annual Report A-1 APPENDIX B: PRESENT VALUE TABLES B-1 GLINDEX G-1 COMPANY INDEX I-1 ONLINE MATERIAL: located at pearsonhighered.com/horngren APPENDIX C—CHECK FIGURES SPECIAL JOURNALS
INVESTMENTS PARTNERSHIPS
Manufacturing Overhead Variances 1121 Allocating Overhead in a Standard Cost System 1121 Changes to This Edition
Students and Instructors will both benefit from a variety of new content and features in the
Financial & Managerial Accounting: third edition of ADDED impairment coverage to Chapter 9, Plant Assets and Intangibles.IMPROVED Liabilities Coverage: Now Split into Two Chapters.
Based on reviewer demand, we split
Chapter 10 into two chapters:
- Chapter 10: Current Liabilities and Payroll • New Chapter 11: Long-Term Liabilities, Bonds Payable, and
Classification of Liabilities on the Balance Sheet
We also added long-term notes payable, mortgages payable, and allocation of payments between principal and interest coverage to new Chapter 11.
ADDED Ratio Coverage.
Based on reviewer demand, we added more ratio coverage to the Financial Statement Analysis, Chapter 15, and additional individual chapters.
ADDED Excel Formulas in Chapter 21, Capital Budgeting, to complement the blue/green formula boxes.
REVISED Budget Coverage.
Chapter 22: The Master Budget and Responsibility Accounting was rewritten to use the variable costing approach. Also, added coverage on traceable and untraceable costs.
ADDED more detailed coverage of overhead variances in Chapter 23.
Flexible Budgets and Standard Costs.
UPDATED Full MyAccountingLab Coverage: Special Purpose Journals, Stock Investments, and Partnerships.
The three online chapters have been posted in MyAccountingLab. The special purpose journals chapter covers the streamlined journalizing process using the continuing company, Smart Touch. The stock investments chapter covers classification and treatment of stock investments, also using Smart Touch.
The streamlined partnership chapter covers all the basics, including partnership creation, adding a
partner/removing a partner, allocating P&L, and liquidation. New examples were also written to retain
consistency and match the rest of the text (Sheena Bright of Smart Touch creates a partnership).These three chapters contain full MyAccountingLab coverage and supplements for instructors who wish to have it. These decisions have been widely supported by reviewers.
NEW and IMPROVED Chapter Openers.
All of the chapter openers have been redesigned and rewritten. The financial chapter openers include a visual of a balance sheet, highlighting the specific
section of the balance sheet that will be covered within the chapter. The managerial chapter openers FOCUSED on Student Success.
We’ve made it easy for students to identify what their focal point should be in every chapter:
- NEW Key Takeaway Feature. At the end of each main topic throughout the book, we’ve included a brief takeaway feature. This marginal feature hones in on the key point of that section so students will know exactly what they should have understood before moving on.
- NEW Translation Guides. We’ve included “translation guides” throughout the text, set off by a different font style/treatment, in which accounting terminology is translated into a lan-
guage students can easily understand. In doing so, we aim to make accounting more
Assets are resources that provide future economic benefits to a approachable (for example: company. An asset is something you own that has value, like your iPod.
) .
- NEW Connect To Boxes. We’ve included a marginal “Connect To” box in each chapter that focuses on topics such as IFRS, Ethics, Technology, and Accounting Information Systems. Each contains a subtitle so instructors can easily see what each box features.
- IMPROVED Stop & Think Boxes. We’ve refined many of the existing Stop & Think boxes, making them less technical.
EXTENSIVE REVISION of the End-of-Chapter Materials:
- NEW End-of-Chapter Student Success Section. We’ve added a new half-page, end-of- chapter “Student Success” section that does the following:
- Lists hints on some common trouble spots/mistakes students make when taking a test on the chapter.
- Tells students exactly where to go in the chapter and MyAccountingLab to get help related to a particular topic covered within that chapter.
