ELEVENTH EDITION
Belverd E. Needles, Jr., Ph.D., C.P.A., C.M.A.
DePaul University
Marian Powers, Ph.D.
Northwestern University
Susan V. Crosson, M.S. Accounting, C.P.A
Santa Fe College
Principles of
Accounting
Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.
Principles of Accounting, Eleventh Edition
Belverd Needles, Marian Powers,
Susan Crosson
Vice President of Editorial, Business:
Jack W. Calhoun
Editor in Chief: Rob Dewey
Executive Editor: Sharon Oblinger
Supervising Developmental Editor:
Katie Yanos
Sr. Marketing Manager: Kristen Hurd
Marketing Coordinator: Heather Mooney
Sr. Marketing Communications Manager:
Libby Shipp
Content Project Manager: Darrell Frye
Media Editor: Bryan England
Editorial Assistant: Julie Warwick
Frontlist Buyer, Manufacturing: Doug Wilke
Production Service:
S4Carlisle Publishing Services
Sr. Art Director: Stacy Jenkins Shirley

Cover and Internal Designer:
Grannan Graphic Design
Cover Image: © Getty Images/Image Bank
Permissions Account Manager: John Hill
© 2011, 2008 South-Western, Cengage Learning
ALL RIGHTS RESERVED. No part of this work covered by the
copyright herein may be reproduced, transmitted, stored, or used
in any form or by any means graphic, electronic, or mechanical,
including but not limited to photocopying, recording, scanning,
digitizing, taping, web distribution, information networks, or
information storage and retrieval systems, except as permitted
under Section 107 or 108 of the 1976 United States Copyright Act,
without the prior written permission of the publisher.
For product information and technology assistance, contact
us at Cengage Learning Customer & Sales Support,
1-800-354-9706
For permission to use material from this text or product, submit
all requests online at www.cengage.com/permissions
Further permissions questions can be emailed to

ExamView
®
is a registered trademark of eInstruction Corp.
Windows is a registered trademark of the Microsoft Corporation
used herein under license. Macintosh and Power Macintosh are
registered trademarks of Apple Computer, Inc. used herein under
license.
© 2011 Cengage Learning. All Rights Reserved.
Cengage Learning WebTutor™ is a trademark of Cengage Learning.
Library of Congress Control Number: 2009941180

Student Edition ISBN 10: 1-4390-3774-4
Student Edition ISBN 13: 978-1-4390-3774-4
Instructors Edition ISBN 10: 0-538-75528-8
Instructors Edition ISBN 13: 978-0-538-75528-3
Loose-leaf Edition ISBN 10: 0-538-75519-9
Loose-leaf Edition ISBN 13: 978-0-538-75519-1
South-Western Cengage Learning
5191 Natorp Boulevard
Mason, OH 45040
USA
Cengage Learning products are represented in Canada by
Nelson Education, Ltd.
For your course and learning solutions, visit www.cengage.com
Purchase any of our products at your local college store or at our
preferred online store www.CengageBrain.com
Printed in the United States of America
1 2 3 4 5 6 7 13 12 11 10 09
iii
1 Uses of Accounting Information and the Financial Statements 2
2 Analyzing Business Transactions 48
3 Measuring Business Income 98
4 Completing the Accounting Cycle 142
5 Financial Reporting and Analysis 180
SUPPLEMENT TO CHAPTER 5 How to Read an Annual Report 226
6 The Operating Cycle and Merchandising Operations 266
SUPPLEMENT TO CHAPTER 6 Special-Purpose Journals 302
7 Internal Control 318
8 Inventories 350
9 Cash and Receivables 390
10 Current Liabilities and Fair Value Accounting 430

11 Long-Term Assets 472
12 Contributed Capital 518
13 Long-Term Liabilities 562
14 The Corporate Income Statement and the Statement
of Stockholders’ Equity
614
15 The Statement of Cash Flows 656
16 Financial Performance Measurement 706
17 Partnerships 754
18 The Changing Business Environment:
A Manager’s Perspective 794
19 Cost Concepts and Cost Allocation 836
BRIEF CONTENTS
iv Brief Contents
20 Costing Systems: Job Order Costing 882
21 Costing Systems: Process Costing 920
22 Value-Based Systems: ABM and Lean 958
23 Cost Behavior Analysis 988
24 The Budgeting Process 1040
25 Performance Management and Evaluation 1092
26 Standard Costing and Variance Analysis 1136
27 Short-Run Decision Analysis 1184
28 Capital Investment Analysis 1224
APPENDIX A Accounting for investments 1262
APPENDIX B Present Value Tables 1276
v
CHAPTER 1 Uses of Accounting Information and the Financial Statements 2
DECISION POINT Ǡ A USER’S FOCUS KEEP-FIT CENTER 3
Accounting as an Information System 4
Business Goals, Activities, and Performance

Measures 4
Financial and Management Accounting 7
Processing Accounting Information 7
Ethical Financial Reporting 8
Decision Makers: The Users of Accounting
Information 10
Management 10
Users with a Direct Financial Interest 11
Users with an Indirect Financial Interest 12
Governmental and Not-for-Profit Organizations 12
Accounting Measurement 13
Business Transactions 14
Money Measure 14
Separate Entity 15
The Forms of Business Organization 15
Characteristics of Corporations, Sole Proprietorships,
and Partnerships 15
Financial Position and the Accounting
Equation 17
Assets 18
Liabilities 18
Owner’s Equity 18
Financial Statements 19
Income Statement 19
Statement of Owner’s Equity 20
The Balance Sheet 20
Statement of Cash Flows 21
Relationships Among the Financial Statements 21
Generally Accepted Accounting Principles 24
GAAP and the Independent CPA’s Report 25

Organizations That Issue Accounting Standards 26
Other Organizations That Influence GAAP 26
Professional Conduct 27
Corporate Governance 27
Ǡ KEEP-FIT CENTER: REVIEW PROBLEM 28
STOP & REVIEW 31
CHAPTER ASSIGNMENTS 33
CHAPTER 2 Analyzing Business Transactions 48
DECISION POINT Ǡ

A USER’S FOCUS PAWS AND HOOFS
CLINIC 49
Measurement Issues 50
Recognition 50
Valuation 51
Classification 53
Ethics and Measurement Issues 53
Double-Entry System 54
Accounts 54
The T Account 54
The T Account Illustrated 55
Rules of Double-Entry Accounting 55
Normal Balance 56
Owner’s Equity Accounts 56
Business Transaction Analysis 58
Owner’s Investment to Form the Business 58
Economic Event That Is Not a Business
Transaction 59
Prepayment of Expenses in Cash 59
Purchase of an Asset on Credit 59

