Current Assets

This book is the second of seven books which introduces the basic principles of accounting, focusing primarily on liquid assets. It introduces enhanced income statements, sales, cash discounts, the control structure, and inventory accounting. Details concerning cash and highly-liquid investments, cash management, controls for cash receipts and disbursements, and bank account reconciliations are discussed. Accounts receivable, costs and benefits of selling on credit, considerations for uncollectible receivables, notes receivable and interest are also discussed. In addition, the fundamentals of inventory costing methods, inventory management, and ratio analysis are introduced.

Part 1. Special Issues for Merchants

1. The Merchandising Operation - Sales
1.1 Sales
1.2 Sales Returns and Allowances
1.3 Trade Discounts
1.4 Credit Cards
1.5 Cash Discounts

2. Purchase Considerations for Merchandising Business
2.1 Merchandise Acquisition
2.2 Periodic Inventory System
2.3 Purchase Returns and Allowances
2.4 Cash Discount
2.5 Gross Recording of Purchases/Discounts
2.6 Net Recording of Purchases/Discounts Lost
2.7 Comparison of Gross vs. Net
2.8 Freight Charges
2.9 The Calculation of Net Purchases
2.10 Cost of Goods Sold
2.11 Detailed Income Statement for Merchandise Operation
2.12 Closing Entries

3. Alternative Inventory System

4. Income Statement Enhancements
4.1 Analysis of a Detailed Income Statement

5. The Control Structure
5.1 Internal Control in the Merchandising Environment
5.2 Internal Control and the Purchasing Cycle
5.3 Generalizing About Control

Part 2. Cash and Highly-Liquid Investments

6. Cash Composition
6.1 Cash Equivalents

7. Cash Management
7.1 Strategies to Enhance Cash Flows

8. Bank Reconciliation
8.1 Comprehensive Illustration of Bank Reconciliation
8.2 Proof of Cash

9. Petty Cash
9.1 Replenishment of Petty Cash
9.2 Cash Short and Over
9.3 Increasing the Base Fund

10. Trading Securities
10.1 An Illustration
10.2 Rationale for Fair Value Accounting
10.3 Alternative: A Valuation Adjustments Account
10.4 Dividend and Interest
10.5 Derivatives

Part 3. Accounts Receivable

11. The Costs and Benefits of Selling on Credit
11.1 Credit Sales
11.2 Credit Cards

12. Accounting for Uncollectible Receivables
12.1 Direct Write-off Method

13. Alternative Approaches for Uncollectible
13.1 Determining the Allowance Account
13.2 Writing off Uncollectible Accounts
13.3 Collection of an Account Previously Written off
13.4 Matching Achieved
13.5 Monitoring and Managing Accounts Receivable

14. Notes Receivable
14.1 Accounting for Notes Receivable
14.2 A Dishonored Note
14.3 Notes and Adjusting Entries

Part 4. Inventory

15. The Components of Inventory
15.1 Determining Which Goods to Include in Inventory

16. Inventory Costing Methods
16.1 Determining the Cost of Ending Inventory
16.2 Costing Methods
16.3 First-in, First-out Calculations
16.4 Last-in, First-out Calculations
16.5 Weighted-Average Calculations
16.6 Preliminary Recap and Comparison
16.7 Detailed Illustrations
16.8 FIFO
16.9 LIFO
16.10 Weighted-Average
16.11 Comparing Inventory Method
16.12 Specific Identification

17. Perpetual Inventory Systems
17.1 Perpetual FIFO
17.2 Journal Entries
17.3 Perpetual LIFO
17.4 Moving Average

18. Lower of Cost or Market Adjustments
18.1 Measuring Market Value
18.2 Application of the Lower-of-Cost-or-Market Rule

19. Inventory Estimation Techniques
19.1 Gross Profit Method
19.2 Retail Method

20. Inventory Management

21. Inventory Errors

Larry M. Walther, Ph.D., CPA, CMA, is the Ernst & Young Professor and Head of the School of Accountancy at Utah State University. Dr. Walther has authored numerous accounting textbooks and articles, and has served as director and/or consultant to a number to a number of public and nonpublic companies. Dr. Walther obtained his Ph.D. in accounting from Oklahoma State University and has public accounting experience with Ernst & Young. He currently serves as the accounting accreditation committee of the AACSB and is past president for the federation of schools of accountancy.

Dr. Chris Skousen obtained his Ph.D. at Oklahoma State University. He earned MBA and BA degrees from Utah State University. Dr. Skousen gained public accounting auditing experience with KPMG in their Portland, Oregon office, and as an intern in their in Düsseldorf, Germany office, and at Squire & Co. Dr. Skousen has taught accounting at Utah State University, The University of Texas at Arlington, Oklahoma State University, and Brigham Young University-Idaho. He has published in Accounting Horizons, Behavior Research in Accounting, Accounting and the Public Interest, and other journals.