Innovative Approach

Financial Accounting for MBAs is managerially oriented and focuses on the most salient aspects of accounting. It helps MBA students learn how to read, analyze, and interpret financial accounting data to make informed business decisions. This textbook makes financial 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 13 modules that make up Financial 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 analysis of operating profitability. Modules 5 through 10 highlight major financial accounting topics including assets, liabilities, equity, and off‑balance‑sheet financing. Module 11 details the process for preparing and analyzing the statement of cash flow. Module 12
explains forecasting financial statements and Module 13 introduces simple valuation models. At the end of each module, we present an ongoing analysis project that can be used as a guide for an independent project. Like the rest of the book, the project is independent across the various modules.

At the end of the book, we include several useful resources. Appendix A contains compound interest tables and formulas. Appendix B is a chart of accounts used in the book. Appendix C is an illustrative case that applies the techniques described in Modules 1 through 13 to an actual company, Harley‑Davidson. Appendix C can be used as a guide, in conjunction with the module‑end project questions, by students required to prepare a company analysis.

Transaction Analysis and Statement Preparation

Instructors differ in their coverage of accounting mechanics. Some focus on the effects of transactions on financial statements using the balance sheet equation format. Others include coverage of journal entries and T‑accounts. We accommodate both teaching styles in this Seventh Edition. Specifically, Module 2 provides an expanded discussion of the effects of transactions using our innovative financial statement effects template. Emphasis is on the analysis of Apple’s summary transactions, which concludes with the preparation of its financial statements. Module 3, which is entirely optional, allows an instructor to drill down and focus on accounting mechanics: journal entries and T‑accounts. It illustrates accounting for numerous transactions, including those involving accounting adjustments. It concludes with the preparation of the financial statements. This detailed transaction analysis uses the same financial statement effects template, with journal entries and T‑accounts highlighted in the margin. These two modules accommodate the spectrum of teaching styles--instructors can elect to use either or both modules to suit their preferences, and their students are not deprived of any information as a result of that selection.

Flexibility for Courses of Varying Lengths

Many instructors have approached us to ask about suggested class structures based on courses of varying length. To that end, we provide the following table of possible course designs. 

Managerial Emphasis

Tomorrow’s MBA graduates must be skilled in using financial statements to make business decisions.

These skills often require application of ratio analyses, benchmarking, forecasting, valuation, and other aspects of financial statement analysis for decision making. Further, tomorrow’s MBA graduates must have the skills to go beyond basic financial statements and to interpret and apply nonfinancial statement disclosures, such as footnotes and supplementary reports. This book, therefore, emphasizes real company data, including detailed footnote and other management disclosures, and shows how to use this information to make managerial inferences and decisions. This approach makes financial accounting interesting and relevant for all MBA students.As MBA instructors, we recognize that the core MBA financial accounting course is not directed toward accounting majors. Financial Accounting for MBAs embraces this reality. This book highlights financial reporting, analysis, interpretation, and decision making. We incorporate the following financial statement effects template 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 Pedagogy

Financial Accounting for MBAs includes special features specifically designed for the MBA student.

Focus Companies for Each Module

Each module’s content is explained through the accounting and reporting activities of real companies. 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.

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, taxation, marketing, management, real estate, operations, and so forth, with companies and scenarios that are relevant to them. For representative examples, SEE PAGES 2 24, 4 23, 5 3, 5 19, 6 23, 7 16, 8 5, 9 20, 10 6, 11 25, and 12 17.

Footnotes and Other Management Disclosures

Analyzed on their own, financial statements reveal only part of a corporation’s economic story. Information essential for a complete analysis of a company’s performance and financial position must be gleaned from the footnotes and other disclosures provided by the company. Consequently, we incorporate footnotes and other disclosures generously throughout the text and assignments. For representative examples, SEE PAGES 7 6, 8 15, 9 7, 9 33, and 10 5.

Industry Level Data

We repeatedly emphasize that financial analysis cannot be performed in a vacuum—appropriate benchmarks are critical to a complete understanding of a company’s financial performance and position. To this point, we provide graphics that capture industry level data including many of the ratios we discuss and compute in the modules. For representative examples, SEE PAGES 4 28, 4 38, 5 23, 6 26, and 7 25.

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 14, 4 28, 7 25, 8 11, 9 14, and 10 6.

Reviews for Each Learning Objective

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 reviews that require students to recall and apply the financial accounting techniques and concepts described in each section. Review questions usually include real financial statement data from a company in the same industry as the module’s focus company. For representative examples, SEE PAGES 4 14, 7 7, 8 12, 9 9, and 10 23.

Experiential Learning

Students retain information longer if they can apply the lessons learned from the module content. To meet this need for experiential learning, we conclude each module with a hands on analysis project. A series of questions guides students’ inquiry and helps students synthesize the material in the module and integrate material across modules. For representative examples, SEE PAGES 1 45, 4 63, and 9 53.

