Financial & Managerial Accounting for MBAs, 4e

by Easton, Halsey, McAnally, Hartgraves, Morse

ISBN: 978-1-61853-102-5 | Copyright 2015

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Welcome to Financial & Managerial Accounting for MBAs.

Our main goal in writing this book was to satisfy the needs of today's business manager by creating a contemporary, engaging, and user-oriented textbook. This book is the product of extensive market research including focus groups, market surveys, class tests, manuscript reviews, and interviews with faculty from across the country. We are grateful to the students and faculty who provided us with useful feedback during the preparation of this book.

Target Audience

Financial & Managerial Accounting for MBAs is intended for use in full-time, part-time, executive, and evening MBA programs that include a combined financial and managerial accounting course as part of the curriculum, and one in which managerial decision making and analysis are emphasized. This book easily accommodates mini-courses lasting several days as well as extended courses lasting a full semester.

Innovative Approach

Financial & Managerial Accounting for MBAs is managerially oriented and focuses on the most salient aspects of accounting. It teaches MBA students how to read, analyze, and interpret accounting data to make informed business decisions. This textbook makes accounting engaging, relevant, and contemporary. To that end, it consistently incorporates real company data, both in the body of each module and throughout assignment material.

Flexible Structure

The MBA curricula, instructor preferences, and course lengths vary across colleges. Accordingly and to the extent possible, the 24 modules that make up Financial & Managerial Accounting for MBAs were designed independently of one another. This modular presentation enables each college and instructor to "customize" the book to best fit the needs of their students. Our introduction and discussion of financial statements constitute Modules 1, 2, and 3. Module 4 presents the analysis of financial statements with an emphasis on profitability analysis. Modules 5 through 10 highlight major financial accounting topics including assets, liabilities, equity, and off-balance-sheet financing. Module 11 explains forecasting financial statements and Module 12 introduces simple valuation models. Module 13 introduces managerial accounting and is followed by a discussion of cost behavior and cost estimation in Module 14. Module 15 explains cost-volume-profit analysis while Module 16 focuses on using relevant costs to make business decisions. Job and process costing are covered in a single module, Module 17, followed by activity-based costing in Module 18 and the assignment of indirect costs in Module 19. The remaining modules, 20 through 24, highlight managerial accounting topics ranging from operational budgets and variance analysis to segment reporting, product pricing, and capital budgeting. At the end of the book, we include several useful resources. Appendix A contains Compound interest tables. Appendix B details the process for preparing and analyzing the statement of Cash Flow. Appendix C is an illustrative case that applies the techniques described in the financial accounting modules (1–12) to an actual company, Kimberly-Clark. Appendix D is a chart of accounts used in the book.

Managerial Emphasis

As MBA instructors, we recognize that the core MBA accounting course is not directed toward accounting majors. Financial & Managerial Accounting for MBAs embraces this reality. This book highlights reporting, analysis, interpretation, and decision making. In the financial accounting modules, we incorporate the following financial statement effects template when relevant to train MBA students in understanding the economic ramifications of transactions and their impact on all key financial statements. This analytical tool is a great resource for MBA students in learning accounting and applying it to their future courses and careers. Each transaction is identified in the “Transaction” column. Then, the dollar amounts (positive or negative) of the financial statement effects are recorded in the appropriate balance sheet or income statement columns. The template also reflects the statement of cash flow effects (via the cash column) and the statement of stockholders’ equity effects (via the contributed capital and earned capital columns). The earned capital account is immediately updated to reflect any income or loss arising from each transaction (denoted by the arrow line from net income to earned capital). This template is instructive as it reveals the financial impacts of transactions, and it provides insights into the effects of accounting choices.