Purchase of an Asset Partly in Cash and Partly
on Credit 60
Payment of a Liability 60
Revenue in Cash 61
Revenue on Credit 61
Revenue Collected in Advance 61
Collection on Account 62
Expense Paid in Cash 62
Preface xvii
About the Authors xxxvii
CONTENTS
vi Contents
Expense to Be Paid Later 63
Withdrawals 63
Summary of Transactions 65
The Trial Balance 65
Preparation and Use of a Trial Balance 65
Finding Trial Balance Errors 67
Cash Flows and the Timing
of Transactions 68
Recording and Posting Transactions 70
Chart of Accounts 70
General Journal 70
General Ledger 72
Some Notes on Presentation 73
Ǡ PAWS AND HOOFS CLINIC: REVIEW PROBLEM 75
STOP & REVIEW 79
CHAPTER ASSIGNMENTS 81
CHAPTER 3 Measuring Business Income 98
DECISION POINT Ǡ


A USER’S FOCUS RELIABLE
ANSWERING SERVICE 99
Profitability Measurement: Issues and
Ethics 100
Net Income 100
Income Measurement Assumptions 101
Ethics and the Matching Rule 102
Accrual Accounting 104
Recognizing Revenues 104
Recognizing Expenses 105
Adjusting the Accounts 105
Adjustments and Ethics 106
The Adjustment Process 107
Type 1 Adjustment: Allocating Recorded Costs
(Deferred Expenses) 107
Type 2 Adjustment: Recognizing Unrecorded,
Incurred Expenses (Accrued Expenses) 111
Type 3 Adjustment: Allocating Recorded, Unearned
Revenues (Deferred Revenues) 113
Type 4 Adjustment: Recognizing Unrecorded,
Earned Revenues (Accrued Revenues) 114
A Note About Journal Entries 115
Using the Adjusted Trial Balance to Prepare
Financial Statements 116
Cash Flows from Accrual-Based
Information 119
Ǡ RELIABLE ANSWERING SERVICE: REVIEW
PROBLEM 121
STOP & REVIEW 125

CHAPTER ASSIGNMENTS 127
CHAPTER 4 Completing the Accounting Cycle 142
DECISION POINT

Ǡ A USER’S FOCUS WESTWOOD
MOVERS 143
From Transactions to Financial
Statements 144
The Accounting Cycle 144
Closing Entries 144
Preparing Closing Entries 147
Step 1: Closing the Credit Balances 147
Step 2: Closing the Debit Balances 147
Step 3: Closing the Income Summary Account
Balance 147
Step 4: Closing the Withdrawals Account
Balance 147
The Accounts After Posting 148
The Post-Closing Trial Balance 150
Reversing Entries: An Optional First
Step 152
The Work Sheet: An Accountant’s Tool 154
Preparing the Work Sheet 154
Using the Work Sheet 157
Ǡ WESTWOOD MOVERS: REVIEW PROBLEM 158
STOP & REVIEW 160
CHAPTER ASSIGNMENTS 162
Contents vii
CHAPTER 6 The Operating Cycle and Merchandising Operations 266
DECISION POINT Ǡ A USER’S FOCUS FONG

COMPANY 267
Managing Merchandising Businesses 268
Operating Cycle 268
Choice of Inventory System 270
Foreign Business Transactions 270
Terms of Sale 272
Sales and Purchases Discounts 272
Transportation Costs 273
Terms of Debit and Credit Card Sales 274
Perpetual Inventory System 275
Purchases of Merchandise 275
Sales of Merchandise 277
Periodic Inventory System 281
Purchases of Merchandise 282
Sales of Merchandise 284
Ǡ FONG COMPANY: REVIEW PROBLEM 286
STOP & REVIEW 289
CHAPTER ASSIGNMENTS 290
CHAPTER 5 Financial Reporting and Analysis 180
DECISION POINT

Ǡ A USER’S FOCUS FUN-FOR-FEET
COMPANY 181
Foundations of Financial Reporting 182
Objective of Financial Reporting 182
Qualitative Characteristics of Accounting
Information 182
Accounting Conventions 184
Ethical Financial Reporting 184
Accounting Conventions for Preparing

Financial Statements 185
Consistency 185
Full Disclosure (Transparency) 186
Materiality 187
Conservatism 187
Cost-Benefit 188
Classified Balance Sheet 190
Assets 190
Liabilities 192
Owner’s Equity 193
Dell’s Balance Sheets 194
Forms of the Income Statement 196
Multistep Income Statement 196
Dell’s Income Statements 199
Single-Step Income Statement 200
Using Classified Financial Statements 201
Evaluation of Liquidity 201
Evaluation of Profitability 202
Ǡ FUN-FOR-FEET COMPANY: REVIEW PROBLEM 208
STOP & REVIEW 210
CHAPTER ASSIGNMENTS 212
SUPPLEMENT TO CHAPTER 5 How to Read an Annual Report 226
The Components of an Annual Report 226
Letter to the Stockholders 227
Financial Highlights 227
Description of the Company 227
Management’s Discussion and Analysis 227
Financial Statements 228
Notes to the Financial Statements 233
Reports of Management’s Responsibilities 234

Reports of Certified Public Accountants 234
SUPPLEMENT TO CHAPTER 6 Special-Purpose Journals 302
Sales Journal 302
Purchases Journal 306
Cash Receipts Journal 308
Cash Payments Journal 311
viii Contents
CHAPTER 7 Internal Control 318
DECISION POINT

Ǡ A USER’S FOCUS FISHER’S
GRILL 319
Management Issues Related to Internal
Control 320
The Need for Internal Controls 320
Management’s Responsibility for Internal
Control 321
Independent Accountant’s Audit of Internal
Control 322
Internal Control: Components, Activities,
and Limitations 322
Components of Internal Control 322
Control Activities 323
Limitations of Internal Control 324
Internal Control over Merchandising
Transactions 325
Internal Control and Management Goals 325
Control of Cash 326
Control of Cash Receipts 326
Control of Purchases and Cash Disbursements 327

Petty Cash Funds 332
Establishing the Petty Cash Fund 332
Making Disbursements from the Petty Cash
Fund 333
Reimbursing the Petty Cash Fund 333
Ǡ

FISHER’S GRILL: REVIEW PROBLEM 335
STOP & REVIEW 337
CHAPTER ASSIGNMENTS 338
CHAPTER 8 Inventories 350
DECISION POINT Ǡ A USER’S FOCUS SNUGS
COMPANY 351
Managing Inventories 352
Inventory Decisions 352
Evaluating the Level of Inventory 353
Effects of Inventory Misstatements on Income
Measurement 355
Inventory Cost and Valuation 358
Goods Flows and Cost Flows 358
Lower-of-Cost-or-Market (LCM) Rule 359
Disclosure of Inventory Methods 360
Inventory Cost Under the Periodic
Inventory System 361
Specific Identification Method 361
Average-Cost Method 362
First-In, First-Out (FIFO) Method 362
Last-In, First-Out (LIFO) Method 363
Summary of Inventory Costing Methods 364
Impact of Inventory Decisions 365

