Table of Contents

Chapter 1 - The General Ledger and Other Ledgers. 1

The Ledger Concept 1

General Ledger Overview.. 2

The Accounts Receivable Ledger. 3

The Purchase Ledger. 4

Chapter 2 - The Trial Balance. 7

Overview of the Trial Balance. 7

The Trial Balance Format 7

The Extended Trial Balance. 9

Trial Balance Error Correction. 10

The Post-Closing Trial Balance. 10

Evaluation of the Trial Balance. 11

Chapter 3 - Journal Entries. 13

The Accruals Concept 13

Adjusting Entries. 13

Reversing Entries. 14

Common Adjusting Entries. 15

Closing Entries. 18

Correcting Entries. 19

Journal Entry Efficiencies. 19

Standardize Accounts. 23

Chapter 4 - The Closing Process. 26

Prior Steps: Update Reserves. 26

Core Steps: Issue Customer Invoices. 27

Core Steps: Value Inventory. 27

Core Steps: Calculate Depreciation. 28

Core Steps: Accrue Expenses. 28

Core Steps: Consolidate Division Results. 28

Core Steps: Eliminate Intercompany Transactions. 28

Core Steps: Review Journal Entries. 29

Core Steps: Reconcile Accounts. 29

Core Steps: Close Subsidiary Ledgers. 31

Core Steps: Create Financial Statements. 31

Core Steps: Review Financial Statements. 32

Core Steps: Accrue Tax Liabilities. 32

Core Steps: Close the Month. 32

Core Steps: Calculate Earnings per Share. 33

Core Steps: Add Disclosures. 33

Core Steps: Write Cover Letter. 33

Core Steps: Issue Financial Statements. 34

Delayed Steps: Issue Customer Invoices. 35

Delayed Steps: Closing Metrics. 35

Delayed Steps: Document Future Closing Changes. 35

Delayed Steps: Update Closing Procedures. 36

Case Study. 37

Closing Checklist 44

Chapter 5 - Fine-Tune the Closing Process. 50

Task Interdependency Analysis. 50

Correct Errors Early. 52

Reconcile Accounts Early. 52

Adjust Reserves Early. 53

Alter Overhead Allocations Early. 53

Review the Shipping Log Early. 53

Review Billable Hours Early. 53

Accrue Early. 54

Accelerate Depreciation Calculations. 54

Examine Commissions Early. 55

Standardize the Accounting System.. 55

Centralize the Accounting System.. 56

Standardize Exception Handling. 57

Centralize Travel Bookings. 58

Process Centering. 58

Mitigate Information Dependencies. 59

Standardize the Report Layout 59

Reduce the Financial Statements. 59

Collect Report Information Early. 60

Electronic Delivery. 61

Defer Activities. 61

Automation Solutions. 61

Ongoing Process Improvements. 63

Chapter 6 - Closing Cash. 67

Overview of the Bank Reconciliation. 67

The Bank Reconciliation Procedure. 67

Bank Reconciliation Problems. 69

The Bank Reconciliation Statement 69

The Timing of the Bank Reconciliation. 69

Negative Cash on the Balance Sheet 70

Closing Petty Cash. 71

Chapter 7 - Closing Accounts Receivable. 74

The Shipping Log Interface. 74

Revenue Accruals. 74

Revenue Recognition Rules. 75

Treatment of Deferred Revenue. 76

Issues with Subcontractors. 77

Recurring Invoices. 77

Rebillable Expenses. 77

Reconciling Accounts Receivable. 79

Non-Trade Receivables. 79

The Allowance for Doubtful Accounts. 79

Recording Contra Revenue. 81

Chapter 8 - Closing Inventory. 83

Valuation Step 1: The Quantity of Inventory on Hand. 83

The Periodic Inventory System.. 83

The Perpetual Inventory System.. 84

The Gross Profit Method. 85

Valuation Step 2: Inventory Costing. 86

The First In, First Out Method. 86

The Last In, First Out Method. 88

The Weighted Average Method. 89

Standard Costing. 91

The Retail Inventory Method. 92

Valuation Step 3: Overhead Allocation. 93

Valuation Step 4: Inventory Valuation. 95

The Lower of Cost or Market Rule. 96

Obsolete Inventory Accounting. 98

Chapter 9 - Closing Fixed Assets. 101

Initial Asset Recognition. 102

