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Fundamental
Accounting Principles
John J. Wild
University of Wisconsin at Madison

Ken W. Shaw
University of Missouri at Columbia

Barbara Chiappetta
Nassau Community College

20

th

edition


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To my students and family, especially Kimberly, Jonathan, Stephanie, and Trevor.

To my wife Linda and children, Erin, Emily, and Jacob.
To my mother, husband Bob, and sons Michael and David.
FUNDAMENTAL ACCOUNTING PRINCIPLES
Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas,
New York, NY, 10020. Copyright © 2011, 2009, 2007, 2005, 2002, 1999, 1996, 1993, 1990, 1987, 1984, 1981, 1978, 1975,
1972, 1969, 1966, 1963, 1959, 1955 by The McGraw-Hill Companies, Inc. All rights reserved. No part of this publication
may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the
prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic
storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside the United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 0 DOW/DOW 1 0 9 8 7 6 5 4 3 2 1 0

ISBN-13:
ISBN-10:
ISBN-13:
ISBN-10:
ISBN-13:
ISBN-10:
ISBN-13:
ISBN-10:
ISBN-13:
ISBN-10:
ISBN-13:
ISBN-10:

978-0-07-811087-0 (combined edition)
0-07-811087-4 (combined edition)
978-0-07-733825-1 (volume 1, chapters 1-12)
0-07-733825-1 (volume 1, chapters 1-12)

978-0-07-733824-4 (volume 2, chapters 12-25)
0-07-733824-3 (volume 2, chapters 12-25)
978-0-07-733826-8 (with working papers volume 1, chapters 1-12)
0-07-733826-X (with working papers volume 1, chapters 1-12)
978-0-07-733827-5 (with working papers volume 2, chapters 12-25)
0-07-733827-8 (with working papers volume 2, chapters 12-25)
978-0-07-733823-7 (principles, chapters 1-17)
0-07-733823-5 (principles, chapters 1-17)

Vice president and editor-in-chief: Brent Gordon
Editorial director: Stewart Mattson
Publisher: Tim Vertovec
Executive editor: Steve Schuetz
Director of development: Ann Torbert
Senior development editor: Christina A. Sanders
Vice president and director of marketing: Robin J. Zwettler
Marketing director: Brad Parkins
Marketing manager: Michelle Heaster
Vice president of editing, design, and production: Sesha Bolisetty
Managing editor: Lori Koetters

Senior buyer: Carol A. Bielski
Lead designer: Matthew Baldwin
Senior photo research coordinator: Jeremy Cheshareck
Photo researcher: Sarah Evertson
Lead media project manager: Brian Nacik
Media project manager: Ron Nelms
Interior and cover design: Laurie Entringer
Cover image: © Getty Images
Typeface: 10.5/12 Times Roman

Compositor: Aptara®, Inc.
Printer: R. R. Donnelley

Library of Congress Cataloging-in-Publication Data
Wild, John J.
Fundamental accounting principles / John J. Wild, Ken W. Shaw, Barbara
Chiappetta.—20th ed.
p. cm.
Includes index.
ISBN-13: 978-0-07-811087-0 (combined edition : alk. paper)
ISBN-10: 0-07-811087-4 (combined edition : alk. paper)
ISBN-13: 978-0-07-733825-1 (volume 1 ch. 1-12 : alk. paper)
ISBN-10: 0-07-733825-1 (volume 1 ch. 1-12 : alk. paper)
[etc.]
1. Accounting. I. Shaw, Ken W. II. Chiappetta, Barbara. III. Title.
HF5636.W675 2011
657—dc22
2010026205
www.mhhe.com


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Dear Colleagues/Friends,
As we roll out the new edition of Fundamental Accounting Principles, we thank each
of you who provided suggestions to improve our textbook. As teachers, we know
how important it is to select the right book for our course. This new edition reflects
the advice and wisdom of many dedicated reviewers, symposium and workshop

participants, students, and instructors. Our book consistently rates number one
in customer loyalty because of you. Together, we have created the most readable,
concise, current, accurate, and innovative accounting book available today.
Throughout the writing process, we steered this book in the manner you directed.
Reviewers, instructors, and students say this book’s enhanced presentation, graphics,
and technology cater to different learning styles and helps students better understand
accounting. Connect Accounting Plus offers new features to improve student learning and
to assist instructor teaching and grading. Our iPod content lets students study on the
go, while our Algorithmic Test Bank provides an infinite variety of exam problems. You
and your students will find all these tools easy to apply.
We owe the success of this book to our colleagues who graciously took time to help
us focus on the changing needs of today’s instructors and students. We feel fortunate
to have witnessed our profession’s extraordinary devotion to teaching. Your feedback and suggestions are reflected in everything we write. Please accept our heartfelt
thanks for your dedication in helping today’s students learn, understand, and appreciate
accounting.
With kindest regards,

John J. Wild

Ken W. Shaw

Barbara Chiappetta

iii


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About the Authors
JOHN J. WILD is a distinguished professor
of accounting at the University of Wisconsin
at Madison. He previously held appointments
at Michigan State University and the University
of Manchester in England. He received his
BBA, MS, and PhD from the University of
Wisconsin.
Professor Wild teaches accounting courses at both the undergraduate and graduate
levels. He has received numerous teaching honors, including the
Mabel W. Chipman Excellence-in-Teaching Award, the departmental
Excellence-in-Teaching Award, and the Teaching Excellence Award
from the 2003 and 2005 business graduates at the University
of Wisconsin. He also received the Beta Alpha Psi and Roland
F. Salmonson Excellence-in-Teaching Award from Michigan State
University. Professor Wild has received several research honors and
is a past KPMG Peat Marwick National Fellow and is a recipient of

KEN W. SHAW

is an associate professor
of accounting and the Deloitte Professor at
the University of Missouri. He previously was
on the faculty at the University of Maryland
at College Park. He received an accounting
degree from Bradley University and an MBA
and PhD from the University of Wisconsin.
He is a Certified Public Accountant with work
experience in public accounting.
Professor Shaw teaches financial accounting at the undergraduate and graduate levels. He received the Williams-Keepers LLC

Teaching Excellence award in 2007, was voted the “Most Influential
Professor” by the 2005, 2006, and 2010 School of Accountancy graduating classes, and is a two-time recipient of the O’Brien Excellence
in Teaching Award. He is the advisor to his School’s chapter of the
Association of Certified Fraud Examiners.

BARBARA CHIAPPETTA

received her
BBA in Accountancy and MS in Education
from Hofstra University and is a tenured full
professor at Nassau Community College. For
the past two decades, she has been an active
executive board member of the Teachers of
Accounting at Two-Year Colleges (TACTYC),
serving 10 years as vice president and as
president from 1993 through 1999. As an
active member of the American Accounting
Association, she has served on the Northeast Regional Steering
Committee, chaired the Curriculum Revision Committee of the
Two-Year Section, and participated in numerous national committees. Professor Chiappetta has been inducted into the American

iv

fellowships from the American Accounting Association and the Ernst
and Young Foundation.
Professor Wild is an active member of the American Accounting
Association and its sections. He has served on several committees of
these organizations, including the Outstanding Accounting Educator
Award, Wildman Award, National Program Advisory, Publications,
and Research Committees. Professor Wild is author of Financial

Accounting, Managerial Accounting, and College Accounting, each
published by McGraw-Hill/Irwin. His research articles on accounting
and analysis appear in The Accounting Review, Journal of Accounting
Research, Journal of Accounting and Economics, Contemporary
Accounting Research, Journal of Accounting, Auditing and Finance,
Journal of Accounting and Public Policy, and other journals. He is
past associate editor of Contemporary Accounting Research and has
served on several editorial boards including The Accounting Review.
In his leisure time, Professor Wild enjoys hiking, sports, travel,
people, and spending time with family and friends.