Effects on the Financial Statements 365
Effects on Income Taxes 365
Effects on Cash Flows 367
Inventory Cost Under the Perpetual
Inventory System 367
Valuing Inventory by Estimation 370
Retail Method 370
Gross Profit Method 371
Ǡ SNUGS COMPANY: REVIEW PROBLEM 373
STOP & REVIEW 376
CHAPTER ASSIGNMENTS 378
CHAPTER 9 Cash and Receivables 390
DECISION POINT

Ǡ A USER’S FOCUS PENTE COMPUTER
COMPANY 391
Management Issues Related to Cash
and Receivables 392
Cash Management 392
Accounts Receivable and Credit Policies 393
Evaluating the Level of Accounts Receivable 394
Financing Receivables 396
Ethics and Estimates in Accounting for
Receivables 398
Cash Equivalents and Cash Control 399
Cash Equivalents 399
Fair Value of Cash and Cash Equivalents 399
Cash Control Methods 400
Contents ix
CHAPTER 10 Current Liabilities and Fair Value Accounting 430

DECISION POINT Ǡ A USER’S FOCUS MEGGIE’S FITNESS
CENTER 431
Management Issues Related to Current
Liabilities 432
Managing Liquidity and Cash Flows 432
Evaluating Accounts Payable 432
Reporting Liabilities 434
Common Types of Current Liabilities 436
Definitely Determinable Liabilities 436
Estimated Liabilities 443
Contingent Liabilities and
Commitments 447
Valuation Approaches to Fair Value
Accounting 448
Interest and the Time Value of Money 448
Calculating Present Value 449
Applications Using Present Value 453
Valuing an Asset 453
Deferred Payment 454
Other Applications 455
Ǡ MEGGIE’S FITNESS CENTER: REVIEW PROBLEM 456
STOP & REVIEW 458
CHAPTER ASSIGNMENTS 460
CHAPTER 11 Long-Term Assets 472
DECISION POINT Ǡ A USER’S FOCUS CAMPUS
CLEANERS 473
Management Issues Related to Long-Term
Assets 474
Acquiring Long-Term Assets 476
Financing Long-Term Assets 477

Applying the Matching Rule 478
Acquisition Cost of Property, Plant, and
Equipment 479
General Approach to Acquisition Costs 480
Specific Applications 480
Depreciation 483
Factors in Computing Depreciation 484
Methods of Computing Depreciation 484
Special Issues in Depreciation 488
Disposal of Depreciable Assets 490
Discarded Plant Assets 491
Plant Assets Sold for Cash 491
Exchanges of Plant Assets 493
Natural Resources 494
Depletion 494
Depreciation of Related Plant Assets 495
Development and Exploration Costs in the Oil and
Gas Industry
495
Intangible Assets 497
Research and Development Costs 500
Computer Software Costs 500
Goodwill 500
Ǡ CAMPUS CLEANERS: REVIEW PROBLEM 502
STOP & REVIEW 505
CHAPTER ASSIGNMENTS 507
Bank Reconciliations 401
Uncollectible Accounts 403
The Allowance Method 404
Disclosure of Uncollectible Accounts 404

Estimating Uncollectible Accounts Expense 405
Writing Off Uncollectible Accounts 409
Notes Receivable 411
Maturity Date 412
Duration of a Note 413
Interest and Interest Rate 413
Maturity Value 414
Accrued Interest 414
Dishonored Note 414
Ǡ PENTE COMPUTER COMPANY: REVIEW PROBLEM 415
STOP & REVIEW 417
CHAPTER ASSIGNMENTS 419
x Contents
CHAPTER 12 Contributed Capital 518
DECISION POINT Ǡ A USER’S FOCUS GAMMON, INC. 519
Management Issues Related to Contributed
Capital 520
The Corporate Form of Business 520
Advantages and Disadvantages of
Incorporation 521
Equity Financing 522
Dividend Policies 524
Using Return on Equity to Measure
Performance 526
Stock Options as Compensation 527
Cash Flow Information 527
Components of Stockholders’ Equity 528
Preferred Stock 531
Preference as to Dividends 531
Preference as to Assets 532

Convertible Preferred Stock 532
Callable Preferred Stock 533
Issuance of Common Stock 534
Par Value Stock 535
No-Par Stock 536
Issuance of Stock for Noncash Assets 537
Accounting for Treasury Stock 539
Purchase of Treasury Stock 539
Sale of Treasury Stock 540
Retirement of Treasury Stock 542
Ǡ GAMMON, INC.: REVIEW PROBLEM 544
STOP & REVIEW 547
CHAPTER ASSIGNMENTS 549
CHAPTER 13 Long-Term Liabilities 562
DECISION POINT Ǡ A USER’S FOCUS WILSON
MANUFACTURING COMPANY
563
Management Issues Related to Issuing Long-
Term Debt 564
Deciding to Issue Long-Term Debt 564
Evaluating Long-Term Debt 565
Types of Long-Term Debt 566
Cash Flow Information 572
The Nature of Bonds 573
Bond Issue: Prices and Interest Rates 573
Characteristics of Bonds 574
Accounting for the Issuance of Bonds 575
Bonds Issued at Face Value 575
Bonds Issued at a Discount 576
Bonds Issued at a Premium 577

Bond Issue Costs 578
Using Present Value to Value a Bond 579
Case 1: Market Rate Above Face Rate 579
Case 2: Market Rate Below Face Rate 580
Amortization of Bond Discounts
and Premiums 581
Amortizing a Bond Discount 581
Amortizing a Bond Premium 586
Retirement of Bonds 590
Calling Bonds 590
Converting Bonds 591
Other Bonds Payable Issues 592
Sale of Bonds Between Interest Dates 592
Year-End Accrual of Bond Interest Expense 593
Ǡ WILSON MANUFACTURING COMPANY:
REVIEW PROBLEM 596
STOP & REVIEW 599
CHAPTER ASSIGNMENTS 602
CHAPTER 14 The Corporate Income Statement and the Statement
of Stockholders’ Equity 614
DECISION POINT Ǡ A USER’S FOCUS KOWALSKI,
INC.
615
Performance Measurement: Quality of
Earnings Issues 616
The Effect of Accounting Estimates and
Methods 617
Gains and Losses 619
Write-Downs and Restructurings 619
Nonoperating Items 620

Income Taxes 621
Deferred Income Taxes 622
Contents xi
CHAPTER 15 The Statement of Cash Flows 656
DECISION POINT Ǡ A USER’S FOCUS LOPATA
CORPORATION 657
Overview of the Statement
of Cash Flows 658
Purposes of the Statement of Cash Flows 658
Uses of the Statement of Cash Flows 658
Classification of Cash Flows 658
Required Disclosure of Noncash Investing
and Financing Transactions 660
Format of the Statement of Cash Flows 660
Ethical Considerations and the Statement
of Cash Flows 662
Analyzing Cash Flows 663
Can a Company Have Too Much Cash? 663
Cash-Generating Efficiency 663
Asking the Right Questions About the Statement
of Cash Flows 665
Free Cash Flow 665
Operating Activities 668
Depreciation 670
Gains and Losses 671
Changes in Current Assets 671
Changes in Current Liabilities 672
Schedule of Cash Flows from Operating
Activities
673

