Financial Accounting: An Integrated Statements Approach, 2nd Edition

illustrated, and recorded in IFS spreadsheets. After recording transactions for

November, the necessity of making adjustments is described and illustrated. One of

the learning outcomes from Chapters 2 and 3 is that students understand that adjust-

ments (adjusting entries) are required only under the accrual basis of accounting.

This is a learning outcome that is missed by students using the traditional pedagogical

approaches that begin with accrual accounting transactions.

Chapter 3 contains an IFS exhibit illustrating the integration of the financial state-

ments under the accrual basis of accounting. The difference between the cash and

accrual bases of accounting is discussed. As exemplified in the next section, one of the

important learning outcomes from this discussion is that students learn why the accrual

basis of accounting is required by generally accepted accounting principles.

Chapter 4

Chapter 4 introduces debits and credits, journal entries, and ledger accounts. At this

point, students have a solid understanding of the following:

1. How to record transactions using the IFS spreadsheet.


2. How to record adjustments using the IFS spreadsheet.


3. How to prepare financial statements from IFS summary spreadsheets.


4. Why the accrual basis of accounting is required by generally accepted accounting
   principles (see the next section for how this is done).

The only new material that is added in Chapter 4 is the description of the double-

entry accounting system using debits and credits, journal entries, and ledger accounts.

The double-entry accounting is described and illustrated using the hypothetical

company Online Solutions. The Online Solutions illustration is designed so that the

concepts discussed in Chapters 1 through 3 are reviewed and reinforced.

The IFS margin notation is also introduced in Chapter 4 to aid the student’s tran-

sition from recording transactions using IFS spreadsheets to double-entry accounting

with journal entries and accounts. The IFS margin notation accompanies each journal

entry throughout the remainder of text.

WHY IS ACCRUAL ACCOUNTING

REQUIRED BY GAAP?

An understanding of why the accrual basis of accounting is required by generally ac-

cepted accounting principles (GAAP) is an important learning outcome for students

usingFinancial Accounting: An Integrated Statements Approach. Traditional pedagogical

approaches simply begin with accrual accounting without ever explaining or illustrat-

ing why accrual accounting is required by GAAP.

Financial Accountingexplains and illustrates why accrual accounting is required by

GAAP by carefully structuring the illustration of Family Health Care in Chapters 2 and

3. Specifically, Chapter 2 illustrates the recording of transactions and the preparation
   of financial statements for September and October using only cash transactions. As a
   result, net cash flows from operations equals net income for September and October.
   Chapter 3 illustrates the recording of transactions and the preparation of financial
   statements for November using accrual transactions. At the end of Chapter 3, the fol-
   lowing table is presented:

xvi Preface