Professor Shaw is an active member of the American Accounting
Association and its sections. He has served on many committees of
these organizations and presented his research papers at national
and regional meetings. Professor Shaw’s research appears in The
Accounting Review; Journal of Accounting Research; Contemporary
Accounting Research; Journal of Financial and Quantitative Analysis;
Journal of the American Taxation Association; Journal of Accounting,
Auditing, and Finance; Journal of Financial Research; Research in
Accounting Regulation; and other journals. He has served on the editorial boards of Issues in Accounting Education, the Journal of Business
Research, and Research in Accounting Regulation. Professor Shaw
is co-author of Financial and Managerial Accounting and College
Accounting, both published by McGraw-Hill.
In his leisure time, Professor Shaw enjoys tennis, cycling, music,
and coaching his children’s sports teams.

Accounting Association Hall of Fame for the Northeast Region.
She had also received the Nassau Community College dean of
instruction’s Faculty Distinguished Achievement Award. Professor
Chiappetta was honored with the State University of New York

Chancellor’s Award for Teaching Excellence in 1997. As a confirmed
believer in the benefits of the active learning pedagogy, Professor
Chiappetta has authored Student Learning Tools, an active learning
workbook for a first-year accounting course, published by McGrawHill/Irwin.
In her leisure time, Professor Chiappetta enjoys tennis and
participates on a U.S.T.A. team. She also enjoys the challenge of
bridge. Her husband, Robert, is an entrepreneur in the leisure sport
industry. She has two sons—Michael, a lawyer, specializing in intellectual property law in New York, and David, a composer, pursuing
a career in music for film in Los Angeles.


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Helping Students Achieve Peak Performance
Fundamental Accounting Principles 20e
Great performances result from pushing the limits through quality practices and reinforcing
feedback to strengthen abilities and motivation. Assist your students in achieving their peak
performance by giving them what they need to succeed in today's accounting principles course.
Whether the goal is to become an accountant or a businessperson, or simply to be an informed
consumer of accounting information, Fundamental Accounting Principles (FAP) has helped
generations of students succeed by giving them support in the form of leading-edge accounting
content that engages students, paired with state-of-the-art technology that elevates their
understanding of key accounting principles.
With FAP on your side, you’ll be provided with engaging content in a motivating style
to help students see the relevance of accounting. Students are motivated when
reading materials that are clear and pertinent. FAP excels at engaging students.
Its chapter-opening vignettes showcase dynamic, successful entrepreneurial
individuals and companies guaranteed to interest and excite students. This

edition’s featured companies—Research In Motion (maker of BlackBerry), Apple,
Nokia, and Palm—captivate students with their products and annual reports, which
are a pathway for learning financial statements. Further, this book’s coverage of the
accounting cycle fundamentals is widely praised for its clarity and effectiveness.
FAP also delivers innovative technology to help student performance. Connect
Accounting provides students with instant grading and feedback for assignments
that are completed online. Connect Accounting Plus integrates an online version
of the textbook with Connect Accounting. Our algorithmic test bank offers
infinite variations of numerical test bank questions. The Self-Quiz and Study,
Interactive Presentations, and LearnSmart all provide additional support to
help reinforce concepts and keep students motivated.
We’re confident you’ll agree that FAP will help your students achieve
peak performance.

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accounting

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Your Students' Connection to

McGraw-Hill Connect Accounting is an online assignment and assessment solution that connects your
students with the tools and resources needed to achieve success through faster learning, more efficient
studying, and higher retention of knowledge.

Online Assignments: Connect Accounting

helps students learn more efficiently by providing
feedback and practice material when they need
it, where they need it. Connect grades homework
automatically and gives immediate feedback on
any questions students may have missed.

Interactive Presentations: The interactive presentations provide engaging narratives of all chapter learning
objectives in an interactive online format. The presentations
are tied specifically to Fundamental Accounting Principles,
20e. They follow the structure of the text and are organized
to match the learning objectives within each chapter. While
the interactive presentations are not meant to replace the
textbook in this course, they provide additional explanation
and enhancement of material from the text chapter, allowing students to learn, study, and practice with instant feedback at their own pace.

Student Resource Library: The Connect
Accounting Student Study Center gives access to
additional resources such as recorded lectures,
online practice materials, an eBook, and more.

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Reach Peak Performance!
Guided Examples: The Guided Examples
in Connect Accounting provide a narrated, animated, step-by-step walk-through of select

exercises similar to those assigned. These short
presentations provide reinforcement when students need it most.

LearnSmart: LearnSmart adaptive self-study
technology within Connect Accounting helps
students make the best use of their study time.
LearnSmart provides a seamless combination of
practice, assessment, and remediation for every
concept in the textbook. LearnSmart’s intelligent
software adapts to students by supplying questions on a new concept when they are ready to
learn it. With LearnSmart, students will spend
less time on topics they understand and practice
more on those they have yet to master.

Self-Quiz and Study: The Self-Quiz and Study
(SQS) connects students to the learning resources
students need to succeed in the course. For each
chapter, students can take a practice quiz and immediately see how well they performed. A study plan
then recommends specific readings from the text,
supplemental study material, and practice exercises
that will improve students' understanding and mastery of each learning objective.

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Connect Accounting

Connect Accounting offers a number of powerful tools and features to make managing assignments easier,
so faculty can spend more time teaching. With Connect Accounting, students can engage with their coursework anytime and anywhere, making the learning process more accessible and efficient. (Please see previous page for a description of the student tools available within Connect Accounting.)

Simple Assignment Management and Smart Grading
With Connect Accounting, creating assignments is easier than ever, so you can spend more time teaching
and less time managing. Connect Accounting enables you to:

•
•
•
•

Create and deliver assignments easily with select end-of-chapter questions and test bank items.
Go paperless with the eBook and online submission and grading of student assignments.
Have assignments scored automatically, giving students immediate feedback on their work and sideby-side comparisons with correct answers.
Reinforce classroom concepts with practice tests and instant quizzes.

Student Reporting
Connect Accounting keeps instructors informed about how each
student, section, and class is performing, allowing for more productive use of lecture and office hours. The reporting function
enables you to:

• View scored work immediately and track individual or group
performance with assignment and grade reports.

• Access an instant view of student or class performance
relative to learning objectives.

• Collect data and generate reports required by
many accreditation organizations, such as

AACSB and AICPA.

© Svetlana Gryankina; iStockphoto

Instructor Library
The Connect Accounting Instructor Library is your repository for additional resources to improve student
engagement in and out of class. You can select and use any asset that enhances your lecture. The Connect
Accounting Instructor Library includes: access to the eBook version of the text, PowerPoint files, Solutions
Manual, Instructor Resource Manual, and Test Bank.

© David Pedre; iStockphoto

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Tools for Instructors
McGraw-Hill Connect Plus Accounting
McGraw-Hill reinvents the textbook learning experience for the
modern student with Connect Plus Accounting. A seamless
integration of an eBook and Connect Accounting, Connect Plus
Accounting provides all of the Connect Accounting features plus:

•
•
•


An integrated eBook, allowing for anytime, anywhere access
to the textbook.
Dynamic links between the problems or questions you assign
to your students and the location in the eBook where that
problem or question is covered.
A powerful search function to pinpoint and connect key
concepts in a snap.

For more information about Connect, go to www.mcgrawhillconnect.com, or contact your local McGraw-Hill
sales representative.

Tegrity Campus: Lectures 24/7
Tegrity Campus is a service that makes class time available
24/7 by automatically capturing every lecture. With a simple
one-click start-and-stop process, you capture all computer screens and corresponding audio in a format that
is easily searchable, frame by frame. Students can replay any part of any class with easy-to-use browserbased viewing on a PC or Mac, an iPod, or other mobile device.
Educators know that the more students can see, hear, and experience class resources, the better they learn.
In fact, studies prove it. Tegrity Campus’s unique search feature helps students efficiently find what they
need, when they need it, across an entire semester of class recordings. Help turn your students’ study time
into learning moments immediately supported by your lecture. With Tegrity Campus, you also increase
intent listening and class participation by easing students’ concerns about note-taking. Lecture Capture will
make it more likely you will see students’ faces, not the tops of their heads.
To learn more about Tegrity watch a two-minute Flash demo at .