Investing Activities 674
Investments 675
Plant Assets 675
Financing Activities 678
Bonds Payable 678
Common Stock 678
Retained Earnings 679
Treasury Stock 681
Ǡ LOPATA CORPORATION: REVIEW PROBLEM 682
STOP & REVIEW 686
CHAPTER ASSIGNMENTS 688
CHAPTER 16 Financial Performance Measurement 706
DECISION POINT Ǡ A USER’S FOCUS WASHINGTON
INVESTMENTS 707
Foundations of Financial Performance
Measurement 708
Financial Performance Measurement: Management’s
Objectives 708
Financial Performance Measurement:
Creditors’ and Investors’ Objectives 708
Standards of Comparison 709
Sources of Information 711
Executive Compensation 712
Tools and Techniques of Financial
Analysis 715
Horizontal Analysis 715
Trend Analysis 718
Vertical Analysis 718
Ratio Analysis 721
Comprehensive Illustration of Ratio

Analysis 722
Evaluating Liquidity 723
Evaluating Profitability 723
Evaluating Long-Term Solvency 726
Evaluating the Adequacy of Cash Flows 727
Evaluating Market Strength 729
Ǡ WASHINGTON INVESTMENTS: REVIEW PROBLEM 731
STOP & REVIEW 735
CHAPTER ASSIGNMENTS 737
Net of Taxes 623
Earnings per Share 625
Basic Earnings per Share 626
Diluted Earnings per Share 626
Comprehensive Income and the Statement
of Stockholders’ Equity 627
Comprehensive Income 627
The Statement of Stockholders’ Equity 629
Retained Earnings 629
Stock Dividends and Stock Splits 630
Stock Dividends 630
Stock Splits 633
Book Value 635
Ǡ KOWALSKI, INC.: REVIEW PROBLEM 637
STOP & REVIEW 640
CHAPTER ASSIGNMENTS 642
xii Contents
CHAPTER 17 Partnerships 754
DECISION POINT Ǡ A USER’S FOCUS HOLDER
AND WILLIAMS PARTNERSHIP 755
Partnership Characteristics 756

Characteristics of Partnerships 756
Advantages and Disadvantages of Partnerships 757
Limited Partnerships and Joint Ventures 757
Accounting for Partners’ Equity 759
Distribution of Partnership Income
and Losses 761
Stated Ratios 761
Capital Balance Ratios 762
Salaries, Interest, and Stated Ratios 763
Dissolution of a Partnership 767
Admission of a New Partner 767
Withdrawal of a Partner 770
Death of a Partner 772
Liquidation of a Partnership 772
Gain on Sale of Assets 773
Loss on Sale of Assets 775
Ǡ HOLDER AND WILLIAMS PARTNERSHIP:
REVIEW PROBLEM 778
STOP & REVIEW 781
CHAPTER ASSIGNMENTS 783
CHAPTER 18 The Changing Business Environment: A Manager’s Perspective 794
DECISION POINT Ǡ A MANAGER’S FOCUS GOOD
FOODS STORE 795
The Role of Management Accounting 796
Management Accounting and Financial Accounting:
A Comparison 796
Management Accounting and the Management
Process 797
Value Chain Analysis 803
Primary Processes and Support Services 803

Advantages of Value Chain Analysis 805
Managers and Value Chain Analysis 805
Continuous Improvement 807
Management Tools for Continuous
Improvement 807
Achieving Continuous Improvement 809
Performance Measures: A Key to Achieving
Organizational Objectives 811
Using Performance Measures in the Management
Process 811
The Balanced Scorecard 812
Benchmarking 814
Standards of Ethical Conduct 814
Ǡ GOOD FOODS STORE: REVIEW PROBLEM 816
STOP & REVIEW 819
CHAPTER ASSIGNMENTS 821
Cookie Company (Continuing Case) 835
CHAPTER 19 Cost Concepts and Cost Allocation 836
DECISION POINT Ǡ A MANAGER’S FOCUS THE CHOICE
CANDY COMPANY 837
Cost Information 838
Managers’ Use of Cost Information 838
Cost Information and Organizations 838
Cost Classifications and Their Uses 838
Cost Traceability 839
Cost Behavior 840
Value-Adding Versus Nonvalue-Adding Costs 840
Cost Classifications for Financial Reporting 841
Financial Statements and the Reporting
of Costs 842

Income Statement and Accounting for
Inventories 842
Statement of Cost of Goods Manufactured 844
Cost of Goods Sold and a Manufacturer’s Income
Statement 845
Inventory Accounts in Manufacturing
Organizations 846
Document Flows and Cost Flows Through
the Inventory Accounts 846
The Manufacturing Cost Flow 847
Elements of Product Costs 850
Prime Costs and Conversion Costs 851
Computing Product Unit Cost 852
Product Cost Measurement Methods 852
Computing Service Unit Cost 854
Contents xiii
CHAPTER 20 Costing Systems: Job Order Costing 882
DECISION POINT Ǡ A MANAGER’S FOCUS AUGUSTA
CUSTOM GOLF CARTS, INC. 883
Product Unit Cost Information and the
Management Process 884
Planning 884
Performing 884
Evaluating 884
Communicating 884
Product Costing Systems 885
Job Order Costing in a Manufacturing
Company 887
Materials 888
Labor 890

Overhead 890
Completed Units 891
Sold Units 891
Reconciliation of Overhead Costs 892
A Job Order Cost Card and the Computation
of Unit Cost 893
A Manufacturer’s Job Order Cost Card and the
Computation of Unit Cost 893
Job Order Costing in a Service Organization 894
Ǡ AUGUSTA CUSTOM GOLF CARTS, INC.:
REVIEW PROBLEM 897
STOP & REVIEW 899
CHAPTER ASSIGNMENTS 901
Cookie Company (Continuing Case) 919
CHAPTER 21 Costing Systems: Process Costing 920
DECISION POINT Ǡ A MANAGER’S FOCUS MILK PRODUCTS
COMPANY 921
The Process Costing System 922
Patterns of Product Flows and Cost Flow
Methods 923
Cost Flows Through the Work in Process Inventory
Accounts 924
Computing Equivalent Production 925
Equivalent Production for Direct Materials 926
Equivalent Production for Conversion Costs 927
Summary of Equivalent Production 927
Preparing a Process Cost Report Using the
FIFO Costing Method 928
Accounting for Units 928
Accounting for Costs 931