- IMPROVED End-of-Chapter Material. We’ve improved the end-of-chapter exercises, while retaining the exercises often used in MyAccountingLab.
- NEW End-of-Chapter Fraud Activity. We’ve added a short end-of-chapter activity that asks students to look at a fraud issue related to the chapter.
- NEW End-of-Chapter Communication Activity. We’ve added a short end-of-chapter activity that asks students to restate key chapter content in their own words, encouraging them to learn and use chapter vocabulary.
ACCURACY.
To ensure the level of accuracy instructors expect and require, accuracy checkers verified
the in-chapter content, figures, and illustrations while additional accuracy checkers worked through the
end-of-chapter material.
Students will have more “I Get It!” moments
Students understand (or “get it”) right after the instructor does a problem in class. Once
they leave the classroom, however, students often struggle to complete the homework on their own. This frustration can cause them to give up on the material altogether andfall behind in the course, resulting in an entire class falling behind as the instructor attempts
to keep everyone on the same page.Replicating the Classroom Experience with Demo Doc Examples The Demo Doc Examples, available in chap- ters 1 through 4 of the text, consist of entire problems, worked through step-by-step and narrated with the kind of comments that instructors would say in class. Demo Docs will aid students when they are trying to solve exercises and problems on their own, duplicating the classroom experience outside of class.
With the Financial & Managerial Accounting, Third Edition Student Learning System
, all the features of the student textbook, study resources, and online homework system are designed to work together to provide students with the consistency and repetition that will keep both the instructor and students on track by providing more “I Get It!” moments inside and outside the classroom.
Text Study Resources MyLab Experiencing the Power of Practice with MyAccountingLab: myaccountinglab.com MyAccountingLab is an online homework system that gives students more “I Get It!” moments through the power of practice. With MyAccountingLab students can: with Financial & Managerial Accounting and MyAccountingLab!
Consistency and Repetition Throughout the Learning Process The concepts, materials, and practice problems are presented with clarity and consistency across all mediums—textbook, study resources, and online homework system. No matter which platform
students use, they will continually experience the same look, feel, and language, minimizing confusion
and ensuring clarity.- work on the exact end-of-chapter material and/or similar problems assigned by the instructor.
- use the Study Plan for self-assessment and customized study outlines.
- use the Help Me Solve This tool for a step-by-step tutorial.
- watch a video to see additional information pertaining to the lecture.
- open the etext to the exact section of the book that will provide help on the specific problems.
With its tried-and-true framework and respected author team, Horngren/Harrison/Oliver’s Financial & Managerial Accounting is the trusted choice for instructors and students of Introductory Accounting. The third edition preserves the classic, solid foundation of the previous editions, while also including a modern and fresh teaching approach that helps students understand the complexities of accounting and achieve more “I Get It” moments.
NEW Off to the right start: Chapter Openers Redesigned and rewritten, the chapter openers in this edition are focused on preparing students for the reading. The financial chapter openers include a visual of a balance sheet that highlights what will be covered within the chapter. The managerial chapter openers include a visual of a smartphone—complete with decision-making tools as apps—that visually displays the concepts and decision-making tools students will encounter.
NEW Interpret the terms with ease: Translation Guides Translation guides, found throughout the chapters, translate accounting terminology in a way students can understand. For example, Current assets are items that will be used up in The trusted choice for “I Get It” moments! NEW Link today’s topics to the fundamentals: Connect To The Connect To marginal boxes in each chapter highlight hot topics such as IFRS, Ethics, and Accounting Information Systems as they pertain to the material being presented.
NEW Highlight what matters: Key Takeaway At the end of each learning objective, the authors added a new marginal feature that emphasizes the key points covered within the section so students can see what they need to understand before reading further.
IMPROVED Put the concepts in context: Stop & Think Boxes Improved Stop & Think boxes relate accounting concepts to students’ everyday lives by presenting them with relevant examples of the topic in practice.