McGraw-Hill Customer Care Contact Information
At McGraw-Hill, we understand that getting the most from new technology can be challenging. That’s why
our services don’t stop after you purchase our products. You can e-mail our Product Specialists 24 hours a
day to get product training online. Or you can search our knowledge bank of Frequently Asked Questions on
our support Website. For Customer Support, call 800-331-5094 or visit www.mhhe.com/support. One of our
Technical Support Analysts will be able to assist you in a timely fashion.


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How Can Text-Related Web Resources Enrich My Course?
Online Learning Center (OLC)

We offer an Online Learning Center (OLC) that follows Fundamental Accounting Principles
chapter by chapter. It doesn’t require any building or maintenance on your part. It’s ready to
go the moment you and your students type in the URL:
www.mhhe.com/wildFAP20e
As students study and learn from Fundamental Accounting Principles, they can visit
the Student Edition of the OLC Website to work with a multitude of helpful tools:
• Generic Template Working
Papers
• Chapter Learning Objectives
• Interactive Chapter Quizzes
• PowerPoint® Presentations

• Narrated PowerPoint®
Presentations*
• Video Library
• Excel Template Assignments
• iPod Content*
* indicates Premium Content


A secured Instructor Edition stores essential course materials to save you prep time
before class. Everything you need to run a lively classroom and an efficient course is
included. All resources available to students, plus . . .

© Okea; iStockphoto

•
•
•
•
•

Instructor’s Resource Manual
Solutions Manual
Solutions to Excel Template Assignments
Test Bank
Solutions to CYGL, Peachtree, and QuickBooks templates

The OLC Website also serves as a doorway to other technology solutions, like course
management systems.

"There are numerous materials and resources available for the instructor. I love how everything is on one
Website and there is no need for a CD or different supplements/materials that need to be carried around."
—Jeanine Metzler, Northampton Community College, on the OLC

Online Course Management
No matter what online course management system you use (WebCT, BlackBoard,
or eCollege), we have a course content ePack available for FAP 20e. Our new ePacks
are specifically designed to make it easy for students to navigate and access content
online. They are easier than ever to install on the latest version of the course management system available today.


TM

x

Don’t forget that you can count on the highest level of service from McGraw-Hill.
Our online course management specialists are ready to assist you with your online
course needs. They provide training and will answer any questions you have
throughout the life of your adoption. So try our new ePack for FAP 20e and make
online course content delivery easy and fun.


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CourseSmart
CourseSmart is a new way to find and buy eTextbooks. CourseSmart has the largest selection
of eTextbooks available anywhere, offering thousands of the most commonly adopted textbooks
from a wide variety of higher education publishers. CourseSmart eTextbooks are available in one
standard online reader with full text search, notes, and highlighting, and email tools for sharing
between classmates. Visit www.CourseSmart.com for more information on ordering.

How Students Can Study On the Go Using Their iPods
iPod Content
Harness the power of one of the most popular technology tools students use
today—the Apple iPod. Our innovative approach allows students to download audio and video presentations right into their iPod and take learning
materials with them wherever they go. Students just need to visit the Online
Learning Center at www.mhhe.com/wildFAP20e to download our iPod content. For each chapter of the book they will be able to download audio narrated lecture presentations for use on various versions of iPods. iPod Touch
users can even access self-quizzes.

It makes review and study time as easy as putting on headphones.

How Can McGraw-Hill Help Teach My Course Online?
Improve Student Learning Outcomes and
Save Instructor Time with ALEKS®
ALEKS is an assessment and learning program that provides individualized instruction in accounting. Available online in partnership
with McGraw-Hill/Irwin, ALEKS interacts with students much like a
skilled human tutor, with the ability to assess precisely a student’s
knowledge and provide instruction on the exact topics the student is
most ready to learn. By providing topics to meet individual students’
needs, allowing students to move between explanation and practice, correcting and analyzing errors, and defining terms, ALEKS
helps students to master course content quickly and easily.
ALEKS also includes an Instructor Module with powerful, assignmentdriven features and extensive content flexibility. The complimentary Instructor Module provides a course calendar, a customizable gradebook with automatically graded homework, textbook
integration, and dynamic reports to monitor student and class progress. ALEKS simplifies course management and allows instructors
to spend less time with administrative tasks and more time directing
student learning.
To learn more about ALEKS, visit www.aleks.com/highered/business.
ALEKS is a registered trademark of ALEKS Corporation.
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Innovative Textbook Features
Using Accounting for Decisions


Decision
Insight
Decision
Insight

Whether we prepare, analyze, or apply accounting information,
one skill remains essential: decision-making. To help develop
good decision-making habits and to illustrate the relevance of
accounting, our book uses a unique pedagogical framework
we call the Decision Center. This framework is comprised of
a variety of approaches and subject areas, giving students
insight into every aspect of business decision-making; see
three examples to the right and one below. Answers to Decision
Maker and Ethics boxes are at the end of each chapter.

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Revenue Spread The New Orleans Saints have Unearned Revenues
of about $60 million in advance ticket sales. When the team plays its home
games, it settles this liability to its ticket holders and then transfers the
amount earned to Ticket Revenues. ■

/Volumes/203/MHBR178/sLa1719X_disk1of1/007731719X/sLa1719X_pagefiles

Decision Ethics


Answer — p. 206

Credit Manager As a new credit manager, you are being trained by the outgoing manager. She explains
that the system prepares checks for amounts net of favorable cash discounts, and the checks are dated the
last day of the discount period. She also tells you that checks are not mailed until five days later, adding that
“the company gets free use of cash for an extra five days, and our department looks better. When a supplier
complains, we blame the computer system and the mailroom.” Do you continue this payment policy? ■

Decision Analysis

Inventory Turnover and Days’ Sales in Inventory

Inventory Turnover
Earlier chapters described two important ratios useful in evaluating a company’s short-term liquidity: current ratio and acid-test ratio. A merchandiser’s ability to pay its short-term obligations also depends on
how quickly it sells its merchandise inventory. Inventory turnover, also called merchandise inventory
turnover, is one ratio used to assess this and is defined in Exhibit 6.13.
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A3

Decision Maker

Assess inventory
management using both
inventory turnover and
days’ sales in inventory.

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Inventory turnover 5

EXHIBIT 6.13

Cost of goods sold
Average inventory

Inventory Turnover

CAP
C1

ANALYTICAL

Explain the importance of periodic
reporting and the time period
assumption. (p. 94)

C2
C3

Explain accrual accounting and how it
improves financial statements. (p. 95)
Identify the types of adjustments and
their purpose. (p. 96)

A1
A2

PROCEDURAL


Explain how accounting adjustments
link to financial statements. (p. 105)
Compute profit margin and describe
its use in analyzing company
performance.
↓ (p. 109)
↑

P1
P2
P3
P4

↓
↑

Prepare and explain adjusting
entries. (p. 97)
Explain and prepare an adjusted trial
balance. (p. 106)
↓
Prepare financial statements from an
↑
adjusted trial balance. (p. 106)
Appendix 3A —Explain the alternatives
in accounting for prepaids. (p. 113)

