Download Accounting Workbook For Dummies PDF

TitleAccounting Workbook For Dummies
TagsFor Dummies
LanguageEnglish
File Size5.2 MB
Total Pages323
Table of Contents
                            Author’s Acknowledgments
Contents at a Glance
Table of Contents
Introduction
	About This Book
	Foolish Assumptions
	How This Book Is Organized
	Icons Used In This Book
	Where to Go from Here
Part I: Business Accounting Basics
	Chapter 1: Elements of Business Accounting
		Keeping the Accounting Equation in Balance
		Distinguishing Between Cash-and Accrual-Basis Accounting
		Summarizing Profit Activities in the Income (Profit & Loss) Statement
		Assembling a Balance Sheet
		Partitioning the Statement of Cash Flows
		Tracing How Dishonest Accounting Distorts Financial Statements
		Answers to Problems on Elements of Business Accounting
	Chapter 2: Financial Effects of Transactions
		Classifying Business Transactions
		Seeing Both Sides of Business Transactions
		Concentrating on Sales
		Concentrating on Expenses
		Determining the Composite Effect of Profit
		Answers to Problems on Financial Effects of Transactions
	Chapter 3: Getting Started in the Bookkeeping Cycle
		Constructing the Chart of Accounts
		Distinguishing Real and Nominal Accounts
		Knowing Your Debits from Your Credits
		Making Original Journal Entries
		Recording Revenue and Income
		Recording Expenses and Losses
		Recording Set-Up and Follow-Up Transactions for Revenue and Expenses
		Recording Investing and Financing Transactions
		Answers to Problems on the Bookkeeping Cycle
	Chapter 4: The Bookkeeping Cycle: Adjusting and Closing Entries
		Getting Accurate with Adjusting Entries
		Breaking Down the End-of-Year Adjusting Entries
		Closing the Books on the Year
		Instituting Internal Controls
		Answers to Problems on the Bookkeeping Cycle
Part II: Preparing Financial Statements
	Chapter 5: The Effects and Reporting of Profit
		Understanding the Nature of Profit
		Choosing the Income Statement Format
		Deciding on Disclosure in the Income Statement
		Examining How Sales and Expenses Change Assets and Liabilities
		Summing Up the Manifold Effects of Profit
		Answers to Problems on the Effects and Reporting of Profit
	Chapter 6: Reporting Financial Condition in the Balance Sheet
		Getting Started on the Balance Sheet
		Building a Balance Sheet
		Fleshing Out the Balance Sheet
		Clarifying the Values of Assets in Balance Sheets
		Using the Balance Sheet in Business Valuation
		Answers to Problems on Reporting Financial Condition in the Balance Sheet
	Chapter 7: Coupling the Income Statement and Balance Sheet
		Rejoining the Income Statement and Balance Sheet
		Filling in Key Pieces of the Balance Sheet from the Income Statement
		Putting Fixed Assets in the Picture
		Completing the Balance Sheet with Debt and Equity
		Answers to Problems on Coupling the Income Statement and Balance Sheet
	Chapter 8: Reporting Cash Flows and Changes in Owners’ Equity
		Figuring Profit from the Balance Sheet
		Reporting the Statement of Changes in Stockholders’ Equity
		Determining Cash Effect from Making Profit
		Presenting the Statement of Cash Flows
		Answers for Problems on Reporting Cash Flows and Changes in Owners’ Equity
	Chapter 9: Choosing Accounting Methods
		Getting Off to a Good Start
		Determining Whether Products Are Unique or Fungible
		Contrasting Cost of Goods Sold Expense Methods (for Fungible Products)
		Appreciating Depreciation Methods
		Timing Bad Debts Expense
		Answers to Problems on Choosing Accounting Methods
Part III: Managerial, Manufacturing, and Capital Accounting
	Chapter 10: Analyzing Profit Behavior
		Mapping Profit for Managers
		Analyzing Operating Profit
		Analyzing Return on Capital
		Improving Profit Performance
		Making Trade-Offs Among Profit Factors
		Answers to Problems on Analyzing Profit Behavior
	Chapter 11: Manufacturing Cost Accounting
		Minding Manufacturing Costs
		Taking a Short Tour of Manufacturing Entries
		Calculating Product Cost: Basic Methods and Problems
		Calculating Product Cost in Unusual Situations
		Answers to Problems on Manufacturing Cost Accounting
	Chapter 12: Figuring Out Interest and Return on Investment
		Getting Down the Basics of Interest
		Lifting the Veil on Compound Interest
		Borrowing and Investing in Installments
		Measuring Return on Investment ( ROI)
		Answers to Problems on Interest and Return on Investment
Part IV: The Part of Tens
	Chapter 13: Ten Things You Should Know About Business Financial Statements
		Rules and Standards Matter
		Exactitude Would Be Nice, but Estimates Are Key
		Financial Statements Fit Together Hand in Glove
		Accrual Basis Is Used to Record Profit, Assets, and Liabilities
		Cash Flow Differs from Accrual Basis Profit
		Profit and Balance Sheet Values Can Be and Often Are Manipulated
		Financial Statements May Be Revised Later to Correct Errors and Fraud
		Some Asset Values Are Current, but Others May Be Old
		Financial Statements Leave Interpretation to Readers
		Financial Statements Tell the Story of a Business, Not Its Individual Shareowners
	Chapter 14: A Ten-Point Checklist for Management Accountants
		Designing Internal Accounting Reports
		Helping Managers Understand Their Accounting Reports
		Involving Managers in Choosing Accounting Methods
		Designing Profit Performance Reports for Managers
		Designing Cash Flow Reports for Managers
		Designing Management Control Reports
		Developing Models for Management Decision-Making Analysis
		Working Closely With Managers in Planning
		Establishing and Enforcing Internal Controls
		Keeping Up-to-Date on Accounting, Financial Reporting, and Tax Changes
Index
                        
