Fundamentals of Finance and Accounting for Nonfinancial Managers

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1 Fundamentals of Finance and Accounting for Nonfinancial Managers Third Edition Robert C. Waehler Anthony J. Matias Michael P. Griffin

2

3 Contents About This Course How to Take This Course xi xiii 1 Introduction to Accounting Concepts and the Environment of Accounting 1 The Objective of Accounting Users of Accounting Information The Profession of Accounting Public Accounting Private Accounting Governmental Accounting Organizations Concerned with the Development of Accounting Principles Forms of Business Organization Kinds of Business Activities Some Basic Concepts and Principles Underlying Financial Accounting and Financial Statements Objectives Basic Underlying Assumptions of Financial Accounting Generally Accepted Accounting Principles An Overview of the Course 2 The Balance Sheet 13 Some Definitions Current Assets and Current Liabilities Working Capital Noncurrent Assets

4 Investments Property, Plant, and Equipment Intangible Assets Other Assets Long-term Liabilities Owners' Equity A Sample Balance Sheet Current Ratio and Quick Ratio The Condensed Balance Sheet The Comparative Balance Sheet 3 The Income Statement and the Statement of Retained Earnings 29 The Purpose of the Income Statement Revenues Expenses An Example of an Income Statement for a Service Enterprise Operating as a Proprietorship A Simplified Example of an Income Statement for a Merchandising Corporation An Expanded Example of an Income Statement for a Merchandising Corporation Extraordinary Gains and Losses The Fiscal Year Cash Basis and Accrual Basis A Comparative Income Statement Form of the Income Statement The Statement of Retained Earnings The Statement of Capital and Statement of Partners' Capital Analyzing the Results of Operations Return on Sales Gross Margin Percent Return On Total Assets 4 Recording Business Transactions 43 The Expanded Accounting Equation Illustration of the Analysis of Transactions and the Resulting Financial Statements The Double-entry Record-keeping System Accounts and the General Ledger

5 Debits and Credits The General Journal and Recording Transactions in the Journal Posting from the General journal to the General Ledger Taking a Trial Balance 5 Adjusting and Closing the Accounts and Completing the Accounting Cycle Adjusting Entries The Worksheet Financial Statements Closing Entries Post-closing Trial Balance The Accounting Cycle 65 6 Inventories and Cost of Goods Sold 79 Kinds of Inventory Inventory Cost Methods FIFO LIFO Weighted Average Comparison of the Three Methods Lower of Cost or Market Inventory Systems Inventories in the Balance Sheet Estimating Inventories Gross Profit Method Retail Method Inventory Ratios 7 Property, Plant, and Equipment 95 The Nature of Plant Assets Valuation Depreciation Depreciation Methods Straight-line Depreciation Accelerated Depreciation Units-of-output Method Comparison of Depreciation Methods

6 Financial Statement Presentations Disposal of Plant Assets Retirement from Service Sale Exchange Capital and Revenue Expenditures 8 Long-term Debt and Stockholders' Equity 113 The Nature of Bonds Issuing Bonds Bonds Sold at Face Amount Bonds Sold at a Premium Bonds Sold at a Discount Bond Sinking Funds Bond Redemption The Nature of Stock Accounting for Stock Presentation of Stock on the Balance Sheet Dividends Cash Dividends Property Dividends Stock Dividends Stock Splits 9 The Statement of Cash Flows and Interpreting Financial Statements 131 Statement of Cash Flows: Its Evolution The Usefulness of the Statement of Cash Flows The Nature of the Statement of Cash Flows Significant Noncash Financing and Investing Activities Statement of Cash Flows: Format Alternatives The Direct Method The Indirect Method Free Cash Flow Interpreting Financial Statements Profitability Liquidity Leverage and Solvency Market Tests of the Value Of Common Stock Additional Considerations

7 Glossary 155 Bibliography 163 Post Test 165 Case Study Case Solution 181 Selected Readings 211 Index 219

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