LP3


GLOBAL VIEW
This section discusses differences between U.S. GAAP and IFRS in the items and costs making up merchandise inventory, in the methods to assign costs to inventory, and in the methods to estimate inventory values.
Items and Costs Making Up Inventory Both U.S. GAAP and IFRS include broad and similar
guidance for the items and costs making up merchandise inventory. Specifically, under both accounting
systems, merchandise inventory includes all items that a company owns and holds for sale. Further, merchandise inventory includes costs of expenditures necessary, directly or indirectly, to bring those items to
a salable condition and location.
Assigning Costs to Inventory Both U.S. GAAP and IFRS allow companies to use specific identification in assigning costs to inventory. Further, both systems allow companies to apply a cost flow assumption.
The usual cost flow assumptions are: FIFO, Weighted Average, and LIFO. However, IFRS does not (currently) allow use of LIFO. As the convergence project progresses, this prohibition may or may not persist.
Estimating Inventory Costs The value of inventory can change while it awaits sale to customers.
That value can decrease or increase.
Both U.S. GAAP and IFRS require companies to write down (reduce the
cost recorded for) inventory when its value falls below the cost recorded. This is referred to as the lower
of cost or market method explained in this chapter. U.S. GAAP prohibits any later increase in the recorded
value of that inventory even if that decline in value is reversed through value increases in later periods.
However, IFRS allows reversals of those write downs up to the original acquisition cost. For example, if
Research In Motion wrote down its 2010 inventory from $622 million to $600 million, it could not reverse this in future periods even if its value increased to more than $622 million. However, if RIM applied
IFRS, it could reverse that previous loss. (Another difference is that value refers to replacement cost under

Decreases in Inventory Value

RIM

any “adjustments” for analysis purposes in light of recent inflation. What is your advice? Does your advice
depend on changes in the costs of these inventories? ■

CAP Model

Learning Objectives

CONCEPTUAL


Answer — p. 253

Financial Planner One of your clients asks if the inventory account of a company using FIFO needs

The Conceptual/Analytical/Procedural (CAP) Model allows
courses to be specially designed to meet your teaching needs
or those of a diverse faculty. This model identifies learning
objectives, textual materials, assignments, and test items by
C, A, or P, allowing different instructors to teach from the
same materials, yet easily customize their courses toward a
conceptual, analytical, or procedural approach (or a combination thereof) based on personal preferences.

New Global View
This section explains international accounting practices relating
to the material covered in that chapter. This section is purposefully located at the end of each chapter so that each instructor can
decide what emphasis, if at all, is to be assigned to it. The aim of
this Global View section is to describe accounting practices and to
identify the similarities and differences in international accounting practices versus that in the U.S. As we move toward global
convergence in accounting practices, and as we witness the likely
conversion of U.S. GAAP to IFRS, the importance of student familiarity with international accounting grows. This innovative
section helps us begin down that path of learning and teaching
global accounting practices.

"...the chapter openers are absolutely excellent and include entrepreneurs that the students can easily relate to. This helps
the students understand the need/importance of accounting in a small business."
xii

—Michelle Grant, Bossier Parish Community College



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Bring Accounting To Life
Completing the Accounting Cycle

Work Sheet
•
•

Benefits of a work
sheet
Use of a work sheet

Closing Process
•
•
•

Temporary and
permanent accounts
Closing entries

Post-closing trial
balance

Classified
Balance Sheet

Accounting Cycle
•
•

Definition of
accounting cycle
Review of accounting
cycle

Quick Check

•
•

Classification
structure
Classification
categories

Answers — p. 156

7. Classify the following assets as (1) current assets, (2) plant assets, or (3) intangible assets:
(a) land used in operations, (b) office supplies, (c) receivables from customers due in 10 months,
(d ) insurance protection for the next 9 months, (e) trucks used to provide services to customers,

(f ) trademarks.

8. Cite at least two examples of assets classified as investments on the balance sheet.
9. Explain the operating cycle for a service company.

Chapter Preview
With Flowchart
This feature provides a handy textual/
visual guide at the start of every chapter.
Students can now begin their reading
with a clear understanding of what they
will learn and when, allowing them to
stay more focused and organized along
the way.

Quick Check
These short question/answer features
reinforce the material immediately
preceding them. They allow the reader to
pause and reflect on the topics described,
then receive immediate feedback before
going on to new topics. Answers are provided at the end of each chapter.

/Volumes/204/MHBR174/wiL10874_disk1of1/0078110874/wiL10874_pagefiles

"The author(s) are doing an excellent job of using learning and study aids. The examples
are real-world and easy to understand. I cannot think of anything else that I would add."
—Shirly Kleiner, Johnson County Community College

ng transactions is to post journal entries to

e ledger is up-to-date, entries are posted as
en time permits. All entries must be posted
d to ensure that account balances are up-tobits in journal entries are transferred into

Point: Computerized systems often
provide a code beside a balance such
as dr. or cr. to identify its balance. Posting is
automatic and immediate with accounting
software.

Marginal Student
Annotations
These annotations provide students with
additional hints, tips, and examples to
help them more fully understand the concepts and retain what they have learned.
The annotations also include notes on
global implications of accounting and further examples.
xiii


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Outstanding Assignment Material
Once a student has finished reading the chapter, how well he

DEMONSTRATION PROBLEM
or she retains the material can depend greatly on the questions,
The partial work sheet of Midtown Repair Company
ompany
at December 31, 2011, follows.
PLANNING THE SOLUTION
exercises, and problems that reinforce it. This book leads the
Extend the adjusted trial balance account balances to the appropriate financial statement columns.
Balance
SheetSummary,
and
Prepare entries to close the revenue accounts
to Income
to close the expense accounts to InAdjusted
Trial
Income
Adjusted
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come Summary,
to close
Income Summary Statement
to the capitalofaccount, and to close the withdrawals account
way in comprehensive,
accurate
assignments
Balance
Statement

Owner’s Equity
to the capital account.
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●
●

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Debit
De●
bitPost the
Credit
Creditentries Debit
Credit
first andDebit
second closing
to the Income
Summary account. Examine the balance of
income summary and verify that it agrees with the net income shown on the work sheet.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95,600
● Post the third and fourth closing entries to the capital account.
Notes receivable (current) . . . . . . . . . . . . . . .

50,000
● Use the work sheet’s two right-most columns and your answer in part 4 to prepare the classified
Prepaid insurance . . . . . . . . . . . . . . . . . . . . . .
16,000
balance sheet.
Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . . .
4,000

Demonstration Problems present both a problem
and a complete solution, allowing students to review the
entire problem-solving process and achieve success.

ge 127 7/30/10 8:53:27 AM user-f500

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SOLUTION TO DEMONSTRATION PROBLEM

170,000
1. Completing the work sheet.

Adjusted Trial
Balance

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Debit

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Chapter Summaries provide students with a review organized by learning
objectives. Chapter Summaries are a component of the CAP model (see page xii),
which recaps each conceptual, analytical, and procedural objective.

Multiple Choice Quiz

N
R
S
W

July 1
July 3
Julyy 8
Julyy 15

Beginning inventory . . . . . . . .
Purchase . . . . . . . . . . . . . . . . .
Sale . . . . . . . . . . . . . . . . . . . . .
Purchase . . . . . . . . . . . . . . . . .

75 units @ $25 each
348 units @ $27 each
300 units
257 units @ $28 each

3. Assume that Marv

ventory system. I

beginning invento
45 units from the
its ending invento
a. $2,940
b. $2,685

beginning inventory and purchases for the month of January. On January
What is the cost of the 155 units that remain in ending inventory at
signed based on a perpetual inventory system and use of FIFO? (Round
ut inventory balances to the dollar.)

ventory on January 1 . . . . . . . . .
January 9 . . . . . . . . . . . . . . . . .
January 25 . . . . . . . . . . . . . . . .

Units

Unit Cost

320
85
110

$6.00
6.40
6.60

Debit

Credit


Debit

Prepaid insurance . . . . . . . . . . . . . . . . . . . . .
Prepaid rent . . . . . . . . . . . . . . . . . . . . . . . . .

16,000
4,000

16,000
4,000

Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation — Equipment . . .

170,000

170,000
57,000

QUICK STUDY
QS 6-1
Inventory costing with FIFO
perpetual

P1

competitive advantage. There are about 10-15 per chapter
and most are included in Connect Accounting.


