TITLE : FINANCIAL ACCOUNTING. 3RD ED. *

Communication between tcacher and student is perhaps thc most critical element of the education process. Yet the ever-increasing number of students in our accounting classrooms makes it more and more difficult for teachers to reach their students. Students come to rely on texts more than on teachers, and teachers must spend increasing amounts of time ex-plaining assigned texts, which leaves reduced amounts of time for discussion of what they view as really important. Recognizing this environment, we have endeavored to write a text that enables students to learn the fundamentals from the text, allowing the teacher to concentrate on particularly difficult areas and to elaborate on the basic material provided by the text. With the help of Random House cditors, we have made a special effort to present clearly understandable explications of the fundamentals of financial accounting. We do not simply point to numerical examples and leave it at that. Rather, we endeavor to explain basic issues thoroughly and to demonstrate their applications. At the same time, we have tried to present the material in such a way as to communicate to the student the importance, pervasiveness, and dynamic nature of the financial accounting function.

Experience with the first and second editions has confirmed our belief in this approach and has led to a significant number of refinements in thc third cdition. The principal changes are as follows:

Every chapter in the book has been reworked for greater clarity and enhanced teaching effectiveness. Every effort has been made to use direct and simple wording, to provide concrete examples whenever possible, to define key accounting tcrms when first used, and to use terminology consistently from one chapter to another.

Chapter 13, retitlcd "The Statement of Cash Flows," has been completely revised, in keeping with recent changes in financial accounting standards, to emphasize cash flows. A general discussion of financial resource flows in the chapter's early pages leads to consideration ot the eash flow statement and its relationship to the balance sheet and income statement. A worksheet procedure is presented in an appendix .

The book concludes with fbur supplementary units called topics, each of which is designed to be covered in a single day. These brief presentations arc supported by questions, exercises and problems.

Topic A, "Accounting for Nonbusiness Entities," which also appeared in the second edition, presents an introduction to fund accounting and a discussion of accounting standards for nonbusiness entities. Topic B, "Accounting for Changing Prices," is a reduced and updated version of a full chapter in thc second edition .

Topic C, "Accounting for International Operations," introduces new material on accounting tor transactions denominated in forcign currcncy and foreign investments.

Topic D, "Personal Income Taxation," presents a brief introduction to personal income taxation that can bc used to supplement Chapter 16, which considers corporate income taxation.

In an effort to make Chapter 1 easier for students, the discussion of the accounting profession has been shortened and the discussion of par value and paid-in capital in excess of par has been moved to Chapter 12. In all chapters prior to Chapter 12, common stock is represented by a single account called capital stock.

A new appendix, entitled "Unusual Income Items," has been added to Chapter 2 to introduce students to extraordi- nary items and the effccts of discontinued operations.

An additional column has been included on the worksheet in Chapters 5 and 6 to present more clearly the trcatment of changes in retained earnings.

The more descriptive terms uncollectible accounts replaces the term had debts in Chapter 6, and a brief discussion of F.O.B. shipping point and F.O.B. destination has been added.

The appendix to Chapter 8 on subsidiary ledgers and control accounts has been expanded to include an example of each type of journal discussed.

Problem materials have been revised and extended. This edition contains 288 questions, 328 exercises, and 255 problems. Over 15 percent of this material is new and an additional 30 percent has been revised. Questions, exercises, and problems are each arranged in the order in which the related topics appear in the chapter.

The typography has been redesigned to provide more open, readable text. In addition, color has been used to highlight important information.

SELF-TEACHING ASPECTS OF THE TEXTBOOK

Since the text and its accompanying materials must do much of the teaching in today's accounting classes, the text needs to contain examples and demonstrations that will assist the student when learning concepts and procedures. Furthernore, it should contain examples of the use of accunting concepts and procedures in decision settings. In this edition, as in the previous editions, our writing has in guided by the manner in which a good teacher thinks and talks in class When users identfied sections of the text wdh which students experienced difficulty, we attempted to rework the material to make it easier for students to digest. If the section was of straightforward treatment could be found. If the section was an extension of a indamental point, we considered relocating the section to a footnote, an appendix, an analysis section, or a separate Supplementary Topic. ln some cases we deleted difficult technical material that was not of fundamental importance to an introductory course.

