In this book you will learn how to read and prepare financial statements, and how to use basic tools to evaluate financial results. Appendices A and B provide real financial statements of two well-known companies, PepsiCo, Inc. and The Coca-Cola Company . Throughout this textbook we attempt to increase your familiarity with financial reporting by providing numerous references, questions, and exercises that encourage you to explore these financial statements. The Navigator ✓ Inside Chapter 1… • How Will Accounting Help Me? (p. 11) • What Do General Mills, Walt Disney, and Dunkin’ Donuts Have in Common? (p. 24) • All About You: Ethics: Managing Personal Financial Reporting (p. 26) The Feature Story helps you picture how the chapter topic relates to the real world of accounting and business.You will find references to the story throughout the chapter. “Inside Chapter x” lists boxes in the chapter that should be of special interest to you. JWCL165_c01_002-049.qxd 7/27/09 4:48 PM Page 3
4 Preview of Chapter 1 The opening story about Springfield ReManufacturing Corporation highlights the importance of having good financial information to make effective business decisions. Whatever one’s pursuits or occupation, the need for financial information is inescapable. You cannot earn a living, spend money, buy on credit, make an investment, or pay taxes without receiving, using, or dispensing financial information. Good decision making depends on good information. The purpose of this chapter is to show you that accounting is the system used to provide useful financial information. The content and organization of Chapter 1 are as follows. Accounting in Action What Is Accounting? • Three activities • Who uses accounting data The Basic Accounting Equation • Assets • Liabilities • Stockholders’ equity The Building Blocks of Accounting • Ethics in financial reporting • Generally accepted accounting principles • Assumptions Using the Accounting Equation • Transaction analysis • Summary of transactions Financial Statements • Income statement • Retained earnings statement • Balance sheet • Statement of cash flows The Navigator ✓ Why is accounting so popular? What consistently ranks as one of the top career opportunities in business? What frequently rates among the most popular majors on campus? What was the undergraduate degree chosen by Nike founder Phil Knight, Home Depot co-founder Arthur Blank, former act- ing director of the Federal Bureau of Investigation (FBI) Thomas Pickard, and numerous members of Congress? Accounting. 1 Why did these people choose ac- counting? They wanted to understand what was happening financially to their organizations. Accounting is the financial information system that provides these insights. In short, to understand your organization, you have to know the numbers.