Assigning Costs 931
Process Costing for Two or More Production
Departments 933
Preparing a Process Cost Report Using the
Average Costing Method 935
Accounting for Units 935
Accounting for Costs 937
Assigning Costs 937
Ǡ MILK PRODUCTS COMPANY: REVIEW PROBLEM 940
STOP & REVIEW 943
CHAPTER ASSIGNMENTS 945
Cookie Company (Continuing Case) 957
Cost Allocation 855
Allocating the Costs of Overhead 855
Allocating Overhead: The Traditional
Approach 857
Allocating Overhead: The ABC Approach 859
Ǡ THE CHOICE CANDY COMPANY:
REVIEW PROBLEM 861
STOP & REVIEW 863
CHAPTER ASSIGNMENTS 866
Cookie Company (Continuing Case) 880
xiv Contents
CHAPTER 22 Value-Based Systems: ABM and Lean 958
DECISION POINT

Ǡ A MANAGER’S FOCUS BEAN BAG
CONVERTIBLES, INC. 959
Value-Based Systems and Management 960
Value Chains and Supply Chains 961

Process Value Analysis 962
Value-Adding and Non-Value-Adding
Activities 963
Value-Based Systems 963
Activity-Based Management 963
Managing Lean Operations 964
Activity-Based Costing 964
The Cost Hierarchy and the Bill of
Activities 965
The New Operating Environment and Lean
Operations 968
Just-in-Time (JIT) 968
Continuous Improvement of the Work
Environment 970
Accounting for Product Costs in a JIT Operating
Environment 970
Backflush Costing 972
Comparison of ABM and Lean 976
Ǡ BEAN BAG CONVERTIBLES, INC.: REVIEW PROBLEM 977
STOP & REVIEW 980
CHAPTER ASSIGNMENTS 982
Cookie Company (Continuing Case) 997
CHAPTER 23 Cost Behavior Analysis 998
DECISION POINT Ǡ A MANAGER’S FOCUS MY MEDIA
PLACE 999
Cost Behavior and Management 1000
The Behavior of Costs 1001
Mixed Costs and the Contribution Margin
Income Statement 1006
The Engineering Method 1006

The Scatter Diagram Method 1006
The High-Low Method 1007
Statistical Methods 1009
Contribution Margin Income Statements 1009
Cost-Volume-Profit Analysis 1010
Breakeven Analysis 1012
Using an Equation to Determine the Breakeven
Point 1013
The Breakeven Point for Multiple Products 1014
Using C-V-P Analysis to Plan Future Sales,
Costs, and Profits 1017
Applying C-V-P to Target Profits 1017
Ǡ MY MEDIA PLACE: REVIEW PROBLEM 1020
STOP & REVIEW 1023
CHAPTER ASSIGNMENTS 1025
Cookie Company (Continuing Case) 1038
CHAPTER 24 The Budgeting Process 1040
DECISION POINT

Ǡ A MANAGER’S FOCUS FRAMECRAFT
COMPANY 1041
The Budgeting Process 1042
Advantages of Budgeting 1042
Budgeting and Goals 1043
Budgeting Basics 1043
The Master Budget 1045
Preparation of a Master Budget 1045
Budget Procedures 1048
Operating Budgets 1049
The Sales Budget 1049

The Production Budget 1050
The Direct Materials Purchases Budget 1051
The Direct Labor Budget 1053
The Overhead Budget 1053
The Selling and Administrative Expense
Budget 1054
The Cost of Goods Manufactured Budget 1055
Financial Budgets 1057
The Budgeted Income Statement 1057
The Capital Expenditures Budget 1058
The Cash Budget 1058
The Budgeted Balance Sheet 1061
Ǡ FRAMECRAFT COMPANY: REVIEW PROBLEM 1063
STOP & REVIEW 1066
CHAPTER ASSIGNMENTS 1068
Cookie Company (Continuing Case) 1091
Contents xv
CHAPTER 25 Performance Management and Evaluation 1092
DECISION POINT Ǡ A MANAGER’S FOCUS WINTER
WONDERLAND RESORT 1093
Performance Measurement 1094
What to Measure, How to Measure 1094
Other Measurement Issues 1094
Organizational Goals and the Balanced
Scorecard 1095
The Balanced Scorecard and Management 1095
Responsibility Accounting 1097
Types of Responsibility Centers 1098
Organizational Structure and Performance
Management 1100

Performance Evaluation of Cost Centers and
Profit Centers 1102
Evaluating Cost Center Performance Using Flexible
Budgeting 1102
Evaluating Profit Center Performance Using
Variable Costing 1103
Performance Evaluation of Investment
Centers 1105
Return on Investment 1105
Residual Income 1107
Economic Value Added 1108
The Importance of Multiple Performance
Measures 1110
Performance Incentives and Goals 1111
Linking Goals, Performance Objectives, Measures,
and Performance Targets 1111
Performance-Based Pay 1112
The Coordination of Goals 1112
Ǡ WINTER WONDERLAND RESORT:
REVIEW PROBLEM 1115
STOP & REVIEW 1118
CHAPTER ASSIGNMENTS 1120
Cookie Company (Continuing Case) 1135
CHAPTER 26 Standard Costing and Variance Analysis 1136
DECISION POINT Ǡ A MANAGER’S FOCUS ICU, INC. 1137
Standard Costing 1138
Standard Costs and Managers 1138
Computing Standard Costs 1139
Standard Direct Materials Cost 1139
Standard Direct Labor Cost 1139

Standard Overhead Cost 1140
Total Standard Unit Cost 1141
Variance Analysis 1142
The Role of Flexible Budgets in Variance
Analysis 1142
Using Variance Analysis to Control Costs 1145
Computing and Analyzing Direct Materials
Variances 1147
Computing Direct Materials Variances 1147
Analyzing and Correcting Direct Materials
Variances 1149
Computing and Analyzing Direct Labor
Variances 1150
Computing Direct Labor Variances 1150
Analyzing and Correcting Direct Labor
Variances 1152
Computing and Analyzing Overhead
Variances 1154
Using a Flexible Budget to Analyze Overhead
Variances 1154
Computing Overhead Variances 1154
Analyzing and Correcting Overhead Variances 1159
Using Cost Variances to Evaluate Managers’
Performance 1161
Ǡ ICU, INC.: REVIEW PROBLEM 1163
STOP & REVIEW 1168
CHAPTER ASSIGNMENTS 1170
Cookie Company (Continuing Case) 1183
CHAPTER 27 Short-Run Decision Analysis 1184
DECISION POINT Ǡ A MANAGER’S FOCUS HOME STATE

BANK 1185
Short-Run Decision Analysis and the
Management Process 1186
Incremental Analysis for Short-Run Decisions 1186
Incremental Analysis for Outsourcing
Decisions 1189
xvi Contents
Incremental Analysis for Special Order
Decisions 1191
Incremental Analysis for Segment
Profitability Decisions 1194
Incremental Analysis for Sales Mix
Decisions 1196
Incremental Analysis for Sell or Process-
Further Decisions 1199
Ǡ HOME STATE BANK: REVIEW PROBLEM 1202
STOP & REVIEW 1205
CHAPTER ASSIGNMENTS 1207
Cookie Company (Continuing Case) 1223
APPENDIX A Accounting for Investments 1262
Management Issues Related to Investments 1262
Trading Securities 1264
Available-for-Sale Securities 1267
Long-Term Investments in Equity Securities 1267
Investments in Debt Securities 1271
Long-Term Investments in Bonds 1272
STOP & REVIEW 1273
APPENDIX B Present Value Tables 1276
Endnotes 1280
Company Index 1284

