Preface xv
THE STRUCTURING OF TRANSACTIONS
AND EXAMPLES
Financial Accounting uses a simple to complex pedagogy that allows students to better
grasp basic financial accounting concepts before advancing to more complex topics.
The result is that students find it easier to learn and understand financial accounting.
Examples of this pedagogy taken from the first four chapters of Financial Accounting
are described below.
Chapter 1
The objective of Chapter 1, “The Role of Accounting in Business,” is to introduce
students to the nature of business and the role of accounting in business. The financial
statements of Hershey Foods Corporation are illustrated in a simplified form by
adapting Hershey’s statements filed with the Securities and Exchange Commission.
The authors illustrate the integrated nature of Hershey’s statements by using the IFS
exhibit shown previously. The authors also begin laying the foundation for recording
transactions and interpreting the financial statements by describing eight basic account-
ing concepts.
Chapter 2
After exposing students to financial statements, Chapter 2 introduces the recording
of transactions using the IFS spreadsheet. The Family Health Care illustrations in
Chapter 2 are carefully structured so that only cash transactions occur. This is done for
the following reasons:
- Students often have difficulty determining whether an event (transaction) should
be recorded. By using only cash transactions in Chapter 2, students don’t have this
difficulty. That is, if cash is received or paid, then the transaction must be recorded. - Students understand cash transactions since they have checking accounts and
enter into cash transactions daily. - By using only cash transactions in Chapter 2, no adjustments are necessary for
preparing the financial statements. Thus, the discussion of adjustments is delayed
until the students have a solid foundation of recording transactions using the IFS
spreadsheet and preparing financial statements. - By using only cash transactions in Chapter 2, the statement of cash flows can be
easily prepared. This is important since the statement of cash flows is an integral
financial statement. - By using only cash transactions in Chapter 2, net cash flows from operations on
the statement of cash flows equals net income. Thus, the integration of the state-
ment of cash flows, the retained earnings statement, and the income statement can
easily be shown in an IFS exhibit. This facilitates explaining in Chapter 3 why net
cash flows from operations is normally notequal to net income.
Chapter 3
After exposing students to recording and preparing financial statements for only cash
transactions, Chapter 3 introduces accrual accounting concepts. At this point, students
have a solid foundation of how to use the IFS spreadsheet to record transactions and
how to prepare financial statements from the IFS summary spreadsheets. Continuing
with the Family Health Care illustration, accrual accounting transactions are described,