Quick Study assignments are short
exercises that often focus on one learning
objective. Most are included in Connect
Accounting. There are usually 8-10 Quick
Study assignments per chapter.

500 of goods to China Co., and China Co. has arranged to sell the goods
nor and the consignee. Which company should include any unsold goods

EXERCISES
Exercise 6-1

hipped $850 of merchandise FOB destination to China Co. Which comof merchandise in transit as part of its year-end inventory?
, purchased the contents of an estate for $37,500. Terms of the purchase
cost of transporting the goods to Duke Associates’ warehouse was $1,200.
$

PROBLEM SET A

Inventory ownership

C1

Exercise 6-2
Inventory costs

Problem 3-1A

ompany purntory of sup-


Preparing adjusting and
subsequent journal entries ance sheet

C1 A1 P1

nformation
l year, the
. The sup-

PROBLEM SET B
Problem 3-1B
Preparing adjusting and
subsequent journal entries

C1 A1 P1

Problem Sets A & B are proven problems that can
be assigned as homework or for in-class projects. All problems are coded according to the CAP model (see page xii),
and Set A is included in Connect Accounting.

PUT AWAY YOUR RED PEN!
xiv

57,000

ter knowledge before a student moves on to complete
Quick Studies, Exercises, and Problems.

Exercises are one of this book’s many strengths and a


nce sheet acg information

Credit

95,600
50,000

Multiple Choice Quiz Questions quickly test chap-

Answers on p. 269

Additional Quiz Questions are available at the book’s Website.
Use the following information from Marvel Company for the month
of July to answer questions 1 through 4.

Credit

95,600
50,000

Balance Sheet and
Statement of
Owner’s Equity

Key Terms are bolded in the text and repeated at the end of the
chapter with page numbers indicating their location. The book also
includes a complete Glossary of Key Terms.

Key Terms
First-in, first-out (FIFO) (p. 233)

Average cost (p. 234)
Gross profit method (p. 252)
Conservatism constraint (p. 238)
Interim statements (p. 251)
Consignee (p. 228)
/Users/user-f500/Desktop
Inventory turnover (p. 241)
Consignor (p. 228)
Last-in,, first-out (LIFO)
Consistency concept
(p. 237))
(
) (p.
(p 233))
p (p
Lower of cost or market (LCM) (p. 237)
Days’ sales in inventory
(p. 241)
nv

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable (current) . . . . . . . . . . . . . .

Income
Statement

We pride ourselves on the accuracy of this book’s assignment materials. Independent
research reports that instructors and reviewers point to the accuracy of this book’s
assignment materials as one of its key competitive advantages.



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Helps Students Master Key Concepts
Beyond the Numbers exercises ask students to use
accounting figures and understand their meaning. Students also learn how accounting applies to a variety of
business situations. These creative and fun exercises are
all new or updated, and are divided into sections:
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•
•
•
•

Business Solutions

P1 P2 P3

•
•
•
•
•


After the success of the company’s first two months, Santana Rey continues to operate Business
Solutions. (Transactions for the first two months are described in the serial problem of Chapter 2.) The
November 30, 2011, unadjusted trial balance of Business Solutions (reflecting its transactions for October
and November of 2011) follows.
SP 3

No.

Account Title

Debit

101
106

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$38,264
12,618

Credit

Refer to Research In Motion’s financial statements in Appendix A t

Required

ready for resale. Compute the net cost of goods purchased for the fiscal year e
2. Compute the current ratio and acid-test ratio as of February 27, 2010, and Feb


and comment on the ratio results. How does Research In Motion compare t
2.4 for the current ratio and 1.5 for the acid-test ratio?

Taking It To The Net
Teamwork in Action
Hitting the Road
Entrepreneurial Decision
Global Decision

This serial problem began in Chapter 1 and continues through most of the book. If previous chapter segments were not completed, the serial problem can still begin at this point. It is helpful, but not necessary,
to use the Working Papers that accompany the book.

BTN 5-1

1. Assume that the amounts reported for inventories and cost of sales reflect it

RIM

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Reporting in Action
Comparative Analysis
Ethics Challenge
Communicating in
Practice
SERIAL PROBLEM

Beyond the Numbers
REPORTING IN

ACTION
A1

Fast Forward

3. Access Research In Motion’s financial statements (form 10-K) for fiscal years

2010, from its Website (RIM.com) or the SEC’s EDGAR database (www.s
interpret the current ratio and acid-test ratio for these current fiscal years.

Serial Problem uses a continuous running case study
to illustrate chapter concepts in a familiar context. The Serial Problem can be followed continuously from the first
chapter or picked up at any later point in the book; enough
information is provided to ensure students can get right
to work.

"Well planned, and very organized. A very thorough coverage of all topics. Easy to read and comprehend."
— Linda Bolduc, Mount Wachusett Community College

The End of the Chapter Is Only the Beginning Our valuable and proven assignments aren’t just confined to
the book. From problems that require technological solutions to materials found exclusively online, this book’s end-of-chapter
material is fully integrated with its technology package.

accounting

• Quick Studies, Exercises, and Problems
available in Connect are marked with
an icon.
• Problems supported by the General
Ledger Application Software,

Peachtree, or Quickbooks are marked
with an icon.
• Online Learning Center (OLC) includes
Interactive Quizzes, Excel template
assignments, and more.

x

e cel
mhhe.com/wildFAP20e

• Problems supported with Microsoft
Excel template assignments are
marked with an icon.
• Material that receives additional
coverage (slide shows, videos, audio,
etc.) available in iPod ready format
are marked with an icon.
• Assignments that focus on global
accounting practices and companies
are often identified with an icon.

The authors extend a special thanks to accuracy checkers Barbara Schnathorst, The Write
Solution, Inc.; Helen Roybark, Radford University; Beth Woods, CPA, Accuracy Counts;
and David Krug, Johnson County Community College.

xv


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Enhancements in This Edition
This edition’s revisions are driven by instructors and students. General revisions to the entire book follow (including
chapter-by-chapter revisions):
• Revised and updated assignments throughout
• Updated ratio (tool) analyses for each chapter
• New material on International Financial Reporting Standards
(IFRS) in most chapters, including global examples
• New and revised entrepreneurial examples and elements
• Revised serial problem through nearly all chapters
• New art program, visual info-graphics and text layout

Chapter 1
Facebook NEW opener with new
entrepreneurial assignment
Streamlined and consolidated
learning objectives
New section on International Standards
and convergence
Revised section on accounting principles,
assumptions, and constraints
New visual layouts for conceptual framework
and the building blocks of GAAP
New discussion of conceptual framework
linked to IFRSs
New graphic discussing fraud control
in accounting
Updated compensation data in exhibit


Chapter 2
CitySlips NEW opener with new
entrepreneurial assignment
Reorganized and streamlined
learning objectives
Revised introduction of
double-entry accounting
New 4-step process for analyzing, recording,
and posting transactions
Revised layout for transaction analysis
New discussion on accounting quality

• New Research In Motion (maker of BlackBerry) annual report
with comparisons to Apple, Palm, and Nokia (IFRS) with new
assignments
• Updated graphics added to each chapter’s analysis section
• New technology content integrated and referenced in the book
• New Global View section in each chapter referencing international accounting including examples using global companies
• New assignments covering international accounting

Enhanced graphics for closing process
Enhanced details for general ledger
after the closing process
Updated color-coded work sheet

Chapter 5
Heritage Link Brands NEW opener with new
entrepreneurial assignment
Streamlined learning objectives

New 2-step presentation for recording
merchandise sales and its costs
Revised presentation on purchase returns
New discussion on fraud and invoices
Revised discussion of gross margin

Chapter 6
Fitness Anywhere NEW opener with new
entrepreneurial assignment
Streamlined presentation for lower of cost or
market (LCM)
Color-coded graphic for introducing cost flow
assumptions
Enhanced graphics for learning
inventory errors
Expanded discussion on inventory controls
Expanded explanation of inventory accounting
under IFRS