Excellent, Class Tested Assignment Materials

Excellent assignment material is a must have component of any successful textbook (and class). We went to great lengths to create the best assignments possible from contemporary financial statements. 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. There are six categories of assignments: Questions, Mini Exercises, Exercises, Problems, IFRS Applications, and Management Applications. For representative examples, SEE PAGES 4 43, 5 36, 7 41, 7 45, and 9 52.                                            

Fundamentals of Financial Accounting Tutorial

This interactive tutorial is intended for use in programs that either require or would like to offer a pre‑term tutorial that creates a baseline of accounting knowledge for students with little to no prior exposure to financial accounting. Initially developed as a pre‑term tutorial for first year MBA students, this product can be used as a warm‑up for any introductory level financial accounting course. It is designed as an asynchronous, interactive, self‑paced experience for students.
Available Learning Modules (You Select)
1. Introducing Financial Accounting (approximate completion time 2 hours)
2. Constructing Financial Statements (approximate completion time 4 hours)
3. Adjusting Entries and Completing the Accounting Cycle (approximate completion time 4 hours)
4. Reporting and Analyzing Cash Flows (approximate completion time 3.5 hours)
5. Analyzing and Interpreting Financial Statements (approximate completion time 3.5 hours)
This is a separate, saleable item. Contact your sales representative to receive more information or email customerservice@cambridgepub.com.   

Companion Casebook

Cases in Financial Reporting, 8th edition by Michael Drake (Brigham Young University), Ellen Engel (University of Illinois—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 Japan, Sweden, 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.                                           

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

• Table of Contents is reorganized to facilitate eLearning, with additional in‑module Reviews and Guided Example videos for all modules (each Learning Objective has a Review/Guided Example, as well as a corresponding eLecture). Content is also revised to be more streamlined and pointed.
• New regulations: This edition covers new standards on Revenue Recognition, Leases, Discontinued Operations, and Marketable Securities.
• DuPont Model:
  • Module 4 opens with DuPont Analysis (moved from an appendix) as a simple, yet powerful, analysis framework. For those instructors interested, a disaggregation of ROE that separates operating and nonoperating items is shown later in the module as a natural extension of DuPont analysis.
  • Analysis of financial performance in later modules relies on the DuPont model. However, text boxes include deeper discussion of analyses that gleaned from the operating / nonoperating distinction.
• Cash flows: Measures of cash flow are incorporated into the body of the book as new Module 11 (formerly Appendix B). Cash flow computations are simplified, and there is detailed explanation of how to use and analyze cash flow statements, including cash‑based ratios and life cycle notions.
• IFRS: Global Accounting sections are updated to include new developments.
• Revenue, Operating Expenses, and Receivables: Module 5 is reorganized and streamlined to reduce its length and focus its discussion on revenue, operating expenses, and receivables.
• Receivables and Payables: Module 5 now includes accounts receivable which are naturally paired with revenues. Accounts payable is moved to Module 6 and presented with inventories. A new section on days to collect receivables, days sales in inventory, days to pay accounts payable, and the cash conversion cycle is added.
• R&D Costs: Module 6 now includes R&D facilities along with restructuring as they are part of operations.
• Module 8 includes a complete rewrite of share‑based compensation with an initial overview of accounting for such compensation that simplifies this complex topic. There is a greater emphasis on restricted stock-type plans that are now more prevalent.
• Equity Carve‑Outs: Moved to Module 9 because carve‑outs can be viewed as a divestiture of a subsidiary investment, and set as a new appendix (to reflect their reduced occurrence).
• Revised forecasting module: Module 12 is shortened and rewritten for clarity. It begins with a concrete example of forecasting mechanics (as the opening section for those wishing to cover just the mechanics). Module 12 uses a new Procter & Gamble analyst report from Morgan Stanley and set as an appendix.
• Updated financial data and assignments: Data and financial statements are updated throughout the book to reflect each company’s latest available financial statement filings and disclosures.
• Bond rating: Explanation of the determination of bond ratings is enhanced with inclusion of Moody’s ratings for Verizon.
• Expanded analysis of allowances accounts: Added section in Module 6 on accounting for sales allowances, including accounting and analysis of Schedule II allowance disclosures (including effects on sales and adequacy of the allowance account).
• Pension accounting: Revised discussion of pension accounting, including a new section on fair valuation of pension obligations, the treatment of pension plans in bankruptcy, and an analysis of pension plans disclosures such as what is operating versus nonoperating (Module 10).
• Updated Comprehensive Case: Appendix C (available on the book’s website) shows a case analysis using Harley‑Davidson financial statements and notes.
• Foreign currency: New section on foreign currency effects for revenues, profit, and cash flow.
• Mechanics: Transaction analysis revised, streamlined, and covered entirely in Module 3.
• Derivatives: Revised derivatives discussion for simpler exposition with new illustrative examples. Added new section on analysis of derivatives to provide MBAs with a tangible take‑away.