Subject Index 1285
CHAPTER 28 Capital Investment Analysis 1224
DECISION POINT

Ǡ A MANAGER’S FOCUS
NEIGHBORHOOD COMMUNICATIONS 1225
The Capital Investment Process 1226
Capital Investment Analysis 1226
Capital Investment Analysis in the Management
Process 1227
The Minimum Rate of Return on Investment 1229
Cost of Capital 1229
Other Measures for Determining Minimum Rate of
Return 1230
Ranking Capital Investment Proposals 1230
Measures Used in Capital Investment
Analysis 1231
Expected Benefits from a Capital Investment 1231
Equal Versus Unequal Cash Flows 1232
Carrying Value of Assets 1232
Depreciation Expense and Income Taxes 1232
Disposal or Residual Values 1233
The Time Value of Money 1234
Interest 1234
Present Value 1235
Present Value of a Single Sum Due in the
Future 1236
Present Value of an Ordinary Annuity 1236
The Net Present Value Method 1238
Advantages of the Net Present Value Method 1238

The Net Present Value Method Illustrated 1238
Other Methods of Capital Investment
Analysis 1241
The Payback Period Method 1241
The Accounting Rate-of-Return Method 1242
Ǡ NEIGHBORHOOD COMMUNICATIONS:
REVIEW PROBLEM 1244
STOP & REVIEW 1246
CHAPTER ASSIGNMENTS 1248
Cookie Company (Continuing Case) 1260
PREFACE
Accounting
in Motion!
This revision of Principles of Accounting is based on an understanding of the
nature, culture, and motivations of today’s undergraduate students and on exten-
sive feedback from many instructors who use our book. These substantial changes
meet the needs of these students, who not only face a business world increasingly
complicated by ethical issues, globalization, and technology but who also have
more demands on their time. To assist them to meet these challenges, the authors
carefully show them how the effects of business transactions, which are the result
of business decisions, are recorded in a way that will be reflected on the finan-
cial statements. Instructors will find that building on the text’s historically strong
pedagogy, the authors have strengthened transaction analysis and its link to the
accounting cycle.
Updated Content,
Organization
and Pedagogy
Strengthened Transaction Analysis
Maintaining a solid foundation in double-entry accounting, we increased the
number of in-text journal entries and have used T accounts linked to these

journal-entry illustrations throughout the financial accounting chapters. In
Chapter 2, “Analyzing Business Transactions,” for example, we clarified the rela-
tionship of transaction analysis to the accounting cycle. In Chapter 6, “The Oper-
ating Cycle and Merchandising Accounting,” we include transaction illustrations
for all transactions mentioned in the chapter. At the same time, we reduced exces-
sive detail, shortened headings, simplified explanations, and increased readability
in an effort to reduce the length of each chapter.
Content and Organization: Partnerships,
Special-Purpose Journals, and Investments
Based on user input, Chapter 17 introduces a new topic of partnerships to the
text. To make room for this, the investments chapter is now located in Appendix A
with ample assignment material to provide greater flexibility of coverage.
xvii
Application of Double Entry:
Assets ϭ Liabilities ϩ Owner’s Equity
CASH WAGES EXPENSE
Dr. Cr. Dr. Cr.
July 1 40,000 July 3 3,200 July 26 4,800
10 2,800 6 13,320
19 1,400 9 2,600
22 5,000 26 4,800
Entry in Journal Form:
Dr. Cr.
July 26 Wages Expense 4,800
Cash 4,800
xviii Preface
Also based on user desires, we have inserted a supplement on special-purpose
journals with assignment material after Chapter 6.
Strong Pedagogical System
Principles of Accounting originated the pedagogical system of Integrated Learn-

ing Objectives. The system supports both learning and teaching by providing
flexibility in support of the instructor’s teaching of first-year accounting. The
chapter review and all assignments identify the applicable learning objective(s) for
easy reference.
Each learning objective refers to a specific content area, usually either con-
ceptual content or procedural techniques, in short and easily understandable seg-
ments. Each segment is followed by a “Stop and Apply” section that illustrates
and solves a short exercise related to the learning objective.
To make the text more visually appealing and readable, it is divided into
student-friendly sections with brief bulleted lists, new art, photographs, and end-
of-section review material.
& APPLY
STOP

Match the letter of each item below with the numbers of the related items:
a. An inventory cost
b. An assumption used in the valuation of
inventory
c. Full disclosure convention
d. Conservatism convention
e. Consistency convention
f. Not an inventory cost or assumed flow
____ 1. Cost of consigned goods
____ 2. A note to the financial statements
explaining inventory policies
____ 3. Application of the LCM rule
____ 4. Goods flow
____ 5. Transportation charge for mer-
chandise shipped FOB shipping
point

____ 6. Cost flow
____ 7. Choosing a method and sticking
with it
____ 8. Transportation charge for mer-
chandise shipped FOB destination
SOLUTION
1. f; 2. c; 3. d; 4. b; 5. a; 6. f; 7. e; 8. f
To avoid financial distress, a company must be able to pay its bills on time. Because
the timing of cash flows is critical to maintaining adequate liquidity to pay bills,
managers and other users of financial information must understand the difference
between transactions that generate immediate cash and those that do not. Con-
sider the transactions of Miller Design Studio shown in Figure 2-3. Most of them
involve either an inflow or outflow of cash.
As you can see in Figure 2-3, Miller’s Cash account has more transactions
than any of its other accounts. Look at the transactions of July 10, 15, and 22:
Ǡ July 10: Miller received a cash payment of $2,800.
Ǡ July 15: The firm billed a customer $9,600 for a service it had already per-
formed.
Ǡ July 22: The firm received a partial payment of $5,000 from the customer,
but it had not received the remaining $4,600 by the end of the month.
Because Miller incurred expenses in providing this service, it must pay careful
attention to its cash flows and liquidity.
One way Miller can manage its expenditures is to rely on its creditors to give
it time to
p
a
y
. Com
p
are the transactions of

J
ul
y
3
,
5
,
and 9 in Fi
g
ure 2-3.
Cash Flows
and the Timing
of Transactions
LO5 Show how the timing
of transactions affects cash
flows and liquidity.
Preface xix
Enhanced Real-
World Examples
Demonstrate
Accounting
in Motion
IFRS, Fair Value, and Other Updates
International Financial Reporting Standards and fair value have been integrated
throughout the book where accounting standards have changed and also in the
Business Focus features where applicable. All current events, statistics, and tables
have been updated with the latest data.
Further, to reduce distractions, the margins of the text include only Study
Notes, which alert students to common misunderstandings of concepts and tech-
niques; key ratio and cash flow icons, which highlight discussions of profitability

and liquidity; and accounting equations. Icons and equations appear in the finan-
cial chapters (Chapters 1–17).
Study Note
After Step 1 has been completed,
the Income Summary account
reflects the account balance of
the Design Revenue account
before it was closed.
Use of Small, Diverse Companies
Each chapter begins with a Decision Point, a real-world scenario about a small
company that challenges students to see the connection between accounting
information and management decisions.
Ǡ How can Pente Computer
Company manage its cash
needs?
Ǡ How can the company
reduce the level of
uncollectible accounts and
increase the likelihood that
accounts receivable will be
paid on time?
Ǡ How can the company
evaluate the effectiveness
of its credit policies and
the level of its accounts
receivable?
DECISION POINT
Ǡ
A USER’S FOCUS
PENTE COMPUTER COMPANY

