SPECIAL BOOK FEATURES

Horizontal Financial Statements Model: A horizontal financial statements model replaces the accounting equation as the predominant teaching platform in this text. The model arranges the balance sheet, income statement and statement of cash flows horizontally across a single line of text as shown below.

The statements model approach enables students to see how accounting relates to real-world decision making. The traditional approach teaches students to journalize a series of events and to present summarized information in financial statements. They never see how individual transactions affect financial statements. In contrast, when students record transactions into a statements model, they see a direct connection between business events and financial statements. Most business people think “if I take this particular action, how will it affect my financials,” not “if I do these fifteen things how will they be journalized.” Accordingly, the statements model approach provides a learning experience that is more intuitive and relevant than the one provided by traditional teaching methodology.

Establishing the Conceptual Framework:

• Chapter 1 introduces the key components of the conceptual framework for financial accounting. We expect students to master not only the definitions of financial statement elements but also the relationships between those elements. For example, the term “asset” is defined and then the term “revenue” is defined as an increase in assets. The definitions are expanded in a logical step-wise fashion. Once students have learned the elements, the text explains how to organize those elements into a set of financial statements. The financial statements model is introduced toward the end of the first chapter.
• Accruals and deferrals are introduced in Chapter 2 and it not only introduces new concepts but reinforces the core concepts introduced in Chapter 1. The basic conceptual components of the income statement are reinforced through repetition. By the time students have completed the first two chapters, they have a strong conceptual foundation.
• Chapter 3 introduces recording procedures, including debits and credits. By the end of the first three chapters, students will have been exposed to the same accounting content as those who use traditional books. Instead of emerging from the learning experience with a memorized of set of seemingly unrelated details, students using this text will emerge with a firmly established conceptual foundation.
• After Chapter 3, the text demonstrates both the conceptual structure and the recording procedures in tandem. Each time a new type of business event is introduced, the text illustrates the effects of that event on the financial statements using the statements model. The statements model is then followed with an illustration of the relevant journal entry or T-account entries.

The Effects of Cash Flows are Shown Through the Entire Text: The statement of cash flows is introduced in the first chapter and included throughout the text. Students learn to prepare a statement of cash flows in the first chapter by learning to analyze each increase and decrease in the cash account. They can prepare a statement of cash flows by classifying each entry in the cash account as an operating, investing, or financing activity. This logical approach helps students understand the essential differences between cash flows and accrual-based income.

Effects of Financial Statements Over Multiple Accounting Cycles: The text also uses a vertical statement model that shows financial statements from top to bottom on a single page. This model displays financial results for consecutive accounting cycles in adjacent columns, thereby enabling the instructor to show how related events are reported over multiple accounting cycles.

Managerial Accounting Concepts: Traditional texts have emphasized accounting practices for manufacturing companies, while the business environment has shifted toward service companies. This text recognizes this critical shift by emphasizing decision-making concepts applicable to both service and manufacturing companies. Topics such as cost behavior, operating leverage, and cost allocation are introduced early. Traditional topics such as manufacturing cost flow, job-order and process costing are covered toward the end of the text. This placement reflects the decision-making concepts emphasis found throughout the text.

A Consistent Point of Reference: Why do good students sometimes have so much trouble grasping the simplest concepts? A recent introductory accounting workshop participant supplied the answer. Most accounting events are described from the perspective of the business entity. For example, we say the business borrowed money, purchased assets, earned revenue, or incurred expenses. However, we usually shift the point of reference when describing equity transactions. We say the owners contributed capital, provided cash, or invested assets in the business. This reference shift confuses an entry-level accounting student. Your students will appreciate the fact that this text uses the business entity as a consistent point of reference in describing all accounting events. Accounting is a new language for most business students, so this text makes a conscious effort to minimize the road blocks that are frequently raised by the inconsistent use of technical terminology.

Focus on Corporate Form of Organization: We want students to learn that businesses acquire assets from three primary sources: from creditors, from investors, and from earnings. The corporate organization structure highlights these three asset sources by using separate account categories for liabilities, contributed capital, and retained earnings. We have found the corporate form to be pedagogically superior to the proprietorship form in the educational setting. While we cover accounting for proprietorships and partnerships in separate chapters of the text, we use the corporate form as the primary teaching platform.

Less is More: Many educators recognize the detrimental effect of information overload. Research suggests that students resort to memorization when faced with too much content, and are unable to comprehend basic concepts. We make a conscious choice to reduce the breadth of content coverage in order to enhance student comprehension of concepts. For example, you don't need to teach both the net and gross methods to explain how cash discounts affect financial statements. Demonstrating just one method is sufficient to demonstrate the critical interrelationships.

We have eliminated many of the alternative accounting practices typically found in traditional textbooks. Omitted topics include: alternative recording procedures for adjusting entries, reversing entries, accounting for discounting notes receivable, sum-of-the-years' digits depreciation, accounting for the exchange of like-kind assets, issuing bonds between interest dates, stock subscriptions, and differences in accounting for large versus small stock dividends. While this is not an exhaustive list of omitted topics, it illustrates the serious commitment to reduce the information overload problem. With only twenty-four chapters, this text eliminates less critical details and is able to focus on developing a conceptual framework. This framework enables students to understand, rather than memorize, and less detail results in greater comprehension.

Annual Reports: Two annual reports accompany the text.

• The 2003 annual report for Harley-Davidson, Inc. is packaged separately with the text.
• The 2003 annual report for The Topps Company, Inc. is printed in Appendix B.

Business application problems related to the annual reports from Harley-Davidson, Inc. and Topps Company are included at the end of each chapter.

In the Annual Report and Financial Statement Analysis Projects, located on the text website and the Instructor's Manual, projects for each of these companies are included as well as a general purpose annual report project instructors can assign for any company's annual report.

Comprehensive Problem to Integrate Concepts Across Chapters: Chapters include a comprehensive problem designed to integrate concepts across chapters. These problems help students understand interrelationships between various accounting concepts. The problem builds in each successive chapter, with the ending account balances in one chapter becoming the beginning account balances in the next chapter.

Excel Spreadsheets: Spreadsheet applications are essential to contemporary accounting practice. Students must recognize the power of spreadsheets and know how accounting data are presented in spreadsheets. We discuss Excel applications where appropriate throughout the text. In most instances, the text illustrates actual spreadsheets. End-of chapter materials include problems students can complete using spreadsheet software.

Focus Companies: A logo representing the focus company of each chapter in the managerial portions of the book has been included to add realism to these fictitious companies.

User-Friendly Writing Style: Every chapter of the text has been designed to encourage students to read the book. Students will find the content easy to read and comprehend.