The Depreciation Entry. 102

Interest Capitalization. 104

Asset Impairment 105

Reconciling Fixed Assets. 107

Chapter 10 - Closing Accounts Payable. 109

Accounts Payable Accruals. 109

Invoice Approval Delays. 110

Expense Reports. 111

Issues with the Credit Card Close. 112

Accounts Payable Suspense Items. 113

Reconciling Accounts Payable. 114

Chapter 11 - Closing Payroll 116

The Wage Accrual 116

The Commission Accrual 118

The Bonus Accrual 119

The Payroll Tax Accrual 120

The Benefits Accrual 121

The Vacation Accrual 121

Reconciling Compensation Accruals. 123

Chapter 12 - The Income Statement 125

Income Statement Overview.. 125

The Single-Step Income Statement 128

The Multi-Step Income Statement 128

The Condensed Income Statement 129

The Contribution Margin Income Statement 130

The Multi-Period Income Statement 131

Presentation of Selling, General and Administrative Expenses. 132

The Statement of Activities. 133

How to Construct the Income Statement 134

Other Income Statement Topics. 136

The Cash Basis Income Statement 136

The Partial Income Statement 137

Headline Earnings. 137

Chapter 13 - The Balance Sheet 140

Overview of the Balance Sheet 140

The Common Size Balance Sheet 143

The Comparative Balance Sheet 144

The Nonprofit Balance Sheet 145

How to Construct the Balance Sheet 145

Other Balance Sheet Topics. 147

Does an Expense Appear on the Balance Sheet?. 147

Where do Accruals Appear on the Balance Sheet?. 148

The Order of Liquidity. 148

Chapter 14 - The Statement of Cash Flows. 150

Overview of the Statement of Cash Flows. 150

Statement Objectives. 150

Statement Requirements. 150

Reporting Classifications. 151

The Direct Method. 153

The Indirect Method. 155

Presentation Variations. 157

Information Sources. 159

Illustration of the Preparation of a Statement of Cash Flows. 161

Chapter 15 - The Statement of Retained Earnings. 164

Overview of the Statement of Retained Earnings. 164

How to Prepare the Statement of Retained Earnings. 165

Chapter 16 - Financial Statement Disclosures. 167

Accounting Disclosures. 167

Chapter 17 - Segment Reporting. 177

Overview of Segment Reporting. 177

Segment Disclosure. 179

Segment Disclosure. 179

Products, Services, and Customer Disclosure. 182

Geographic Area Disclosure. 182

Chapter 18 - Interim Reporting. 185

Overview of Interim Reporting. 185

General Interim Reporting Rule. 185

Variations from the Interim Reporting Rule. 186

Changes in Accounting Principle in Interim Periods. 187

Changes in Accounting Estimate in Interim Periods. 187

Error Correction in Interim Periods. 188

Adjustments to Prior Interim Periods. 188

The Integral View.. 188

The Discrete View.. 190

Comparison of the Integral and Discrete Views. 190

Disclosures for Interim Reporting. 190

Chapter 19 - Earnings per Share. 193

Basic Earnings per Share. 193

Diluted Earnings per Share. 194

Presentation of Earnings per Share. 198

Chapter 20 - The Public Company Close. 201

The Public Company Closing Process. 201

The Form 10-Q.. 203

The Form 10-K.. 204

Chapter 21 - Controls for Closing the Books. 208

Preventive and Detective Controls. 208

Basic Controls. 208

Additional Controls for Public Companies. 211

Balancing Controls against Speed. 212

Chapter 22 - Record Keeping. 214

Month-End Record Keeping. 214

Year-End Record Keeping. 214

Public Company Record Keeping. 215

Chapter 23 Soft Close and Virtual Close. 218

Soft Close. 218

Virtual Close. 219

The Reporting Package. 220

Answers to Chapter Questions. 223

Glossary. 246

Index. 252

 

Final Examination....................................................................................................................................257