Financial Accounting: Tools for Business Decision Making 7th Edition

Book Preface

INTRODUCTION  TO FINANCIAL  STATEMENTS CHAPTER LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1 Describe the primary forms of business organization.
2 Identify the users and uses of accounting information.
3 Explain the three principal types of business activity.
4 Describe the content and purpose of each of the fi nancial statements.
5 Explain the meaning of assets, liabilities, and stockholders’  equity, and state the basic accounting equation.
6 Describe the components that supplement the fi nancial  statements in an annual report.

Many students who take this course do not plan  to be accountants. If you are in that group, you  might be thinking, “If I’m not going to be an  accountant, why do I need to know accounting?”  Well, consider this quote from Harold Geneen,  the former chairman of IT&T: “To be good at your  business, you have to know the numbers—cold.”
In business, accounting and financial statements  are the means for communicating the numbers. If  you don’t know how to read  financial statements, you can’t  really know your business.
Many businesses agree with  this view. They see the value of  their employees being able to  read financial statements and understand how  their actions affect the company’s financial results.
For example, consider Clif Bar & Company. The  original Clif Bar® energy bar was created in 1990  after six months of experimentation by Gary  Erickson and his mother in her kitchen. Today, the  company has almost 300 employees and is considered one of the leading Landor’s Breakaway  Brands®.
Clif Bar is guided by what it calls its Five  Aspirations—Sustaining Our Business, Our  Brands, Our People, Our Community, and the  Planet. Its website documents its efforts and  accomplishments in these five areas. Just a few  examples include the company’s use of organic  products to protect soil, water, and biodiversity;  the “smart” solar array (the largest in North America), which provides nearly all the electrical needs  for its 115,000-square-foot building; and the  incentives Clif Bar provides to employees to  reduce their personal environmental impact, such  as $6,500 toward the purchase of an efficient  car or $1,000 per year for eco-friendly improvements toward their homes.
One of the company’s proudest moments  was the creation of an employee stock ownership plan (ESOP) in 2010. This plan gives its  employees 20% ownership of  the company (Gary and his wife  Kit own the other 80%). The  ESOP also resulted in Clif Bar  enacting an open-book management program, including  the commitment to educate all employee-owners  about its finances. Armed with this basic financial knowledge, employees are more aware of  the financial impact of their actions, which leads  to better decisions.
Even in companies that do not practice openbook management, today’s employers generally  assume that managers in all areas of the company are “financially literate.” To help prepare you  for that, in this textbook you will learn how to read  and prepare financial statements, and how to use  basic tools to evaluate financial results. In this  first chapter, we will introduce you to the financial  statements of a real company whose products you  are probably familiar with—Tootsie Roll. Tootsie  Roll’s presentation of its financial results is complete, yet also relatively easy to  understand.

Brief Contents
1 Introduction to Financial Statements 2
2 A Further Look at Financial Statements 46
3 The Accounting Information System 100
4 Accrual Accounting Concepts 162
5 Merchandising Operations and the
Multiple-Step Income Statement 228
6 Reporting and Analyzing Inventory 282
7 Fraud, Internal Control, and Cash 334
8 Reporting and Analyzing Receivables 396
9 Reporting and Analyzing Long-Lived Assets 446
10 Reporting and Analyzing Liabilities 504
11 Reporting and Analyzing Stockholders’ Equity 568
12 Statement of Cash Flows 624
13 Financial Analysis: The Big Picture 688
APPENDICES
A Specimen Financial Statements:
Tootsie Roll Industries, Inc. A-1
B Specimen Financial Statements:
The Hershey Company B-1
C Specimen Financial Statements: Zetar plc C-1
D Time Value of Money D-1
E Reporting and Analyzing Investments E-1
Company Index I-1
Subject Index I-4