Chapter 7
Chapter 3
Cheezburger Network NEW opener with new
entrepreneurial assignment
Updated 3-step process for adjusting accounts
Enhanced and streamlined presentation of
accounting adjustments
Revised info-graphics for adjusting entries
Enhanced exhibit on steps in preparing
financial statements
Expanded discussion of global accounting


Chapter 4
Gamer Grub NEW opener with new
entrepreneurial assignment
Slightly revised steps 1 and 2 of work sheet

xvi

New Belgium Brewing Company NEW opener
with new entrepreneurial assignment
Streamlined learning objectives
Enhanced graphics for special journals
Detailed four benefits from subsidiary ledgers
Updated ERP presentation
Revised discussion of segment returns

Chapter 8
Dylan’s Candy Bar REVISED opener with
new entrepreneurial assignment
Enhanced SOX discussion of controls,
including the role of COSO
Streamlined learning objectives
New material on drivers of human fraud

New graphic introducing a bank reconciliation
with links to bank and book balances
Updated graphic on frequent cyber frauds
New graphic on drivers of
financial misconduct


Chapter 9
LaserMonks NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Reorganized recording of credit sales
Further clarification of interest formula
Enhanced graphics for bad debts estimation

Chapter 10
Games2U NEW opener with new
entrepreneurial assignment
Reorganized learning objectives
Added entry to record impairment
Enhanced discussion of asset sales
Expanded explanation of asset valuation
under IFRS
Updated all real world examples and graphics

Chapter 11
SnorgTees NEW opener with new
entrepreneurial assignment
Updated tax illustrations and assignments
using most recent government rates
New data on frauds involving
employee payroll
New entry to reclassify long- to short-term
debt
Updated all real world examples and graphics

Chapter 12

Kids Konserve NEW opener with new
entrepreneurial assignment
New 3-step process for partnership liquidation
New statement of liquidation introduced
Enhanced discussion of partnership
liquidation


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For Better Learning
Chapter 13
Clean Air Lawn Care NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Inserted numerous key margin computations
for entries involving equity
Updated statement of stockholders’ equity
Updated all real world examples
and graphics
Explained accounting for equity under IFRS

Chapter 14
CakeLove NEW opener with new
entrepreneurial assignment
Enhanced graphics for bonds and notes
Revised discussion of debt-to-equity
Enhanced explanation of how U.S. GAAP and

IFRS determine fair value
New arrow lines linking effective interest
amortization tables to journal entries

Chapter 15
Blackboard NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Phrase “fair value” used in lieu of
“market value”
Enhanced exhibit summarizing accounting for
securities
Revised explanation of investments in
securities with significant influence
New, enhanced section on
comprehensive income

Chapter 16
Animoto NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Enhanced graphics on cash inflows and
outflows involving operating, investing,
and financing
Highlighted 5-step process to prepare the
statement of cash flows
New discussion of different classifications for
certain cash flows under IFRS
Increased number and range of assignments


Chapter 17
Motley Fool REVISED opener with new
entrepreneurial assignment
Streamlined learning objectives
New companies—Research In Motion, Apple,
Palm and Nokia—data throughout the
chapter, exhibits, and illustrations

Enhanced horizontal and vertical analysis
using new company and industry data
Enhanced discussion of common-size graphics
Enhanced ratio analysis using new company
and industry data

Chapter 18
Hot Box Cookies NEW opener with new
entrepreneurial assignment
Revised learning objectives
Enhanced discussion of trends in managerial
accounting, including e-commerce and role of
services
New exhibit and discussion of the value chain
Discussion of fraud and ethics in managerial
accounting moved to earlier in chapter
New discussion of global trends in
managerial accounting

Chapter 19
Liberty Tax Service NEW opener with new
entrepreneurial assignment

Enhanced explanation of events in job order
costing, including new 3-step process
Added new arrow lines to exhibits as
learning aids
Enhanced discussion of adjusting factory
overhead
New factory overhead T-account exhibit
New exhibit on entries to adjust factory
overhead account
Added several new assignments

Chapter 20
IdeaPaint NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Updated list of companies applying
process operations
Enhanced several exhibits for better learning
New section on trends in process operations,
including discussion of just-in-time,
automation, role of services, and
customer focus
Increased number and range of assignments

Chapter 21
Skullcandy NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Enhanced activity-based costing exhibits
Revised discussion and exhibits for

comparisons between activity-based costing
and two-stage cost allocation
Added summary of cost allocation methods
with exhibit

Deleted section on departmental reporting
and analysis
Added Serial Problem to end of chapter
assignments

Chapter 22
Johnny Cupcakes NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Revised cost exhibits for added clarity and
learning
New discussion on global use of
contribution margin

Chapter 23
Smathers and Branson NEW opener with
new entrepreneurial assignment
Reorganized learning objectives
New discussion on potential outcomes of
participatory budgeting
Enhanced discussion and exhibits for
cash budgets
New exhibit on general formula for preparing
the cash budget
Added Decision Insight box on Apple’s

cash cushion
Enhanced discussion of computing cash
disbursements for purchases, including
new exhibit
Increased number and range of assignments

Chapter 24
SewWhat? NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Simplified presentation of overhead variances
to focus on controllable and volume variances
Moved detailed overhead variances and
standard cost system journal entries to (new)
Appendix 24A
Increased number and range of assignments

Chapter 25
Dogswell NEW opener with new
entrepreneurial assignment
Streamlined learning objectives
Updated graphic on industry cost of
capital estimates
Added section and assignments on decision to
keep or replace equipment
Increased number and range of assignments

xvii



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Instructor Supplements
learning activities, and additional
visuals with transparency masters.

Instructor’s
Resource CD-ROM
Chapters 1-25
ISBN13: 978007338107
ISBN10: 0077338103

•
•

This is your all-in-one resource. It allows
you to create custom presentations from
your own materials or from the following text-specific materials provided in
the CD’s asset library:

•

•

Instructor’s Resource Manual
Written by Barbara Chiappetta,
Nassau Community College, and
Patricia Walczak, Lansing

Community College.
This manual contains (for each chapter) a Lecture Outline, a chart linking
all assignment materials to Learning
Objectives, a list of relevant active

Solutions Manual
Test Bank, Computerized
Test Bank
PowerPoint® Presentations
Prepared by Jon Booker, Charles
Caldwell, Cindy Rooney, and Susan
Galbreth.
Presentations allow for revision of
lecture slides, and includes a viewer,
allowing screens to be shown with or
without the software.

•

Link to PageOut

Test Bank
Vol. 1, Chapters 1-12
ISBN13: 9780077338183
ISBN10: 0077338189

Vol. 2, Chapters 13-25
ISBN13: 9780077338190
ISBN10: 0077338197
Revised by Barbara Gershowitz,

Nashville State Technical Community
College.

Solutions Manual
Vol. 1, Chapters 1-12
ISBN13: 9780077338152
ISBN10: 0077338154
Vol. 2, Chapters 13-25
ISBN13: 9780077338145
ISBN10: 0077338146

Written by John J. Wild, Ken W.
Shaw, and Anita Kroll, University of
Wisconsin–Madison.

Student Supplements
Excel Working Papers CD

Study Guide

ISBN13: 9780077338084
ISBN10: 0077338081

Vol. 1, Chapters 1-12
ISBN13: 9780077338169
ISBN10: 0077338162

Written by John J. Wild.
Working Papers (for Chapters 1-25)
delivered in Excel spreadsheets. These

Excel Working Papers are available on
CD-ROM and can be bundled with the
printed Working Papers; see your representative for information.

Working Papers
Vol. 1, Chapters 1-12
ISBN13: 9780077338220
ISBN10: 0077338227
Vol. 2, Chapters 12-25
ISBN13: 9780077338206
ISBN10: 0077338200
Principles of Financial Accounting
Chapters 1-17
ISBN13: 9780077338213
ISBN10: 0077338219

Written by John J. Wild.

xviii

student user guides are included that
allow you to assign text problems for
working in Yacht's General Ledger or
Peachtree.

