Transaction Processing Systems 154
The Account 155, Rules of Debit and Credit 156, The
Journal 157, Effects of Journal Entries on the Financial
Statements 158, Posting to the Ledger 160, Trial
Balance 161
Financial Reporting System 163
Adjusting Entries 163, Financial Statements 165, Fiscal Year
168, Closing Entries 169, Post-Closing Trial Balance 171
The Accounting Cycle 172
EBITDA 173
Appendix: The Statement of Cash Flows 174
Summary of Learning Goals 177
Glossary 177
Chapter 5
Accounting for Merchandise Operations 210
Merchandise Operations 212
Financial Statements for a Merchandising Business 213
Multiple-Step Income Statement 214, Single-Step Income
Statement 217, Retained Earnings Statement 218, Balance
Sheet 218, Statement of Cash Flows 218, Integration of
Financial Statements 218
Sales Transactions 220
Sales Discounts 223, Sales Returns and Allowances 223
Purchase Transactions 224
Purchase Discounts 225, Purchases Returns and Allowances
225
Transportation Costs and Sales Taxes 226
Transportation Costs 226, Sales Tax 228
Dual Nature of Merchandise Transactions 228
Merchandise Shrinkage 230
Effects of Inventory Misstatements on the Financial
Statements 231
Gross Profit and Operating Profit Analysis 233
Appendix: Statement of Cash Flows: The Indirect Method
234
Cash Flows from Operating Activities 235, Cash Flows Used
for Investing Activities 235, Cash Flows Used for Financing
Activities 236
Summary of Learning Goals 237
Glossary 238
Chapter 6
Inventories 264
Inventory Classification for Merchandisers and
Manufacturers 266
Control of Inventory 268
Inventory Cost Flow Assumptions 268
Inventory Costing Methods under a Perpetual Inventory
System 271
First-In, First-Out Method 271, Last-In, First-Out Method 272,
Average Cost Method 273, Computerized Perpetual
Inventory Systems 273
Inventory Costing Methods under a Periodic Inventory
System 274
First-In, First-Out Method 274, Last-In, First-Out Method 275,
Average Cost Method 276
Comparing Inventory Costing Methods 277
Use of the First-In, First-Out Method 277, Use of the Last-In,
First-Out Method 278, Use of the Average Cost
Method 279
Valuation of Inventory at Other Than Cost 279
Valuation at Lower of Cost or Market 280, Valuation at Net
Realizable Value 280
Quick Response 281
Inventory Analysis and Interpretation 282
Summary of Learning Goals 283
Glossary 284
Chapter 7
Sarbanes-Oxley, Internal Control, and Cash 304
Sarbanes-Oxley Act of 2002 306
Internal Control 307
Objectives of Internal Control 308, Elements of Internal
Control 309, Control Environment 310, Risk Assessment 311,
Control Procedures 311, Monitoring 313, Information and
Communication 313
Cash Controls Over Receipts and Payments 315
Control of Cash Receipts 315, Control of Cash Payments
318
Bank Accounts 319
Use of Bank Accounts 319, Bank Statement 319, Bank
Accounts as a Control Over Cash 321
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