Pente Computer Company sells computer products for cash
or on credit. The company’s peak sales occur in August and
September, when students are shopping for computers
and computer-related supplies, and during the pre-holiday
season in November and
December. It is now January, and
Andre Pente, the company’s owner, has been reviewing the
company’s performance over the past two years. He has
determined that in those years, approximately 1.5 percent
of net sales have been uncollectible, and he is concerned
that this year, the company may not have enough cash to
cover operations before sales begin to increase again in
late summer. In this chapter, we discuss concepts and tech-
niques that would help Pente manage his cash and accounts
receivable so that the com
p
an
y
maintains its li
q
uidit
y
.
FOCUS ON BUSINESS PRACTICE
IFRS: The Arrival of International Financial Reporting Standards in the United States
and Exchange Commission (SEC) recently voted to
allow foreign registrants in the United States. This
is a major development because in the past, the
SEC required foreign registrants to explain how the
standards used in their statements differed from

U.S. standards. This change affects approximately 10
percent of all public U.S. companies. In addition, the
SEC may in the near future allow U.S. companies to
use IFRS.
11
Over the next few years, international financial
reporting standards (IFRS) will become much more
important in the United States and globally. The
International Accounting Standards Board (IASB)
has been working with the Financial Accounting
Standards Board (FASB) and similar boards in other
nations to achieve identical or nearly identical stan-
dards worldwide. IFRS are now required in many
parts of the world, including Europe. The Securities-
xx Preface
These company examples come full circle at the end of the chapter by linking
directly to the Review Problem. Smaller, diverse company examples illustrate
accounting concepts and encourage students to apply what they have learned.
Use of Well-Known Public Companies
This textbook also offers examples from highly recognizable public companies,
such as CVS Caremark, Southwest Airlines, Dell Computer, and Netflix, to relate
basic accounting concepts and techniques to the real world. Chapter 5, “Finan-
cial Reporting and Analysis,” helps students interpret financial information.
The latest available data is used in exhibits to incorporate the most recent FASB
pronouncements. The authors illustrate current practices in financial reporting by
referring to data from Accounting Trends and Techniques (AICPA) and integrate
international topics wherever appropriate.

Ǡ
PENTE COMPUTER COMPANY: REVIEW PROBLEM

In this chapter’s Decision Point, we posed the following questions:
• How can Pente Computer Company manage its cash needs?
• How can the company reduce the level of uncollectible accounts and
increase the likelihood that accounts receivable will be paid on time?
• How can the company evaluate the effectiveness of its credit policies and
the level of its accounts receivable?
During the months when sales are at their peak, Pente Computer Company may
have excess cash available that it can invest in a way that earns a return but still
permits ready access to cash. At other times, it may have to arrange for short-term
borrowing. To ensure that it can borrow funds when it needs to, the company
must maintain good relations with its bank.
CVS Caremark Corporation
Consolidated Statements of Operations
Fiscal Year Ended
Dec. 31, 2008 Dec. 29, 2007 Dec. 30, 2006
(In millions, except per share amounts) (52 weeks) (52 weeks) (53 weeks)
Net revenues $87,471.9 $76,329.5 $43,821.4
Cost of revenues 69,181.5 60,221.8 32,079.2
Gross profit 18,290.4 16,107.7 11,742.2
Total operating expenses 12,244.2 11,314.4 9,300.6
Operating profit
1
6,046.2 4,793.3 2,441.6
Interest expense, net
2
509.5 434.6 215.8
Earnings before income tax provision 5,536.7 4,358.7 2,225.8
Loss from discontinued operations, (132) — —
net of income tax benefit of $82.4
Income tax provision 2,192.6 1,721.7 856.9v

Net earnings
3
3,212.1 2,637.0 1,368.9
Preference dividends, net of income tax benefit
4
14.1 14.2 13.9
Net earnings available to common shareholders $ 3,198.0 $ 2,622.8 $ 1,355.0
BASIC EARNINGS PER COMMON SHARE:
5
Net earnings $ 2.23 $ 1.97 $ 1.65
Weighted average common shares outstanding 1,433.5 1,328.2 820.6
DILUTED EARNINGS PER COMMON SHARE:
Net earnings $ 2.18 $ 1.92 $ 1.60
Weighted average common shares outstanding 1,469.1 1,371.8 853.2
Consolidated means that data from all
companies owned by CVS are combined.
CVS’s fiscal year ends on the Saturday
closest to December 31.
Preface xxi
Revised and Expanded Assignments
Assignments have been carefully scrutinized for direct relevancy to the learning
objectives in the chapters. Names and numbers for all Short Exercises, Exercises,
and Problems have been changed except those used on videos. We have reversed
the alternate and main problems from the previous edition. Most importantly,
alternative problems have been expanded so that there are ample problems for
any course.
All of the cases have been updated as appropriate and the number of cases in
each chapter has been reduced in response to user preferences. The variety of cases
in each chapter depends on their relevance to the chapter topics, but throughout
the text there are cases involving conceptual understanding, ethical dilemmas,

interpreting financial reports, group activities, business communication, and the
Internet. Annual report cases based on CVS Caremark and Southwest Airlines
can be found at the end of the chapter.
Specific Chapter Changes
The following chapter-specific changes have been made in this edition of
Principles of Accounting:
Chapter 1: Uses of Accounting Information and the Financial Statements
• Discussion of performance measures revised using CVS and General Motors
as examples of how these measures relate to profitability and liquidity
• Discussion of the statement of cash flows revised to relate the statement to
business activities and goals
• Updated and enhanced coverage of the roles of the Financial Account-
ing Standards Board (FASB) and the International Accounting Standards
Board (IASB)
• New Focus on Business Practice box on SEC’s decision to let foreign com-
panies registered in the United States use international financial reporting
standards (IFRS)
• New study note on the role of the Public Company Accounting Oversight
Board (PCAOB)
Chapter 2: Analyzing Business Transactions
• Learning Objective (LO) 3 revised to clarify and emphasize the role of
T accounts, journal form, and their relationship to the general ledger
• New example of recognition violation
• Section on valuation revised to address fair value and IFRS
• New Focus on Business Practice box on fair value accounting in an interna-
tional marketplace
• Cash flow discussion edited for clearer delineation of the sequence of transactions
Chapter 3: Measuring Business Income
• New example of earnings management focusing on Dell Computer
• New Focus on Business Practice box describing the FASB’s rules for revenue