Document Text Contents
Page 2

by John A. Tracy, CPA

Accounting
Workbook

FOR

DUMmIES


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Page 161

The ratio of annual depreciation expense to the original cost of fixed assets can’t be normal-
ized. Different fixed assets are depreciated over different estimated useful life spans. Some
fixed assets are depreciated according to the straight-line method and others according to an
accelerated depreciation method. (I explain these depreciation methods in Chapter 9.) The
annual depreciation expense should be a reasonable fraction of original cost. It would be
unusual, and even suspicious, in fact, if depreciation expense were more than 15 percent or
so of the total original cost of fixed assets.

148 Part II: Preparing Financial Statements

Q. Using the operating ratios for Company X,
whose income statement appears in Figure
7-2, determine the balances for the assets
and liabilities driven by its sales revenue
and expenses.

A. The asset and liability balances derived
from applying the normative operating
ratios to the sales revenue and expenses
presented in the company’s income state-
ment (Figure 7-2) are as follows:

Cash

Accounts Receivable

Inventory

Prepaid Expenses

$700,000

$500,000

$780,000

$110,000



Assets

7/52 x $5,200,000 sales revenue

5/52 x $5,200,000 sales revenue

13/52 x $3,120,000 cost of goods sold

4/52 x $1,430,000 selling and general expenses

(4/52 x $3,120,000 cost of goods sold) +

(4/52 x $1,430,000 selling and general expenses)

6/52 x $1,430,000 selling and general expenses

Computation Using Normative Operating Ratios

Accounts Payable

Accrued Expenses Payable

$350,000

$165,000

Liabilities

These asset and liability balances are normative, not the actual balances that would be
reported in the business’s balance sheet. The balances provide a useful benchmark against
which the actual balances can be compared. Unusual deviations indicate that something
has gotten out of control or that the business has made a fundamental shift in its operating
polices and needs to revise its operating ratio yardsticks.

In Figure 7-3, you can see a partial balance sheet that presents only the assets and liabilities
determined in the preceding example question. Later in the chapter, I fill in the remainder of
the balance sheet, including fixed assets, interest-bearing debt, and owners’ equity.

Questions 5 through 10 are based on the following income statement for a new business
example that I call Company Y.

Cash

Accounts Receivable

Inventory

Prepaid Expenses

Total Current Assets

$700,000

$500,000

$780,000

$110,000

$2,090,000

Assets

Accounts Payable

Accrued Expenses Payable

$350,000

$165,000

Liabilities

Figure 7-3:
Partial bal-
ance sheet

showing
Company
X’s asset

and liability
balances
based on

normative
operating

ratios.

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Page 162

The normative operating ratios of Company Y are as follows. Note that these operating ratios
are expressed as percents of annual sales revenue and expenses rather than as weeks of the
year.

� Cash equals 15 percent of annual sales revenue.

� Accounts receivable equals 12 percent of annual sales revenue.

� Inventory equals 20 percent of annual cost of goods sold.

� The prepaid expenses asset balance equals 8 percent of annual selling and general
expenses.

� Accounts payable for inventory acquisitions equals 8 percent of annual cost of goods
sold.

� Accounts payable for supplies and services bought on credit equals 8 percent of
annual selling and general expenses.

� Accrued expenses payable for operating expenses equals 15 percent of annual selling
and general expenses.

Sales Revenue

Cost of Goods Sold Expense

Gross Margin

Selling and General Expenses

Depreciation Expense

Operating Earnings

Interest Expense

Earnings Before Income Tax

Income Tax Expense

Net Income

$15,400,000

(8,470,000)

$6,930,000

(4,368,000)

(425,000)

$2,137,000

(260,000)

$1,877,000

(656,950)

$1,220,050

149Chapter 7: Coupling the Income Statement and Balance Sheet

5. Determine the balance of cash based on
the normative operating ratio for this asset
account. (Refer to the preceding list of nor-
mative operating ratios for Company Y.)

Solve It

6. Determine the balance of accounts receiv-
able based on the normative operating
ratio for this asset account. (Refer to the
preceding list of normative operating ratios
for Company Y.)

Solve It

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Page 322

• U •
uncollectible receivables, 190
unique product, 181

• V •
value, of assets, 130–132
valuing

a business using the balance sheet, 133
a business using the earnings multiple method,

140
variable costing, 249
variable operating expenses, in the internal profit

report, 205

• W •
window dressing, 139
work-in-process inventory account, 234

• Y •
year-end

adjusting entries, 75–76
problems, 179–180
solutions to problems, 179, 194–199

309Index

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310 Accounting Workbook For Dummies

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