ACCOUNTING PRINCIPLES T W E L F T H E D I T I O N ACCOUNT CLASSIFICATION AND PRESENTATION Normal Account Title Classification Financial Statement Balance A Accounts Payable Current Liability Balance Sheet Credit Accounts Receivable Current Asset Balance Sheet Debit Accumulated Depreciation—Buildings Plant Asset—Contra Balance Sheet Credit Accumulated Depreciation—Equipment Plant Asset—Contra Balance Sheet Credit Advertising Expense Operating Expense Income Statement Debit Allowance for Doubtful Accounts Current Asset—Contra Balance Sheet Credit Amortization Expense Operating Expense Income Statement Debit B Bad Debt Expense Operating Expense Income Statement Debit Bonds Payable Long-Term Liability Balance Sheet Credit Buildings Plant Asset Balance Sheet Debit C Cash Current Asset Balance Sheet Debit Common Stock Stockholders’ Equity Balance Sheet Credit Copyrights Intangible Asset Balance Sheet Debit Cost of Goods Sold Cost of Goods Sold Income Statement Debit D Debt Investments Current Asset/Long-Term Balance Sheet Debit Investment Depreciation Expense Operating Expense Income Statement Debit Discount on Bonds Payable Long-Term Liability—Contra Balance Sheet Debit Dividends Temporary account closed Retained Earnings Debit to Retained Earnings Statement Dividends Payable Current Liability Balance Sheet Credit E Equipment Plant Asset Balance Sheet Debit F Freight-Out Operating Expense Income Statement Debit G Gain on Disposal of Plant Assets Other Income Income Statement Credit Goodwill Intangible Asset Balance Sheet Debit I Income Summary Temporary account closed Not Applicable (1) to Retained Earnings Income Tax Expense Income Tax Expense Income Statement Debit Income Taxes Payable Current Liability Balance Sheet Credit Insurance Expense Operating Expense Income Statement Debit Interest Expense Other Expense Income Statement Debit Interest Payable Current Liability Balance Sheet Credit Interest Receivable Current Asset Balance Sheet Debit Interest Revenue Other Income Income Statement Credit Inventory Current Asset Balance Sheet (2) Debit Normal Account Title Classification Financial Statement Balance L Land Plant Asset Balance Sheet Debit Loss on Disposal of Plant Assets Other Expense Income Statement Debit M Maintenance and Repairs Expense Operating Expense Income Statement Debit Mortgage Payable Long-Term Liability Balance Sheet Credit N Notes Payable Current Liability/ Balance Sheet Credit Long-Term Liability O Owner’s Capital Owner’s Equity Owner’s Equity and Credit Balance Sheet Owner’s Drawings Temporary account closed Owner’s Equity Debit to Owner’s Capital P Patents Intangible Asset Balance Sheet Debit Paid-in Capital in Excess of Par— Stockholders’ Equity Balance Sheet Credit Common Stock Paid-in Capital in Excess of Par— Stockholders’ Equity Balance Sheet Credit Preferred Stock Preferred Stock Stockholders’ Equity Balance Sheet Credit Premium on Bonds Payable Long-Term Liability Balance Sheet Credit Prepaid Insurance Current Asset Balance Sheet Debit Prepaid Rent Current Asset Balance Sheet Debit R Rent Expense Operating Expense Income Statement Debit Retained Earnings Stockholders’ Equity Balance Sheet and Retained Credit Earnings Statement S Salaries and Wages Expense Operating Expense Income Statement Debit Salaries and Wages Payable Current Liability Balance Sheet Credit Sales Discounts Revenue—Contra Income Statement Debit Sales Returns and Allowances Revenue—Contra Income Statement Debit Sales Revenue Revenue Income Statement Credit Selling Expenses Operating Expense Income Statement Debit Service Revenue Revenue Income Statement Credit Stock Investments Current Asset/Long-Term Balance Sheet Debit Investment Supplies Current Asset Balance Sheet Debit Supplies Expense Operating Expense Income Statement Debit T Treasury Stock Stockholders’ Equity—Contra Balance Sheet Debit U Unearned Service Revenue Current Liability Balance Sheet Credit Utilities Expense Operating Expense Income Statement Debit (1) The normal balance for Income Summary will be credit when there is a net income, debit when there is a net loss. The Income Summary account does not appear on any financial statement. (2) If a periodic system is used, Inventory also appears on the income statement in the calculation of cost of goods sold. The following is a sample chart of accounts. It does not represent a comprehensive chart of all the accounts used in this textbook but rather those accounts that are commonly used. This sample chart of accounts is for a company that generates both service revenue as well as sales revenue. It uses the perpetual approach to inventory. If a periodic system was used, the following temporary accounts would be needed to record inventory purchases: Purchases, Freight-In, Purchase Returns and Allowances, and Purchase Discounts. CHART OF ACCOUNTS Owner’s and Stockholders’ Assets Liabilities Equity Revenues Expenses Cash Notes Payable Owner’s Capital Service Revenue Advertising Expense Accounts Accounts Payable Owner’s Drawings Sales Revenue Receivable Amortization Unearned Service Common Stock Sales Discounts Expense Allowance for Revenue Doubtful Paid-in Capital in Sales Returns and Bad Debt Expense Accounts Salaries and Excess of Par— Allowances Wages Payable Common Stock Cost of Goods Sold Interest Interest Revenue Receivable Unearned Rent Preferred Stock