Innovative Pedegogy

Focus Companies for Each Module

In the financial accounting portion of the book, each module’s content is explained through the accounting and reporting activities of real companies. To that end, each module incorporates a “focus company” for special emphasis and demonstration. The enhanced instructional value of focus companies comes from the way they engage MBA students in real analysis and interpretation. Focus companies were selected based on the industries that MBA students typically enter upon graduation. We apply a similar approach to the managerial accounting modules, but limited access to internal accounting information prevents us from illustrating all managerial accounting topics using real company data. We do, however, incorporate real world examples throughout each module. Each managerial accounting module is presented in context using real world scenarios from a variety of service, retail, and manufacturing companies. The following table lists focus companies by module.

Module 1 Berkshire Hathaway Module 14 Square
Module 2 Apple Module 15 DuPont
Module 3 Apple Module 16 Uber
Module 4 Walmart Module 17 Samsung
Module 5 Pfizer Module 18 Unilever
Module 6 Cisco Module 19 Whole Foods
Module 7 Verizon Module 20 Roku
Module 8 IBM Module 21 Pinterest
Module 9 Google Module 22 Southwest Airlines
Module 10 Southwest Airlines Appendix 23 Volkswagen
Module 11 Procter & Gamble Appendix 24 Amazon
Module 12 Nike Appendix B Starbucks
Module 13 ModCloth Appendix C Kimberly-Clark

Real Company Data Throughout

Market research and reviewer feedback tell us that one of instructors’ greatest frustrations with other MBA textbooks is their lack of real company data. We have gone to great lengths to incorporate real company data throughout each module to reinforce important concepts and engage MBA students. We engage nonaccounting MBA students specializing in finance, marketing, management, real estate, operations, and so forth, with companies and scenarios that are relevant to them. For representative examples, See pages 4-7, 5-15, and 6-10.

Decision Making Orientation

One primary goal of a MBA financial accounting course is to teach students the skills needed to apply their accounting knowledge to solving real business problems and making informed business decisions. With that goal in mind, Managerial Decision boxes in each module encourage students to apply the material presented to solving actual business scenarios. For representative examples, See pages 2-35, 4-14, 7-23, and 8-9.

Mid-Module and Module-End Reviews

Financial accounting can be challenging — especially for MBA students lacking business experience or previous exposure to business courses. To reinforce concepts presented in each module and to ensure student comprehension, we include mid-module and module-end reviews that require students to recall and apply the financial accounting techniques and concepts described in each module. For representative examples, See pages 4-8, 7-11, 8-14, and 9-16.

Excellent, Class-Tested Assignment Materials

Excellent assignment material is a must-have component of any successful textbook (and class). In keeping with the rest of the book, we used real company data extensively. We also ensured that assignments reflect our belief that MBA students should be trained in analyzing accounting information to make business decisions, as opposed to working on mechanical bookkeeping tasks. Assignments encourage students to analyze accounting information, interpret it, and apply the knowledge gained to a business decision. For representative examples, See pages 4-37, 6-45, and 9-41.

Forth Edition Changes

Based on classroom use and reviewer feedback, a number of substantive changes have been made in this edition to further enhance the MBA students’ experiences:

Financial Accounting Modules (1-12)

