Welcome to Financial Accounting for Executives & MBAs 5e!

If you have prior business experience, either working for a company or managing your own, then you know firsthand that an under- standing of financial accounting is essential to achieve your full potential. Although business decisions certainly involve a careful analysis of non-financial factors, they almost always require analysis of some aspect of financial accounting information. Initiating a marketing campaign, restructuring a subsidiary, determining the sale price of a new product, or assessing whether to acquire another company (and at what price) are just a few of the business decisions that require an understanding of financial accounting. This textbook is written to facilitate that understanding and to facilitate the reader’s personal goal of gaining a more complete understanding of financial accounting and its use in business decisions.

Target Audience

Financial Accounting for Executives & MBAs is written specifically for the Executive MBA and MBA markets. This concise text can be used in a wide variety of course formats, ranging from brief executive programs lasting only a few weekends to more traditional 15-week courses.

Book Organization

The text is designed with a flexible 12-chapter structure that fits all varieties of MBA programs: full-time, part-time, and executive. It provides students with the tools and insights necessary to make informed business decisions ranging from performance evaluation to firm valuation.

Chapters 1–4 introduce the basic structure of financial accounting.  This includes a focus on the role of accounting for the firm and the financial markets, preparing financial statements from business events, a detailed review of the primary financial statements, and financial analysis techniques and key ratios.

 Chapters 5–11 provide additional structure around these opening themes.  Each chapter includes a section that discusses how the chapter’s content should be analyzed and how that analysis will impact firm value.

• Chapters 5–6 cover operating resources and decisions: Operating Cycle, Revenue Recognition and Receivable Valuation (Ch. 5) and Operating Expenses, Inventory Valuation, and Accounts Payable (Ch. 6).
• Chapters 7–8 cover investing resources and decisions: Long-Lived Assets (Ch. 7) and Investing in Other Entities (Ch. 8).
• Chapters 9–11 cover financing resources and decisions: Debt Financing (Ch. 9), Commitments and Contingent Liabilities, Deferred Tax Liabilities, and Retirement Obligations (Ch. 10), and Equity Financing and Shareholders’ Equity (Ch. 11).

Chapter 12 provides an introduction to methodologies to assess the value of a company.

The text then concludes with a variety of topics available as appendices and additional online re- sources. These include Time value of Money, Financial Statement Ratios, Accounting Mechanics, Working Capital Management, and Data Analysis.

Unique Approach to Illustrating Financial Accounting Concepts

The traditional and executive MBA markets tend to be analytical and decision-focused. Because of this, financial accounting needs be introduced in an accessible and highly relevant manner. Unlike many text- books in accounting that use the classic debit and credit paradigm to explain key concepts, this textbook explains the fundamentals of financial accounting using an 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:

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 are frequently 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.

Important Pedagogical Elements

The book applies several pedagogical elements to help readers further understand the ramifications of accounting for business.

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

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 net operating losses:

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.

Flexibility for Courses of Varying Lengths

New to the 5th Edition

This edition of Financial Accounting for Executives & MBAs includes a number of important new features. These include:

• Updated for New Revenue Recognition Standard: Coverage in Chapter 5 and throughout the text is revised to reflect the new standard. 
• Updated for Lower-of-Cost-or-Net Realizable Value: The new Inventory Standard on lower-of- cost-or-net realizable value is reflected in Chapter 6.
• Updated for New Investment Standard: Chapter 8 reflects the new investment standard, with a revised discussion on managerial discretion and choice of accounting methods for debt security investments.
• Updated for New Lease Standard: Chapter 9 covers the new lease standard including accounting disclosure and presentation, as well as a section contrasting the new lease accounting guidelines with the old.
• Tax Cuts and Jobs Act: In addition to the new FASB standards, the Tax Cuts and Jobs Act of 2017 is reflected in Chapter 10 of the 5th edition.
• Additional global updates: In addition to the chapter-specific changes, there have been several changes that span the book. Some of these include:
• Updated numbers for examples, illustrations, and assignments that use real data.
• Updated footnotes and other nonfinancial disclosures.
• Numerous assignments in each chapter have been revised or replaced with new assignments.
• Added review problems throughout the chapters so students can practice new content as it is introduced.
• Enhanced for learning with myBusinessCourse (MBC)
• Our Table of Contents is set up to facilitate eLearning, where each chapter’s Learning Take-aways are matched with eLecture Videos, Chapter Reviews, and Guided Example Videos all prepared by the authors.
• The number of auto-graded assignments and videos in myBusinessCourse have been increased and expanded in this edition making MBC an ideal complement to hybrid and online courses. MBC is also a robust resource for students in traditional face-to-face courses.
• Data Analytics: In addition to an introduction of data analytics in Chapter 1, the authors have created an online appendix with accounting specific examples including the use of data analytics for A/R aging and the detection of fraud with Benford’s Law. The appendix includes:
• World Bank GDP data and actual court data from the 1993 case State of Arizona v. Wayne James Nelson.
• Video demonstrations of data analytics performed in both Excel and Tableau.
• Numerous assignments giving students opportunities to perform data analytics in Excel and Tableau.
• myBusinessCourse is a complete learning and assessment program that accompanies the textbook and contributes to student success in this course. With the fifth edition, MBC has been enhanced to include new questions and improvements to existing questions and functionality.

Companion Casebook for Case-Based Instruction 

Cases in Financial Reporting, 8th edition by Michael Drake (Brigham Young University), Ellen Engel (University of Chicago), D. Eric Hirst (University of Texas–Austin), and Mary Lea McAnally (Texas A&M University). This book comprises 27 cases and is a perfect companion book for faculty interested in exposing students to a wide range of real financial statements. The cases are current and cover companies from Canada, France, Austria, the Netherlands, the UK, India, as well as from the U.S. Many of the U.S. companies are major multinationals. Each case deals with a specific financial accounting topic within the context of one (or more) company’s financial statements. Each case contains financial statement information and a set of directed questions pertaining to one or two specific financial accounting issues. This is a separate, saleable casebook (ISBN 978-1-61853-122-3). Contact your sales representative to receive a desk copy or email  customerservice@cambridgepub.com.