Introduction to Financial Accounting 11th Edition

Book Preface

“You have to know what something is before you know how to use it.”
Introduction to Financial Accounting , 11/E, describes the most widely accepted accounting
theory and practice with an emphasis on using and analyzing the information in fi nancial
s tatements. It compares U.S. generally accepted accounting principles (U.S. GAAP) to
International Financial Reporting Standards (IFRS) where appropriate.
IFA , 11/E, takes the view that business is an exciting process and that accounting is the
perfect window through which to see how economic events affect businesses. Because we
believe that accounting aids the understanding of economic events and that accounting builds
on simple principles, this book introduces a number of concepts earlier than many other textbooks. We cover these early concepts at the most accessible level and illustrate them with carefully chosen examples from real companies. Our coverage addresses the choices that management makes when preparing financial statements and how these choices affect the way users interpret the information. We also discuss ethical issues throughout the book and in the assignment materials.

This is the eleventh edition of this text, and that is a testimonial to its effectiveness. But it
also is a testimonial to our former colleagues, students, and adopters who, in each prior edition,
have shared their thoughts and suggestions and driven us to change and adapt it to better meet the
needs of today’s students and adopting faculty.
Continuing strengths of this edition:
Text coverage and problem material based on classic issues arising in the last 30 years
Integration of ethics coverage throughout
Coverage of U.S. GAAP and IFRS requirements where material differences exist
Use of international-company examples, especially to illustrate differences in U.S. GAAP
and IFRS

New to this edition:

Totally updated text to include current examples from real companies
Extensive revisions for clarity
Revision of problem material to include examples from corporate outcomes in the last
two years
Coverage of the current status of FASB and IASB regulatory action
Highlights of likely upcoming changes in accounting standards, including revenue
recognition and leases

Updated Business First Boxes
Our Philosophy

Introduce the simple concepts early, revisit concepts at more complex levels as students
gain understanding, and provide appropriate real-company examples at every stage—
that’s our philosophy. Our goal is for students to be able to read and interpret a real
company’s financial statements: balance sheet, income statement, statement of cash
flows, and statement of changes in stockholders’ equity.

We want students to view accounting as a tool that enhances their understanding of economic
events. Students should be asking questions such as “After this transaction, are we better or worse
off?” and “What do these statements tell us about the company’s financial position and performance?”
Students cannot understand financial statements in isolation. Rather, they must look at all
the financial statements within the context of the company’s business environment. They need to understand the accrual basis of accounting that underlies the balance sheet and income statement,but they must also understand the importance of cash as presented in the statement of cash flows.

We present the balance sheet, income statement, statement of changes in stockholders’ equity,
and statement of cash flows in the first five chapters. By presenting the statement of cash flows in
Chapter 5 , immediately after the presentation of the basics of accrual accounting, students learn
the importance of all the statements and the unique information each statement presents before
encountering details about financial reporting practices in the later chapters.

One of our former colleagues often focuses on an economic event by asking, “Are you happy
or are you sad?” We believe that accounting provides a way to understand what is happening and to
answer that question. You might think of the basic financial statements as scorecards in the most
fundamental economic contests. Each year the financial statements help you answer the most
important questions: Are you happy or sad? Did you make or lose money? Are you prospering or
just surviving? Will you have the cash you need for the next big step?

Who Should Use This Book?

Introduction to Financial Accounting , 11/E, presupposes no prior knowledge of accounting and
is suitable for any undergraduate or MBA student enrolled in a fi nancial accounting course. It
is also appropriate for management education programs where the participants have little or no
accounting background. It deals with important topics that all managers should know and all
business students should study. We have aimed to present relevant subject matter and to present
it clearly and accessibly.

This text is oriented to the user of financial statements but gives ample attention to the needs of potential accounting practitioners. IFA , 11/E, stresses underlying concepts yet makes them concrete with numerous illustrations, many taken from recent corporate annual reports. Moreover, accounting procedures such as transaction analysis, journalizing, and posting are given due consideration where appropriate. Managers and accountants can develop a better understanding ofthe economic consequences of a company’s transactions by summarizing those transactions into journal entries and T-accounts. However, the ultimate objective is an understanding of financial position and prospects, which we achieve by a focus on the balance sheet equation.

Brief Contents
Preface xiv
Chapter 1 Accounting: The Language of Business 2
Chapter 2 Measuring Income to Assess Performance 44
The Portfolio P1
Chapter 3 Recording Transactions 90
Chapter 4 Accrual Accounting and Financial Statements 140
Chapter 5 Statement of Cash Flows 188
Chapter 6 Accounting for Sales 238
Chapter 7 Inventories and Cost of Goods Sold 284
Chapter 8 Long-Lived Assets 338
Chapter 9 Liabilities and Interest 386
Chapter 10 Stockholders’ Equity 448
Chapter 11 Intercorporate Investments and Consolidations 492
Chapter 12 Financial Statement Analysis 532
GlossaryG1
IndexI1
Photo CreditsPC1