  • Updated Financial Data: We have updated all Focus Company financial statements and disclosures to reflect each company’s latest available filings. We have updated all assignments using real data to reflect each company’s latest available filings and we have added many new assignments that also utilize real financial data and footnotes.
  • Updated Assignments:We have updated all assignments using real data to reflect each company’s latest available filings and have added many new assignments that also utilize real financial data and footnotes. We have expanded the IFRS Applications to include more companies from Canada and Australia.
  • Ongoing Analysis Project:We have added a project component to each module. See the descriptionabove in Experiential Learning.
  • Analyzing Cash Flows:To help students better understand cash flows, we have included new sections onthe analysis of cash flows in Appendix B, including a discussion of the cash flow cycle and interpretation of cash flow patterns.
  • International Financial Reporting Standards (IFRS):We have updated the IFRS insight boxes and IFRS Alert boxes on the similarities and differences between U.S. GAAP and IFRS. Each module concludes with a Global Accounting section and an expanded IFRS assignments section, which brings inreports and disclosures from around the globe.
  • New Focus Companies:We have changed a number of the focus companies: Module 4 now uses Walmart, Module 7 focuses on IBM, Module 10 uses Southwest Airlines, and Module 12 highlights Nike.
  • Accounting Quality:We augmented the section on accounting quality in Module 5. It describes measures of accounting quality and factors that mitigate accounting quality. We also provide a check list of items in financial statements that should be reviewed when analyzing financial statements.
  • Intercorporate Investments:Consistent with recent changes in accounting standards, we have revised Module 9 (formerly Module 7) to emphasize investors’ control of securities and deemphasize the percentage of ownership as the determining factor in selecting the method used for financial reporting.
  • Credit Ratings:This edition expands discussion of credit ratings. This includes trends in credit ratings, current credit rating statistics, and rating procedures implemented by companies such as Moody’s and Standard and Poor’s.
  • Noncontrolling Interest:We added expanded discussion of noncontrolling interest, how it is reported in financial statements, and the interpretation of its disclosure. The book distinguishes the ROE disaggregation with and without controlling interest and explains how to handle noncontrolling interest foranalysis, forecasting, and equity valuation. In Module 9, we also expand our discussion of consolidation to illustrate the allocation of consolidated net income to the noncontrolling interest and to the controlling(parent) interest.
  • Revised Forecasting Module:We have expanded our discussion of the forecasting of revenues and expenses to distinguish between forecasting using publicly-available databases and forecasting with proprietary databases. For the latter, we continue to utilize analyst reports and spreadsheets provided to us by Morgan Stanley.
  • Enhanced R&D Analysis:We have developed a new discussion of R&D costs in Module 5 focusing onthe analysis and interpretation of Rr&D.
  • Expanded analysis of allowance accounts:We have developed a new appendix to Module 6 to illustrate the accounting for sales returns and analysis. We also present a discussion of the analysis of the allowance accounts in schedule ii (Valuation and Qualifying Accounts) of the 10-K or similar disclosures in othertypes of annual reports.
  • Pension Accounting:We have expanded our discussion of analysis of pension disclosures, including the change that many companies now immediately recognize actuarial gains and losses in operating results.
  • New Regulations:We highlight pending and proposed accounting standards and their likely effects, if passed. These include the proposed standard on revenue recognition. This edition also reflects all accounting standards in effect since our last edition, including the new business combination and consolidation standard and goodwill impairment testing.

Managerial Accounting Modules (13-24)

  • Many new Business insight boxes have replaced older ones.
  • several new research insight boxes have been incorporated.
  • Dozens of new, real company examples have been integrated throughout the text.
  • Over two-thirds of the exercises and problems have been revised.
  • All 12 Opening Vignettes have been replaced.