The ancillary materials for this text augment the self-teaching ability of the book, both in the small classroom and in the large-course setting. These materials have been thoroughly revised.

HELPlNG STUDENTS DEVELOP ACCOUNTlNG SKILLS

Beyond the self-teaching aspects of the book, we hope to meet another meet general need of the students in the introductory accounting sequence. When the financial accounting function is an important and pervasive one, thew is a tendency for introductory students not to apprciate. As importance fully. For many students the course continues to be dull an without purpose. Our goal has been to present ccounting as a dynamic field that performs important functions in our society and is a vital part of business activity. While the material covered in our text is primarly traditional, we present it in an issue-oriented atmosphere using the flowing tools

Analysis sections Conceptual framework for accounting procedures Examples from business environments Organizational and teaching flexibility Textual learning aids

Let us consider each of these tools in turn

ANALYSIS SECTIONS

The analysis sections aw discussions of actual situations that direct attention to issues that he beyond the accunting concepts and procedures. Most chapters present three or four analysis sections to emphasize the interpretation of accounting issues in a decision-making environment, rather than the related calculations and procedures. Each analysis moves from a brief description of a business setting to a discussion of related issues of interest to an investor, lender, entrepreneur, manager, systems designer, or another user of accounting information. Some present judgments and inferences about the firm made by a user of accounting information. Other describe the organizational contexts in which accounting information arises. We have bund that the analysis sections draw students into the chapter subject matter and stimulates them to think more carefully about its importance .

CONCEPTUAL FRAMEWORK FOR ACCOUNTING PROCEDURES

The discussion of accounting concepts is carerully woven into the fabric of the book. The conceptual framework for accounting is introduced gradually as the chapters unfold, and the discussion of concepts is integrated with the prsentation of related accounting procedures. Chapter 1 describes the relationship between the conceptual framework for accounting and generally accepted accounting principles and procedures. Chapter 1 also pwsents the basic concepts ef cost, asset, liability, and equity and demonstrats their inter-riationship in the fundamental accounting model. The presentation of elements of financial statements in Chapter 2 begins with a wised discussion of the concepts of the financing and operating cycles, periodicity, revenue recognition, and matching a tabular summary of concepts is presented at the end of Chapters 1 and 2 to help students understand the conceptual framework. In a similar way, the accounting topics considered in subsequent chapters flow from a discussion of related aspects of the conceptual framework .

BUSINESS ENVIRONMENT

We attempt to make students feel comfortable with actual financial statements by introducing excerpts from carefully selected annual reports throughout the text. In each case we have chosen firms whose names and activities are familiar to students. For example, Chapter 2 presents a facsimile of the Apple Computer, lnc. financial statements to illustrate the form of financial statements and to provide a basis for a simple analysis of Apple's operating results and growth. In Chapter 5 we have reproduced the complete financial statements and accompanying notes for Toys "R" Us, Inc, as the basis for illustrating a variety of financial statement analyses. ln this way, a student becomes increasingly at home with real-world-financial statements and consequently more receptive to the accounting procedures and concepts on which they are built. In addition, we have drawn on the annual reports of many other companies to illustrale our discussions and to enhance further the students' awareness of current financial practices.