Vol. 2, Chapters 12-25
ISBN13: 9780077338176
ISBN10: 0077338170

QuickBooks Pro 2011

Student Guide and
Templates

Written by Barbara Chiapetta, Nassau
Community College, and Patricia
Walczak, Lansing Community College.

ISBN13: 9780077455309
ISBN10: 0077455304

Covers each chapter and appendix
with reviews of the learning objectives,
outlines of the chapters, summaries of
chapter materials, and additional problems with solutions.

Carol Yacht’s General
Ledger CD-ROM
ISBN13: 9780077338039
ISBN10: 0077338030
The CD-ROM includes fully functioning
versions of McGraw-Hill's own General
Ledger Application software. Problem
templates prepared by Carol Yacht and

Prepared by Carol Yacht.
To better prepare students for accounting in the real world, select end-ofchapter material in the text is tied to
QuickBooks software. The accompanying
student guide provides a step-by-step
walkthrough for students on how to
complete the problem in the software.



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Assurance of Learning Ready
Many educational institutions today are focused on the notion of assurance of learning, an important element of some accreditation standards.
Fundamental Accounting Principles is designed specifically to support your
assurance of learning initiatives with a simple, yet powerful solution. Each test bank question for
Fundamental Accounting Principles maps to a specific chapter learning objective listed in the text.
You can use our test bank software, EZ Test and EZ Test Online, or Connect Accounting to easily
query for learning objectives that directly relate to the learning objectives for your course. You can
then use the reporting features of EZ Test to aggregate student results in similar fashion, making
the collection and presentation of assurance of learning data simple and easy.

"Best on the market! Great examples, complete coverage of principle's topics, and great
resources!"
— David Alldredge, Salt Lake Community College

AACSB Statement
The McGraw-Hill Companies is a proud corporate member of
AACSB International. Understanding the importance and value
of AACSB accreditation, Fundamental Accounting Principles
recognizes the curricula guidelines detailed in the AACSB standards for business accreditation by connecting selected questions in the test bank to the six general
knowledge and skill guidelines in the AACSB standards. The statements contained in Fundamental
Accounting Principles are provided only as a guide for the users of this textbook. The AACSB leaves
content coverage and assessment within the purview of individual schools, the mission of the
school, and the faculty. While Fundamental Accounting Principles and the teaching package make
no claim of any specific AACSB qualification or evaluation, we have within Fundamental Accounting Principles labeled select questions according to the six general knowledge and skills areas.


The authors extend a special thanks to our contributing and technology supplement authors:
Contributing Author: Anita Kroll, University of Wisconsin–Madison
LearnSmart Authors: Anna Boulware, St. Charles Community College; Brenda Mattison, Tri County Technical College; and Dominique Svarc, William Rainey Harper College
Online Quizzes: Gina Jones, Aims County Community College
Connect Self-Quiz and Study: Jeannine Metzler, Northampton Community College
Interactive Presentations: Kathleen O'Donnell, Onongada Community College, and Jeannie Folk, College of DuPage
xix


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Acknowledgments
John J. Wild, Ken W. Shaw, Barbara Chiappetta, and McGraw-Hill/Irwin would like to recognize the following instructors for their
valuable feedback and involvement in the development of Fundamental Accounting Principles 20e. We are thankful for their suggestions, counsel, and encouragement.
Alan Czyzewski, Indiana State UniversityTerre Haute

Betty Habiger, New Mexico State University

Judy Daulton, Piedmont Technical College

Betty Harper, Middle Tennessee State University

Sheila Ammons, Austin Community College

Walter DeAguero, Saddleback College

Victoria Badura, Chadron State College


Mike Deschamps, Mira Costa College

Jeannie Harrington, Middle Tennessee State
University

Susan Baker, University of Michigan-Dearborn

Rosemond Desir, Colorado State University

John L. Haverty, St. Joseph’s University

Charles Scott Barhight, Northampton
Community College

Vincent Dicalogero, Suffolk County
Community College

Laurie Hays, Western Michigan University

Robert Beebe, Morrisville State University

Geoffrey Heriot, Greenville Technical College

Teri Bernstein, Santa Monica College

Roger Dorsey, University of Arkansas-Little
Rock

Swati Bhandarkar, University of Georgia


Jap Efendi, University of Texas-Arlington

Jaswinder Bhangal, Chabot College

Terry Elliott Morehead State University

Linda Bolduc, Mount Wachusett Community
College

James M. Emig, Villanova University

Patricia Holmes, Des Moines Area
Community College

Steven Englert, Ivy Tech Community College

Margaret Houston, Wright State University

Anna Boulware, St. Charles Community
College

Caroline Falconetti, Nassau Community College

Constance Hylton, George Mason University

Stephanie Farewell, University of
Arkansas-Little Rock

Gary Allen Hypes, Mount Aloysius College


Nelson Alino, Quinnipiac University
David Alldredge, Salt Lake Community
College

Philip Brown, Harding University

Francis Haggerty, Lee College

Shelley Henke, Fox Valley Technical College
Lyle Hicks, Danville Area Community College
Cecil Hill, Jackson State University

Jay Buchanon, Burlington County CollegePemberton

Laura Farrell, Wagner College

Catherine Jeppson, Caifornia State
University–Northridge

Charles Fazzi, Saint Vincent College

Mary Burnell, Fairmont State University

Gina M. Jones, Aims Community College

Ronald A. Feinberg, Suffolk Community
College

Rita Jones, Columbus State University


Kathleen Fitzpatrick, University of ToledoScott Park

Thomas Kam, Hawaii Pacific University

Nathaniel Calloway, University of Maryland
Sal Cardiel, Chaffey College
Lloyd Carroll, Borough of Manhattan
Community College

Christine Jonick, Gainesville State College

Jeannie Folk, College of DuPage

Jack Karbens, Hawaii Pacific University

Hong Chen, Northeastern Illinois University

Mary Foster, Illinois Central College

Connie Kelt, San Juan College

Stanley Chu, Borough of Manhattan
Community College

Mitchell Franklin, Syracuse University

Karen Kettelson, Western Technical College

Paul Franklin, Kaplan University Online


Randy Kidd, Longview Community College

Kwang-Hyun Chung, Pace University

Kim Gatzke, Delgado Community College

Irene Kim, George Washington University

Shiefei Chung, Rowan University

Rich Geglien, Ivy Tech Community College

James Kinard, Ohio State University-Columbus

Robert Churchman, Harding University

Barbara Gershowitz, Nashville State
Technical Community College

Rita Kingery-Cook, University of Delaware

Richard Gordon, Columbia Southern

Shirly A. Kleiner, Johnson County Community
College

Marilyn Ciolino, Delgado Community College
Lisa Cole, Johnson County Community
College

Howard A. Collins, SUNY at Stony Brook

Michelle Grant, Bossier Parish Community
College

Frank Klaus, Cleveland State University

Robert F. Koch, Saint Peter’s College

William Cooper, North Carolina A &T
University

Richard P. Green II, Texas A& M University

Phillip Korb, University of Baltimore

Tony Greig, Purdue University

Suzie Cordes, Johnson County Community
College

Joyce Griffin, Kansas City Kansas Community
College

David Krug, Johnson County Community
College

James Cosby, John Tyler Community College

Lillian Grose, Delgado Community College


Richard Culp, Ball State University

Denise Guest, Germanna Community College

Charles Lacey, Henry Ford Community
College

Amy Haas, Kingsborough Community College

Tara Laken, Joliet Junior College

xx

Jill Kolody, Anne Arundel Community College


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Beth Lasky, Delgado Community College

