Unique Approach to Illustrating Financial Accounting Concepts

Both the traditional and executive MBA markets tend to be more analytical and decision-focused than the undergraduate market. Because of this, financial accounting needs be introduced in an accessible and highly relevant, manner. Unlike many graduate and undergraduate textbooks in accounting that use the classic debit and credit paradigm to explain key concepts, this textbook explains the fundamentals of financial accounting using a template approach that mirrors what is found in practice. It also is easily adaptable to spreadsheet applications. Not only is this approach more user-friendly (because most managers routinely use spreadsheets in their daily professional lives), but it is also far less labor- and time intensive than the classic debit/credit paradigm.

The unique approach to recording transactions taken in this textbook emphasizes user analysis and deemphasizes bookkeeping. It builds upon the basic accounting equation to demonstrate how business events are processed and ultimately recorded. Both executive and MBA students praise the approach for its simplicity and intuitive appeal, as well as for its link back to how they observe accounting information in their professional lives. More specifically, it presents a vertical format to the balance sheet equation, functionally following the form and presentation of the balance sheet most often observed in practice and annual reports. The format is also used to illustrate income statement accounts as inputs directly into the retained earnings account, reinforcing this important concept to students in a way that helps them more clearly understand the relation between the balance sheet and income statement. Below is an example of the financial statement spreadsheet approach used in the context of a long-term fixed asset acquisition and sale:

Decision-Relevant Focus

A key skill set for all investment professionals, lenders, managers, analysts, and shareholders is the ability to use accounting information for decision-making purposes. In this book, we link the discussion of topics to the following two business decisions:

1. Should I extend credit, and at what terms, to this company?

2. Should I invest in this company, and if so, at what price?

Thus, the analysis of financial statements is a key organizational theme that extends throughout the book.

Grounded in the Context of Corporate Decisions

Accounting information is an integral part of decision making at every level in business. Consequently, the book’s discussion of important accounting concepts is grounded in the context of actual corporate decisions. To this end, the book contains an abundance of excerpts and illustrations from actual corporate financial reports and disclosures that highlight the role and impact of accounting information, and financial statements specifically, in business decision making. Following is one example in the context of comprehensive income disclosures:

Reflects Contemporary Knowledge

In our experience, EMBAs and MBAs frequently seem interested in exploring empirical questions such as: “How do the capital markets respond to accounting policy changes?” and “Which EPS measure—Basic EPS or Diluted EPS—is used by the capital market to value a company’s stock?” Where appropriate, we have made reference to, and discussion of, the existing research in accounting and finance to address some of these empirically-based questions. By doing so, we enable the interested reader to further her/his knowledge of these questions.

Global Perspective 

Global Perspective boxed inserts emphasize the similarity of U.S. GAAP and IFRS, but they also identify key differences. Exposure to similarities and differences is important as the pressure mounts to harmonize accounting standards globally.

Ethics Perspective

Ethics Perspective boxed inserts emphasize ethical decision making, as well as the importance of ethics in accounting. In today’s environment post-implementation of Sarbanes-Oxley, this information is pertinent to business students and accounting students alike.

Business Perspective

Business Perspective boxed inserts illustrate key chapter topics using real-world examples and financial statements.

Tax Perspective

Tax Perspective boxed inserts highlight select aspects of U.S. tax law and how they differ from generally accepted accounting principles. Executives and MBAs very often are interested in understanding how their decisions affect both financial accounting earnings and the cash flows related to the tax treatment of those same decisions. While this text is clearly focused on the former, high-level overviews of some key tax reporting differences are offered throughout the text. Below is an example related to investments:

In Practice Boxes

In Practice boxed inserts help bridge the gap between the classroom and what students encounter in the real world. “In Practice” illustrations document situations a reader is likely to encounter and present the choices that companies make in reporting financial results.

Tools that Reinforce Reader Comprehension

Each chapter includes many tools that reinforce an understanding of the chapter contents. These tools include:

• Review Problem, with solution
• Executive Summary
• Key Concepts and Terms, with page references
• Discussion Questions
• Exercises
• Problems
• Corporate Analysis
• Check figures to accompany select exercises and problems, denoted by CHECK FIGURE