ORGANIZATIONAL AND TEACHING FLEXIBILITY

Recognizing that each instructor emphasizes different aspects of financial accounting, we have written our text with a high degree of organizational and teaching flexibility. For example, one instructor may emphasize students' understanding of financial statement content and organization; another instructor may stress accounting procedures. Chapter 2 through 5 are designed to accommodatc both methods of teaching. In Chapter 2 we examine the content and organization of the income statement, balance sheet, and statement of changes in retained earnings with minimal attention to accounting procedures. In Chapter 3 through 5 we present the elements of the accounting cycle in three manageable increments. Chapter 3 examines the basic element of the double-entry system and the recording of events. Chapter 4 is devoted exclusively to ,adjusting entries, and Chapter 5 discusses closing entries and the worksheet. In Chapters 3 through 5 we continue to emphasize the issues of financial statement content and organization. Instructors desiring a financial statement focus for their course can emphasize Chapter 2 and the financial state ment portions of Chapters 3 through 5. Instructors who wish to emphasize accounting procedures can focus on the material describing elements of the accounting data processing cycle presented in Chapters 3 through 5.

Another measure of flexibility is provided for teaching long-term liabilities. Chapter 10, "Current Liabilities, Con tingent Liabilities, and the Time Value of Money," con cludes with an optional section on the time value of money. If this section is not taught, students will go on to Chapter 1, which teaches accounting for long-term liabilities using straight-line interest calculations. If the time value of money is covered, students will progress to Chapter 11, which present accounting for long-term liabilities using time-value of-money calculations. In other words, students normally study either Chapter 11A or 11B, depending on whether or not the time-value of money section of Chapter 10 is covered. Still more flexibility is provided for instructors who do not wish to give detailed consideration to topics such as the cash flow statement (Chaptcr 13) and long-term investments, consolidated financial statements, and business combinations (Chapter 14). To permit various levels of coverage for such topics, those chapters are divided into two parts. The first part presents basic issues. Subsequent parts present further development of these issues. Technical issues are reserved for appendixes. The first part of each chapter can be used alone to present the basic issues and, if additional coverage is required, subsequent parts and appendixes may be assigned as well. In addition, as mentioned earlier, the book concludes with four Supplementary Topics-nonbusiness entities, changing prices, international operations, and personal income taxation-which instructors may use to supplement and extend discussion in the main part of the text. The Instructor's Resource Manual accompanying this text offers a number of alternative syllabi from which the instructor may select the onc best suited to his or her needs.

LEARNING AIDS

Textual Aids

Every effort has been made to produce a text that is easy for students to follow and to learn from. Particular attention has been given to the readability of the text and to the smooth flow and development of ideas and examples. The following learning aids are worthy of note:

LEARNING OBJECTIVES. Each chapter begins with a list of learning objectives that previews the content of the chapter and stimulates the student to begin thinking about the material to come.

RUNNING GLOSSARY. Definitions of key terms are pro- vided in the margins to facilitate retention and quick review. All these terms are compiled into a complete glossary, with chapter references, that appears at the end of the book.

NARRATIVE SUMMARIES. Chapter summaries highlight basic points and principles.

KEY-TERM REVIEW. Each chapter ends with a list of key terms, with pages references, for quick review.

DISCUSSION QUESTIONS. Discussion questions are provided at the end of each chapter. These relate directly to the basic principles covered in the chapter and can be used for student review, class discussion, or homework assignments.

EXERCISES AND PROBLEMS. Exercises and problems are provided at the end of each chapter. Exercises are designed to illustrate basic issues in isolation, whereas problems are more comprehensive and more demanding. Each exercise and problem is labeled as to the topic it covers, making it easy for the instructor to select appropriate exercises and problems to address specific areas.

DEMONSTRATION PROBLEMS. Many chapters contain demonstration problems, which are comprehensive recaps of the chapter's relevant points. These demonstration problems serve as model solutions for students to refer to when working on assignment material, and they are also excellent means of reviewing the chapter's most important topics. Supplementary Text Aids

In addition to the learning aids contained in the text,the fol- lowing supplements are also available to assist students in mastering concepts and procedures:

STUDENT MASTERY GUIDE-by Charles A. Neyhart, Jr., and Patrick S. Kemp (Oregon State University). Coordinated with the text, each chapter of this study guide contains review materials in the form of learning objectives, chapter reviews keyed to the learning objectives, and key-term review. Novel features are a diagnostic pre-test (with solutions) and a common errors section. Two post-tests (with solutions) provide students with additional opportunities to check their mastery of chapter content.