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Expand/Collapse All
Module 01: Financial Accounting for MBAs (pg. 1-1)
Module 02: Introducing Financial Statements and Transaction Analysis (pg. 2-1)
Module 03: Accounting Adjustments and Constructing Financial Statements (pg. 3-1)
Module 04: Analyzing and Interpreting Financial Statements (pg. 4-1)
Module 05: Reporting and Analyzing Operating Income (pg. 5-1)
Module 06: Reporting and Analyzing Operating Assets (pg. 6-1)
Module 07: Reporting and Analyzing Nonowner Financing (pg. 7-1)
Module 08: Reporting and Analyzing Owner Financing (pg. 8-1)
Module 09: Reporting and Analyzing Intercorporate Investments (pg. 9-1)
Module 10: Reporting and Analyzing Off-Balance-Sheet Financing (pg. 10-1)
Module 11: Forecasting Financial Statements (pg. 11-1)
Module 12: Analyzing and Valuing Equity Securities (pg. 12-1)
Module 13: Managerial Accounting for MBAs (pg. 13-1)
Module 14: Cost Behavior, Activity Analysis, and Cost Estimation (pg. 14-1)
Module 15: Cost-Volume-Profit Analysis and Planning (pg. 15-1)
Module 16: Relevant Costs and Benefits for Decision Making (pg. 16-1)
Module 17: Product Costing: Job and Process Operations (pg. 17-1)
Module 18: Activity-Based Costing, Customer Profitability, and Activity-Based Management (pg. 18-1)
Module 19: Additional Topics in Product Costing (pg. 19-1)
Module 20: Pricing and Other Product Management Decisions (pg. 20-1)
Module 21: Operational Budgeting and Profit Planning (pg. 21-1)
Module 22: Standard Costs and Performance Reports (pg. 22-1)
Module 23: Segment Reporting, Transfer Pricing, and Balanced Scorecard (pg. 23-1)
Module 24: Capital Budgeting Decisions (pg. 24-1)
Appendix A: Compound Interest Tables (pg. A-1)
Appendix B: Constructing the Statement of Cash Flows (pg. B-1)
Appendix D: Chart of Accounts with Acronyms (pg. D-1)
Peter D. Easton

Peter D. Easton

Peter D. Easton is an expert in accounting and valuation and holds the Notre Dame Alumni Chair in Accountancy in the Mendoza College of Business.

Professor Easton’s expertise is widely recognized by the academic research community and by the legal community. Professor Easton frequently serves as a consultant on accounting and valuation issues in federal and state courts.

Professor Easton holds undergraduate degrees from the University of Adelaide and the University of South Australia. He holds a graduate degree from the University of New England and a PhD in Business Administration (majoring in accounting and finance) from the University of California, Berkeley.

Professor Easton’s research on corporate valuation has been published in the Journal of Accounting and Economics, Journal of Accounting Research, The Accounting Review, Contemporary Accounting Research, Review of Accounting Studies, and Journal of Business Finance and Accounting.

Professor Easton has served as an associate editor for 11 leading accounting journals and he is currently an associate editor for the Journal of Accounting Research, Journal of Business Finance and Accounting, and Journal of Accounting, Auditing, and Finance. He is an editor of the Review of Accounting Studies.

Professor Easton has held appointments at the University of Chicago, the University of California at Berkeley, Ohio State University, Macquarie University, the Australian Graduate School of Management, the University of Melbourne, Tilburg University, National University of Singapore, Seoul National University, and Nyenrode University. He is the recipient of numerous awards for excellence in teaching and in research. Professor Easton regularly teaches accounting analysis and security valuation to MBAs. In addition, Professor Easton has taught managerial accounting at the graduate level.

Robert F. Halsey

Robert F. Halsey

Robert F. Halsey is Professor of Accounting and Associate Dean of the Undergraduate School at Babson College. He received his MBA and PhD from the University of Wisconsin.

Prior to obtaining his PhD he worked as the chief financial officer (CFO) of a privately held retailing and manufacturing company and as the vice president and manager of the commercial lending division of a large bank.

Professor Halsey teaches courses in financial and managerial accounting at both the graduate and undergraduate levels, including a popular course in financial statement analysis for second year MBA students. He has also taught numerous executive education courses for large multinational companies through Babson’s school of Executive Education as well as for a number of stock brokerage firms in the Boston area. He is regarded as an innovative teacher and has been recognized for outstanding teaching at both the University of Wisconsin and Babson College.

Professor Halsey co-authors Advanced Accounting published by Cambridge Business Publishers. Professor Halsey’s research interests are in the area of financial reporting, including firm valuation, financial statement analysis, and disclosure issues. He has publications in Advances in Quantitative Analysis of Finance and Accounting, The Journal of the American Taxation Association, Issues in Accounting Education, The Portable MBA in Finance and Accounting, the CPA Journal, AICPA Professor/Practitioner Case Development Program, and in other accounting and analysis journals.