Joel Peralto, Hawaii Community College

Phillip Lee, Nashville State Technical
Community College

Yvonne Phang, Borough of Manhattan
Community College


Jerry Lehman, Madison Area Technical College

Gary Pieroni, Diablo Valley College

Douglas P. Stives, Monmouth University

Frederic Lerner, New York University

Susan Pope, University of Akron

Jacqueline Stoute, Baruch University

Roger Lewis, West Virginia UniversityParkersburg

Jean Price, Marshall University

Beverly Strachan, Troy University

Debbie Rankin, Lincoln University

John Suckow, Lansing Community College

Eric Lindquist, Lansing Community College

Susan Reeves, University of South Carolina

Jeannie Liu, Chaffey College

Jenny Resnick, Santa Monica College


Dominique Svarc, William Rainey Harper
College

Rebecca Lohmann, Southeast Missouri State
University

Ruthie Reynolds, Howard University

Anthony Teng, Saddleback College

Carla Rich, Pensacola Junior College

Sue Terizan, Wright State University

Paul Rivers, Bunker Hill Community College

Leslie Thysell, John Tyler Community College

Jill Roberts, Campbellsville University

Michael Ulinski, Pace University-Pleasantville

Karen Robinson, Morgan State University

Bob Urell, Irvine Valley College

Richard Roding, Red Rocks Community
College


Alonda Vaughn, Strayer University-Tampa East

Brenda Mattison, Tri-County Technical
College

Joel Rosenfeld, New York University

Adam Vitalis, University of Wisconsin

Pamela Rouse, Butler University

Patricia Walczak, Lansing Community College

Jeanine Metzler, Northampton Community
College

Helen Roybark, Radford University

Li Wang, University of Akron

Kathleen Michele, Prairieville University

Alphonse Ruggiero, Suffolk County
Community College

Doris Warmflash, SUNY Westchester
Community College

Tim Miller, El Camino College


Martin Sabo, Community College of Denver

David Welch, Franklin University

Roger L. Moore, Arkansas State UniversityBeebe

Judith Sage, Texas A&M International
University

Jean Wells, Howard University

Robbie Morse, Ivy Tech Community College

Nathaniel Samba, Ivy Tech Community
College

Christopher Widmer, Tidewater Community
College

Debra Luna, El Paso Community College
Sylvester A. Maorino, SUNY Westchester
Community College
Thomas S. Marsh, Northern Virginia
Community College-Annadale
Stacie Mayes, Rose State College

Linda Muren, Cuyahoga Community
College—West Campus

Charles Spector, State University of New York

College
Jane Stam, Onondaga Community College

Ari Vega, Fashion Institute of Technology

Robert A. Widman, Brooklyn College CUNY

Linda Schain, Hoefstra University

Andrea Murowski, Brookdale Community
College

Jane Wiese, Valencia Community College

Christine Schalow, University of WisconsinStevens Point

Kenneth L. Wild, University of London

Ramesh Narasimhan, Montclair State
University

Bunney Schmidt, Keiser University

Mary Beth Nelson, North Shore Community
College
Deborah Niemer, Oakland Community College
Kathleen O’Donnell, Onongada Community
College

Geeta Shankhar, University of Dayton

Regina Shea, Community College of
Baltimore County—Essex
Jay Siegel, Union County College
Lois Slutsky, Broward College-South

Ahmed Omar, Burlington County College

Gerald Smith, University of Northern Iowa

Deborah Pauly, Loras College

Kathleen Sobieralski, University of Maryland

Scott Williams, County College of Morris
Wanda Wong, Chabot College
Darryl Woolley, University of Idaho
Gloria Worthy, Southwest Tennessee
Community College-Macon
Lorenzo Ybarra, West Los Angeles College
Laura Young, University of Central Arkansas
Judy Zander, Grossmont College

In addition to the helpful and generous colleagues listed above, we thank the entire McGraw-Hill/Irwin
Fundamental Accounting Principles 20e team, including Stewart Mattson, Tim Vertovec, Steve Schuetz, Christina
Sanders, Aaron Downey of Matrix Productions, Lori Koetters, Matthew Baldwin, Carol Bielski, Patricia Plumb,
and Brian Nacik. We also thank the great marketing and sales support staff, including Michelle Heaster, Kathleen
Klehr, and Simi Dutt. Many talented educators and professionals worked hard to create the supplements for this
book, and for their efforts we’re grateful. Finally, many more people we either did not meet or whose efforts we
did not personally witness nevertheless helped to make this book everything that it is, and we thank them all.


John J. Wild

Ken W. Shaw

Barbara Chiappetta

xxi


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Brief Contents
1
2
3
4
5
6
7
8
9
10
11
12
13
14

xxii


Accounting in Business 2

15

Analyzing and Recording
Transactions 48

Investments and International
Operations 594

16

Reporting the Statement of Cash
Flows 630

17
18

Analysis of Financial Statements 684

19
20
21

Job Order Cost Accounting 774

Cost-Volume-Profit Analysis 906

Plant Assets, Natural Resources, and

Intangibles 392

22
23
24

Current Liabilities and Payroll
Accounting 434

25

Capital Budgeting and Managerial
Decisions 1034

Adjusting Accounts and Preparing
Financial Statements 92
Completing the Accounting Cycle 136
Accounting for Merchandising
Operations 178
Inventories and Cost of Sales 226
Accounting Information Systems 270
Cash and Internal Controls 314
Accounting for Receivables 358

Accounting for Partnerships 478
Accounting for Corporations 506
Long-Term Liabilities 550

Managerial Accounting Concepts and
Principles 730


Process Cost Accounting 812
Cost Allocation and Performance
Measurement 856

Master Budgets and Planning 944
Flexible Budgets and Standard
Costs 988

Appendix A

Financial Statement
Information A-1

Appendix B

Time Value of Money B


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Contents
1 Accounting in Business 2
Importance of Accounting 4
Users of Accounting Information 5
Opportunities in Accounting 6

Fundamentals of Accounting 8

Ethics—A Key Concept 8
Generally Accepted Accounting Principles 8
International Standards 9
Conceptual Framework and Convergence 9
Sarbanes–Oxley (SOX) 12

Transaction Analysis and the Accounting
Equation 14
Accounting Equation 14
Transaction Analysis 15
Summary of Transactions 18

Financial Statements 19
Income Statement 19
Statement of Owner’s Equity 19
Balance Sheet 21
Statement of Cash Flows 21
Global View 21
Decision Analysis—Return on Assets 22
Appendix 1A Return and Risk Analysis 26
Appendix 1B Business Activities and the Accounting
Equation 26

2 Analyzing and Recording
Transactions 48

Trial Balance 65
Preparing a Trial Balance 65
Using a Trial Balance to Prepare Financial
Statements 66

Global View 68
Decision Analysis—Debt Ratio 69

3 Adjusting Accounts
and Preparing Financial
Statements 92
Timing and Reporting 94
The Accounting Period 94
Accrual Basis versus Cash Basis 95
Recognizing Revenues and Expenses 96

Adjusting Accounts 96
Framework for Adjustments 96
Prepaid (Deferred) Expenses 97
Unearned (Deferred) Revenues 100
Accrued Expenses 101
Accrued Revenues 103
Links to Financial Statements 105
Adjusted Trial Balance 106

Preparing Financial Statements 106
Global View 108
Decision Analysis—Profit Margin 109
Appendix 3A Alternative Accounting for
Prepayments 113

Analyzing and Recording Process 50
Source Documents 50
The Account and Its Analysis 51


Analyzing and Processing Transactions 54
Ledger and Chart of Accounts 54
Debits and Credits 55
Double-Entry Accounting 55
Journalizing and Posting Transactions 56
Analyzing Transactions—An Illustration 59
Accounting Equation Analysis 63

4 Completing the
Accounting Cycle 136
Work Sheet as a Tool 138
Benefits of a Work Sheet (Spreadsheet) 138
Use of a Work Sheet 138
Work Sheet Applications and Analysis 142
xxiii