PRACTICE SET-by Jean DuPree-Martin (Tennessee Tech- nological University). Based on financial data for The PC Place, a hypothetical microcomputer sales and service firm, this supplement gives students hands-on experience in applying the accounting data processmg cycle procedures to the development of fihancial statements.

WORKING PAPERS-by Jean DuPree-Martin (Tennessee Technological University). This supplement provides students with all the forms needed for solving the exercises and problems at the end of the chapters in the text.

Software Supplementary Aids

ASHCO, THIRD EDITION, FOR THE IBM PC_ by Louis F. Biagioni (Indiana University). This revised package teaches the monthly accounting cyclc of a corporation. Students generate financial reports by recording transactions in a general journal and a subsidiary ledger, with the option of using special journals. Two monthly cycles can be completed, one computerized, one manual. The program allows instructors and students to create their own accounts and also includes user-friendly HELP screens. This package is available for student purchase for use with the IBM-PC.

FINANCIAL ACCOUNTING TEMPLATES AND PROBLEMS FOR LOTUS 1-2-3, SECOND EDITION-by George F. Hanks and Paul W. Parkison (Ball State University). A set of 36 spreadsheet templates to be used to solve problems and perform analyses for financial accounting using LOTUS 1-2-3. Available tor student purchase ker use with the IBM-PC, with LOTUS 1-2-3 software. Key features include a wide variety of problems, a flexible spreadsheet format that allows tor "what-if" analysis, and the inclusion of a Lotus 1-2-3 tutorial. Students will learn how to solve exercises and problems on one of the business world's most widely used software tools .

Teaching Aids

A number of teaching aids are available to instructors as well. They are as follows:

INSTRUCTOR'S RESOURCE MANUAL-by Raymond J. Krasniewski (The Ohio State University) and Susan A. Lynn (George Mason University). This manual offers recommendations on teaching the text, based on experience with both the first and second editions. Chapter-by-chapter discussion includes suggestions on the presentation of difficult topics and alternative presentations of important issues. The manual also incorporates numerous large-type transparency masters designed for use with the text. This manual provides an outline of each chapter; a problem map that relates problems to the chapter outline and gives the approximate time required to solve each problem; and sample outlines for structuring a course around conceptual or procedural emphases and for organizing one-quarter, one-semester, and two-quarter courses. To help instructors enrich their lectures, conceptual and procedural extensions add depth to textual material. A long problem tied to a conceptual lecture topic is provided tbr each chapter, and each chapter also presents an issue tor reflection and discussion that relates to possible controversies in financial accounting.

SOLUTIONS MANUAL. Fully worked out solutions to all questions, exercises, and problems in the text are provided. The solutions are thoroughly explained and presented in a way that conveys the mental processes students go through in solving problems. The entire solutions manual is printed in large type to facilitate the production of transparencies. In addition, transparencies and transparency masters are available for exercises and problems.

CHECK FIGURES. These are provided for end-of-chapter exercises and problems, and are available (upon request) in quantity to instructors for distribution to their classes.

TEST BANK-by Arnold Schneider (Georgia Institute of Technology). This balanced blend of conceptual and procedural questions has been thoroughly revised. Questions are coded by difficulty level and organized by chapter topic. The test bank now consists of over 1,400 multiple-choice questions and is available both in book form and in a computerized test-writing system.

COMPUTERIZED TEST BANK: RH TEST The RH Test gives access to a broad range of tesDnakillg functions. With it, instructors can prepare tests quickly and easily. This powerful program allows instructors to view questions as they are selected tor a test; scramble questions to create different versions of the test; add questions; edit questions; select questions by type (multiple-choice, true-false, matching, assay, or short answer), objective, and difficulty; and view and save a test. It includes all the questions availabic in the printed test bank. Available tor the IBM PC/PC-XT and true compatibles.

Robert K. Eskew Purdue University

Daniel L. Jensen The Ohio State University