recognition and the one broad principle (IFRS) that the IASB uses
Chapter 4: Completing the Accounting Cycle
• In-text examples focusing on Miller Design Studio simplified by using fewer
accounts, thus clarifying the process of preparing closing entries and the
worksheet
xxii Preface
Chapter 5: Financial Reporting and Analysis
• Section on the objective of financial reporting revised to reflect FASB’s empha-
sis on the needs of capital providers and other users of financial reports
• Coverage of qualitative characteristics simplified and shortened
• New Focus on Business Practice box on convergence of U.S. GAAP and IFRS
and their effect on accounting standards
• New Focus on Business Practice box on how convergence of U.S. GAAP and
IFRS can make financial analysis more difficult
• New Focus on Business Practice box on the use of ratios (performance mea-
sures) in executive compensation
Chapter 6: The Operating Cycle and Merchandising Transactions
• Discussion of the operating cycle revised for greater clarity
• T accounts and journal entries used to illustrate accounting for merchandis-
ing transactions under both the perpetual and periodic inventory systems
• Updated Focus on Business Practice box on the increased use of credit and
debit cards
• Clearer differentiation between the cost of goods available for sale and the
cost of goods sold in LO4
• New supplement on Special-Purpose Journals
Chapter 7: Internal Control
• New Focus on Business Practice box on the effectiveness of the Sarbanes-
Oxley Act in preventing fraud
• New Focus on Business Practice box on methods of preventing shoplifting
• Material reformatted to clarify discussion of documents used in an internal

control plan for purchases and cash disbursements
Chapter 8: Inventories
• Discussion of disclosure of inventory methods shortened for greater clarity
• New Focus on Business Practice box on the lower-of-cost-or-market rule
• New Focus on Business Practice box on the use of LIFO inside and outside
the United States
• New Focus on Business Practice box on how IFRS and U.S. standards define
fair value
Chapter 9: Cash and Receivables
• Concept of fair value introduced at various points throughout the chapter
• Revised Focus on Business Practice box on estimating cash collections
• New coverage of subprime loans
Chapter 10: Current Liabilities and Fair Value Accounting
• Chapter revised to include coverage of fair value accounting
• Discussion and assignments related to future value deleted to emphasize pres-
ent value and fair value, which are more directly related to this course
• N
ew study note on the disclosure of the fair value of short-term debt
Chapter 11: Long-Term Assets
• Coverage of tax laws revised to address the Economic Stimulus Act of 2008
• Coverage of intangible assets revised to reflect current standards
• Revised Focus on Business Practice box on customer lists
Preface xxiii
Chapter 12: Contributed Capital
• Revised Focus on Business Practice box on politics and accounting for stock
options
• Section on cash flow information added to LO1
• Updated Focus on Business Practice box on share buybacks
Chapter 13: Long-Term Liabilities
• Bonds interest rates changed so that they are more realistic and less compli-

cated than in previous edition
• Updated discussion of accounting for defined pension plans
• New Focus on Business Practice box on post-retirement liabilities
• Section on cash flow information added to LO1
Chapter 14: The Corporate Income Statement and the Statement of Stock-
holders’ Equity
• Nonoperating items, which were covered in LO3 in previous edition, now
discussed in LO1
• New Focus on Business Practice box on looking beyond the bottom line
• Revised Focus on Business Practice box on pro-forma earnings
Chapter 15: The Statement of Cash Flows
• Clarification of required disclosure of noncash investing and financing activi-
ties in LO1
• Sections on the risks of having too much cash and on interpreting the state-
ment of cash flows added to LO2
• New Focus on Business Practice box on the IASB’s support of the direct method
Chapter 16: Financial Performance Measurement
• Updated Focus on Business Practice box on pro-forma earnings
• Revised Focus on Business Practice box on performance measurement
Chapter 17: Partnerships
• New chapter added in response to users’ requests
Chapter 18: The Changing Business Environment: A Manager’s Perspective
• Updated definition of management accounting
• Lean production introduced as a key term
• Sections on total quality management and activity based management revised
• Updated Focus on Business Practice box on how to blow the whistle on fraud
Chapter 19: Cost Concepts and Cost Allocation
• Discussions of costs in LO2 in previous edition incorporated in LO1
• Section on document and cost flows through the inventory accounts in new
LO3 revised

• Introduction to methods of product cost measurement added and section on
computing service unit cost shortened in new LO4
• LO7 and LO8 streamlined and incorporated in new LO5
Chapter 20: Costing Systems: Job Order Costing
• Chapter 20 in previous edition separated into two chapters, with new Chapter 20
focusing on job order costing and new Chapter 21 focusing on process costing
• Operations costing system introduced as a key concept
xxiv Preface
• Discussions of manufacturer’s job order cost card, computation of unit cost,
and job order costing in a service organization included in new LO4
• New Focus on Business Practice box on the use of project costing
Chapter 21: Costing Systems: Process Costing
• New chapter (part of Chapter 20 in previous edition)
Chapter 22: Value-Based Systems: ABM and Lean
• LO1 and LO2 in last edition combined and revised
• Section on process value analysis included in LO1
• New listing of ABC’s disadvantages in LO2
• New focus on lean operations in LO3
Chapter 23: Cost Behavior Analysis
• LO1 and LO2 in last edition combined and revised
• Discussions of variable, fixed, and mixed costs and discussions of step costs
and linear relationships included in LO1
• Discussion of contribution margin income statement included in LO2
• LO5 revised to clarify concepts
Chapter 24: The Budgeting Process
• Section on advantages of budgeting and three key terms—static budget, con-
tinuous budget, and zero-based budgeting—added to revised LO1
Chapter 25: Performance Management and Evaluation
• LO1 and LO2 in last edition combined and revised
Chapter 26: Standard Costing and Variance Analysis

• LO1 and LO2 in last edition combined and revised
Chapter 27: Short-Run Decision Analysis
• Chapter revised to focus on short-run decisions and incremental analysis; cap-
ital investment analysis and time value of money now covered in Chapter 28
Chapter 28: Capital Investment Analysis
• New chapter
Online Solutions
for Every Learning
Style
South-Western, a division of Cengage Learning, offers a vast array of online solu-
tions to suit your course and your students’ learning styles. Choose the product
that best meets your classroom needs and course goals. Please check with your
sales representative for more details and ordering information.
CengageNOW™
CengageNOW for Needles/Powers Principles of Accounting, 11e is a powerful
and fully integrated online teaching and learning system that provides you with
flexibility and control. This complete digital solution offers a comprehensive set
of digital tools to power your course. CengageNOW offers the following:
Ǡ Homework, including algorithmic variations
Ǡ Integrated e-book
Ǡ Personalized study plans, which include a variety of multimedia assets (from
exer
cise demonstrations to videos to iPod content) for students as they master
the chapter materials