Depreciation Revenue Gain on Disposal Expense Inventory Paid-in Capital in of Plant Assets Interest Payable Excess of Par— Freight-Out Supplies Preferred Dividends Payable Stock Income Tax Prepaid Insurance Expense Income Taxes Treasury Stock Prepaid Rent Payable Insurance Expense Retained Earnings Land Bonds Payable Interest Expense Dividends Equipment Discount on Bonds Loss on Disposal of Payable Income Summary Plant Assets Accumulated Depreciation— Premium on Bonds Maintenance and Equipment Payable Repairs Expense Buildings Mortgage Payable Rent Expense Accumulated Salaries and Wages Depreciation— Expense Buildings Supplies Expense Copyrights Utilities Expense Goodwill Patents ACCOUNTING PRINCIPLES TWELFTH EDITION Jerry J. Weygandt PhD, CPA University of Wisconsin—Madison Madison, Wisconsin Paul D. Kimmel PhD, CPA University of Wisconsin—Milwaukee Milwaukee, Wisconsin Donald E. Kieso PhD, CPA Northern Illinois University DeKalb, Illinois DEDICATED TO the Wiley sales representatives who sell our books and service our adopters in a professional and ethical manner, and to Enid, Merlynn, and Donna Vice President and Director George Hoffman Executive Editor Michael McDonald Customer and Market Development Manager Christopher DeJohn Development Editor Ed Brislin Assistant Development Editor Rebecca Costantini Editorial Supervisor Terry Ann Tatro Editorial Associate Margaret Thompson Senior Content Manager Dorothy Sinclair Senior Production Editor Valerie A. 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ISBN-13 978-1-118-87505-6 Binder-Ready Version ISBN 978-1-118-96990-8 Printed in the United States of America 10 9 8 7 6 5 4 3 2 1 Brief Contents 1 Accounting in Action 2 2 The Recording Process 48 3 Adjusting the Accounts 92 4 Completing the Accounting Cycle 148 5 Accounting for Merchandising Operations 206 6 Inventories 262 7 Accounting Information Systems 310 8 Fraud, Internal Control, and Cash 354 9 Accounting for Receivables 404 10 P lant Assets, Natural Resources, and Intangible Assets 442 11 Current Liabilities and Payroll Accounting 490 12 Accounting for Partnerships 532 13 Corporations: Organization and Capital Stock Transactions 570 14 Corporations: Dividends, Retained Earnings, and Income Reporting 608 15 Long-Term Liabilities 644 16 Investments 690 17 Statement of Cash Flows 726 18 Financial Statement Analysis 784 19 Managerial Accounting 834 20 Job Order Costing 876 21 Process Costing 916 22 Cost-Volume-Profit 960 23 Budgetary Planning 1004 24 B udgetary Control and Responsibility Accounting 1052 25 Standard Costs and Balanced Scorecard 1100 26 Incremental Analysis and Capital Budgeting 1146 APPENDICES A Specimen Financial Statements: Apple Inc. B Specimen Financial Statements: PepsiCo, Inc. C Specimen Financial Statements: The Coca-Cola Company D Specimen Financial Statements: Amazon.com, Inc. E Specimen Financial Statements: Wal-Mart Stores, Inc. F Specimen Financial Statements: Louis Vuitton G Time Value of Money H Standards of Ethical Conduct for Managerial Accountants Cases for Managerial Decision-Making* *Available at the book’s companion website, www.wiley.com/college/weygandt. iii From the Authors Dear Student, Why This Course? Remember your biology course in high school? Did you have one of those “invisible man” models (or maybe something more high-tech than that) that gave you the opportunity to look “inside” the human body? This accounting course offers something similar. To understand a business, you have to understand the finan- cial insides of a business organization. An accounting course will help you understand the essential financial components of businesses. Whether you are looking at a large multinational company like Apple or Starbucks or a single-owner software consulting business or coffee shop, knowing the fundamentals of accounting will help you understand what is happening. As an employee, a manager, an investor,a business owner, or a director of your own personal finances— any of which roles you will have at some point in “Whether you are looking at a large your life—you will make better decisions for having multinational company like Apple or taken this course. Starbucks or a single-owner software Why This Book? Hundreds of thousands of stu- consulting business or coffee shop, dents have used this textbook. Your instructor has knowing the fundamentals of chosen it for you because of its trusted reputation. accounting will help you understand The authors have worked hard to keep the book what is happening.” fresh, timely, and accurate. How to Succeed? We’ve asked many students and many instructors whether there is a secret for success in this course. The nearly unanimous answer turns out to be not much of a secret: “Do the homework.” This is one course where doing is learning. The more time you spend on the homework assignments—using the various tools that this textbook provides—the more likely you are to learn the essential concepts, techniques, and methods of accounting. Besides the textbook itself, WileyPLUS and the book’s companion website also offers various support resources. Good luck in this course. We hope you enjoy the experience and that you put to good use throughout a lifetime of success the knowledge you obtain in this course. We are sure you will not be disappointed. Jerry J. Weygandt Paul D. Kimmel Donald E. Kieso iv