Professor Halsey is an active member of the American Accounting Association and other accounting, analysis, and business organizations. He is widely recognized as an expert in the areas of financial reporting, financial analysis, and business valuation.

Mary Lea McAnally

Mary Lea McAnally

Mary Lea McAnally is the Philip Ljundahl Professor of Accounting at the Mays Business School at Texas A&M. She obtained her Ph.D. from Stanford University and B. Comm. from the University of Alberta.

She worked as a Chartered Accountant (in Canada) and is a Certified Internal Auditor. Prior to arriving at Texas A&M in 2002, Professor McAnally held positions at University of Texas at Austin, Canadian National Railways, and Dunwoody and Company.

Her research interests include accounting and disclosure in regulated environments, executive compensation, and accounting for risk. She has published articles in the leading academic journals including Journal of Accounting and Economics, Journal of Accounting Research, The Accounting Review, Review of Accounting Studies, and Contemporary Accounting Research. Professor McAnally received the Mays Business School Research Achievement Award in 2005. She was Associate Editor at Accounting Horizons, served on the editorial board of Contemporary Accounting Research, and was Guest Editor for the MBA-teaching volume of Issues in Accounting Education. She is active in the American Accounting Association and its FARS section.

At Texas A&M, Professor McAnally teaches financial reporting, analysis, and valuation in the full-time, Professional, and Executive MBA programs. Through the Mays Center for Executive Development, she works with corporate clients. She has also taught at University of Alberta, University of Calgary, IMADEC (in Austria) and at the Indian School of Business at the Hyderabad and Mohali campuses. She has received numerous faculty-determined and student-initiated teaching awards at the MBA and executive levels. Those awards include the Beazley Award, the Trammell Foundation Award, the MBA Teaching Award (multiple times), the MBA Association Distinguished Faculty Award (three times), the Award for Outstanding and Memorable Faculty Member, and the Distinguished Achievement Award.

Al L. Hartgraves

Al L. Hartgraves

Al L. Hartgraves is Professor Emeritus of Accounting at the Goizueta Business School at Emory University in Atlanta, Georgia. He has been a frequent Guest Professor at Johannes Kepler University in Linz, Austria and at the Helsinki School of Economics and Business Administration in Finland.

His published scholarly and professional articles have appeared in The Accounting Review, Accounting Horizons, Management Accounting, Journal of Accountancy, Journal of Accounting and Public Policy and many other journals. Students at Goizueta Business School have selected him on six occasions to receive the Distinguished Educator Award. In 2002 he received Emory University’s highest teaching award, The Scholar/Teacher Award, and in 2003 he was recognized as the Accounting Educator of the Year by the Georgia Society of CPAs. He has been recognized as an Outstanding Faculty Member in two editions of The Business Week Guide to the Best Business Schools. He is a Certified Public Accountant (inactive) and a Certified Management Accountant, having received the Certificate of Distinguished Performance on the CMA exam. He received his Ph.D. from Georgia State University.

Wayne J. Morse

Wayne J. Morse

Wayne J. Morse, a hiking and canoeing enthusiast, is Professor Emeritus at the Saunders College of Business at Rochester Institute of Technology.

An author or coauthor of more than fifty published papers, monographs, and textbooks, he was a founding member of the Management Accounting section of the American Accounting Association. His most notable writings are in the areas of learning curves, human resource accounting, and quality costs. He was a member of the IMA Committee on Research and an AICPA Board of Examiners subcommittee, and he has served on the editorial boards of Advances in Accounting, Trends in Accounting Education, Issues in Accounting Education, and Management Accounting Research. A Certified Public Accountant, he received his Ph.D. from Michigan State University. Prior to joining RIT, he was on the faculty of the University of Illinois, Duke University, the University of Tennessee, Clarkson University, and the University of Alabama-Huntsville.

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