Preface from the eight edition:
Philosophy and purpose
Imagine that you have graduated from college without taking an accounting course. You are
employed by a company as a sales person, and you eventually become the sales manager of a territory.
While attending a sales managers' meeting, financial results are reviewed by the Vice President of Sales
and terms such as gross margin percentage, cash flows from operating activities, and LIFO inventory
methods are being discussed. The Vice President eventually asks you to discuss these topics as they
relate to your territory. You try to do so, but it is obvious to everyone in the meeting that you do not
know what you are talking about.
Accounting principles courses teach you the "language of business" so you understand terms and
concepts used in business decisions. If you understand how accounting information is prepared, you
will be in an even stronger position when faced with a management decision based on accounting
information.
The importance of transactions analysis and proper recording of transactions has clearly been
demonstrated in some of the recent business failures that have been reported in the press. If the
financial statements of an enterprise are to properly represent the results of operations and the
financial condition of the company, the transactions must be analyzed and recorded in the accounts
following generally accepted accounting principles. The debits and credits are important not only to
accounting majors but also to those entering or engaged in a business career to become managers
because the ultimate effects of these journal entries are reflected in the financial statements. If
expenses are reported as assets, liabilities and their related expenses are omitted from the financial
statements, or reported revenues are recorded prematurely or do not really exist, the financial
statements are misleading. The financial statements are only useful and meaningful if they are fair and
clearly represent the business events of the company.
We wrote this text to give you an understanding of how to use accounting information to analyze
business performance and make business decisions. The text takes a business perspective. We use the
annual reports of real companies to illustrate many of the accounting concepts. You are familiar with
many of the companies we use, such as The Limited, The Home Depot, and Coca-Cola Company.
Gaining an understanding of accounting terminology and concepts, however, is not enough to
ensure your success. You also need to be able to find information on the Internet, analyze various
business situations, work effectively as a member of a team, and communicate your ideas clearly. This
text was developed to help you develop these skills.