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 text 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 basic 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 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 along with abbreviations. 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, for 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. 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 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 common 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. 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 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 books 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 2‑6, 4‑16, 6‑23, 7‑3, 8‑4, 9‑10, 10‑4, 11‑6, 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 2-24, 4‑28, 5‑3, 6‑9, 7‑6, 8‑15, 9‑7, and 12‑5.

Dual Approach to ROE and Financial Statement Analysis

We continue to stress profitability and return analysis as a “hook” for student interest. The analysis framework includes disaggregation of ROE and application of several other key metrics.

• Module 4 opens with the traditional DuPont model as a simple, yet powerful, analysis framework.
• Later in Module 4, we disaggregate ROE into operating and nonoperating components as a natural extension of the traditional DuPont model.
• Later modules revisit the DuPont model, and text boxes throughout include deeper discussion of operating versus nonoperating activities.
• Later modules also discuss factors that affect operating performance and consider actions that managers can take to improve that performance.

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 4‑1, 5‑4, 6‑26, 7‑17, 8‑29, and 10‑14.

Decision Making Orientation

One primary goal of an 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 4‑26, 5‑4, 8‑11, 10‑8, and 11‑15. Each module also includes Analysis Insight boxes that provide insight into data analysis techniques and models that financial analysts typically use. For representative examples, SEE PAGES 2‑11, 6‑13, 7‑15, 9‑17, 10‑9, 11‑28, and 12‑24.

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.

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.

Excellent, Class‑Tested Assignment Materials

Excellent assignment material is a must‑have component of any successful book (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.

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)
6.   Excel and Time-Value of Money Basics (approximate completion time 2 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 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.

New Edition Changes

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

• Digital delivery enhanced   To serve the expanding delivery modes of MBA education, we updated our in‑module Reviews and Guided Example videos for all modules (each Learning Objective has a Review/Guided Example, as well as a corresponding eLecture).

• Data visualization and analytics   Companies are increasingly using data visualization (charts, pictures, and graphs) to more effectively convey financial information. To support student learning, each module opens with a data dashboard and includes end‑of‑chapter assignments that present data graphically and require students to analyze and interpret the data visualizations. We provide students with online access (via MBC) to author‑created PowerBI dashboards where they can interact with the data and learn how to create their own data visualizations.

• Content reflects new standards   This edition covers new standards on Revenue Recognition, Leases, and Marketable Securities. It also includes in-depth discussion of the Tax Cuts and Jobs Act and how new tax law impacts financial analysis.

• Revenue, Operating Expenses, and Receivables   We expanded the discussion of revenue recognition following the new standard and included an illustration and analysis of Microsoft’s revenue recognition. We also discuss sales returns and allowances and the effects of foreign currency exchange rates. Our operating expenses discussion introduces the effects of the Tax Cuts and Jobs Act, with a deeper discussion in Module 10.

• Inventories   Our discussion of cash conversion cycle includes an illustration of management actions undertaken by Home Depot to streamline its supply chain to reduce days inventory outstanding.

• Bond rating   A new section in Module 7 discusses Credit Analysis, including how bond ratings are deter- mined. We provide an example of S&P Global’s ratings for Verizon, following its purchase of Vodafone’s interest in Verizon Wireless. We also simplify our discussion of bond pricing.

• Share-based compensation   Module 8 includes an expanded discussion of share-based compensation, and Tesla’s use of convertible debt. 

• Investments   We include a deeper discussion of the determination of fair value, including an expanded discussion of Level 3 inputs to value securities with limited markets and the accounting for those securities. Module 6 includes a new, expanded discussion of the new goodwill impairment standard.

• Derivatives   We markedly revised our discussion of derivatives to simplify the exposition while maintaining the analysis coverage.

• Equity Carve-Outs   The discussion of equity carve-outs is simplified and we provide examples of the accounting for Sell-offs, IPOs, Spin-offs, and Split-offs. We also discuss the deconsolidation of a subsidiary.

• Leasing   Module 10 reflects the new lease standard including the analysis of right-of-use assets and differences between operating and financial leases. We discuss retrospective and prospective adoption, using Microsoft and Delta Airlines.

• Pension disclosures   We markedly revised our discussion of pension accounting with a detailed illustration of the pension footnote disclosures. We include a section on fair valuation of pension obligations and the accounting for plan settlements.

• Taxes   We provide an in-depth, completely revised, discussion of income tax expense, including the effects of the Tax Cuts and Jobs Act and the analysis implications during the transition period.

• Updated Assignments   We updated all data and financial statements throughout the book to reflect each company’s latest available financial statement filings and disclosures. Assignments include current financial statement excerpts and reflect new standards for Revenue Recognition, Leases, and Marketable Securities and the Tax Cuts and Jobs Act.