Financial Accounting: Tools for
Business Decision Making
Tenth Edition
Kimmel ● Weygandt ● Mitchell
Chapter 1
Introduction to Financial Statements
Prepared by
Diane Tanner
University of North Florida
This slide deck contains animations. Please disable animations if they cause issues with your device.
Copyright ©2022 John Wiley & Sons, Inc.
About and How to Use These Slides Part 1
•
These slides have been developed by Wiley for students as a review and study
tool, and for instructors as a presentation tool.
•
These slides were used as the basis for the Lecture Videos available within Wiley
Course Resources. The Lecture Videos from Wiley include lecture narration and
video from your textbook authors, among others.
•
The Guided Notes in these slides align with the narration in the Lecture Videos.
The Guided Notes may be used by students when studying and reviewing with
the slides, or in combination with viewing the Lecture Videos to add their own
custom study notes.
•
Instructions within the Guided Notes relate to revealing animated content on
the slide gradually while in Slide Show mode, for example by clicking or
keystroke (such as with the Enter key, down arrow key, or Page Down key).
•
For screen reader users: This file contains Animations. For improved screen
reader experience, it is recommended to disable Animations before proceeding
further in this file.
•
For many users, it is recommended to view the slides in Slide Show mode, with
Presenter View turned off, to avoid revealing answers to check questions to
yourself too early. You can choose from where to start the slide show.
About and How to Use These Slides Part 2
•
For slides that contain links to videos:
o
You will need to be logged in to your Wiley course on the device from
which you’re viewing the slides for the links to work.
o
If viewing in Slide Show mode, when you come to a slide with a linked
video, access the control menu to pause the presentation, then you can
use the video link on the slide to open the video in your browser and
play it. When you have completed viewing the video, return to the slide
show and continue playing the presentation.
You may also pause the Slide Show to
give yourself more time to complete
reading a slide.
•
To export the Guided Notes as a resource to add your own notes, in the
PowerPoint deck go to File > Export > Create Handouts. You will be provided
options to export the slides and notes to Word.
•
If you prefer a briefer document of the notes without images of the slides
included, you may also access the transcript from the Lecture Video in Wiley
Course Resources, and copy and paste the transcript into a Word document as a
base to add your own notes while working through the slides, or as you review
the Lecture Video. The narrator may have used slightly different wording in some
instances compared to the Guided Notes, but the differences are not substantive.
Chapter Overview with Paul Kimmel
Chapter Outline
Learning Objectives
LO 1 Identify the forms of business organization and
the uses of accounting information.
LO 2 Explain the three principal types of business
activity.
LO 3 Describe the four financial statements and how
they are prepared.
Learning Objective 1
Identify the Forms of Business
Organization and the Uses of Accounting
Information
LO 1
Business Organization and Accounting
Information Uses
Forms of Business Organization
Sole Proprietorship
Partnership
Corporation
LO 1
Sole Proprietorship
• Owned and controlled by one person
• Simple to establish
• Tax advantages
Examples
• Small owner-operated businesses
such as barber shops, law offices,
auto repair shops, farms, and small
retail stores
LO 1
Partnership
• Two more owners
• Simple to establish
• Shared control
• Broader skills and
resources
• Tax advantages
LO 1
Corporation
• A separate legal entity
• Easier to transfer ownership

Shares of stock are easy to sell on an organized stock
exchange
• Easier for corporations to raise funds

Individuals can become stockholders by investing
relatively small amounts of money
• No personal liability
• Income taxes are higher than proprietorships and
partnerships
LO 1
More About Corporations
• Stock is traded on an organized stock exchanges
 Such as the New York Stock Exchange
• Majority of U.S. business is done by corporations
 Number of total proprietorships and partnerships
exceeds the number of corporations
 Revenue produced by corporations is many times
greater than other forms of organization
LO 1
Hybrid Forms of Organization
• Are now allowed in all states
• Combine the tax advantages of partnerships with
the limited liability of corporations
• Most common hybrid types
o Limited liability companies (LLCs)
o Subchapter S corporations
LO 1
Forms of Business Organization At
Battaglia’s Home
LO 1
Users and Uses of Financial
Information
• Purpose of financial information
 To provide inputs for decision-making
• Accounting
 The information system that identifies, records, and
communicates the economic events of an
organization to interested users
 Users of accounting information
 Internal users
 External users
LO 1
Internal Users
• Managers who plan, organize, and run a business
• Questions asked by internal users
LO 1
Accounting Across the
Organization: Clif Bar & Company
Owning a Piece of the Bar
The original Clif Bar® energy bar was created in 1990, after six
months of experimentation by Gary Erickson and his mother in
her kitchen. Today, the company has approximately 1,000
employees and was named one of Landor’s Breakaway Brands®.
One of Clif Bar & Company’s proudest moments was the
creation of an employee stock ownership plan (ESOP). This plan
gives its employees 20% ownership of the company. The ESOP
also resulted in Clif Bar enacting an open-book management
program, including the commitment to educate all employeeowners about its finances. Armed with basic accounting
knowledge, employees are more aware of the financial impact
of their actions, which leads to better decisions.
LO 1
External Users
• Investors (owners): buy, hold, or sell stock
• Creditors: risk of selling on credit or lending money
• Taxing authorities, such as the Internal Revenue
Service
• Customers: product warranties
• Labor unions
• Regulatory agencies
LO 1
Questions Asked by External Users
LO 1
Internal and External Users at
Battaglia’s Home
LO 1
Data Analytics
• Analyzing data, often employing both software and
statistics, to draw inferences
• Collects data about a company’s economic events
as well as its suppliers and customers
• Helps answer questions such as
 What happened and why did it happen?
 What is likely to happen?
 What should we do about it?
LO 1
Four Types of Data Analytics
LO 1
Data Analytics Insight
Netflix
Using Data Science to Create Art
Technology provides decision-makers and problem-solvers with access to a
large volume of information called “big data.” And Netflix, the world’s leading
subscription streaming entertainment service, is tapping into this big data as
part of its efforts to ramp up its original content production.
In a recent year, Netflix planned to spend $8 billion on content creation.
Producing content involves a blend of creativity, technology, and business
decisions, all of which result in costs. And by analyzing the large amounts of
data from past productions, such as filming locations and production schedules
Netflix can more precisely estimate costs for future productions. Further,
consider that the production of a TV show or film involves hundreds of tasks.
Here again, Netflix uses data science, in this case to visualize where bottlenecks
might occur or where opportunities might exist to increase the efficiency of the
production process.
Source: Ritwik Kumar et. al., “Data Science and the Art of Producing Entertainment at Netflix,” The Netflix Tech Blog (March 26, 2018).
LO 1
Ethics in Financial Reporting
• Financial scandals such as Enron, WorldCom,
HealthSouth, and AIG
 Led to a mistrust of financial reporting
• Congress passed Sarbanes-Oxley Act (SOX)
 To reduce unethical corporate behavior
 To decrease the likelihood of future corporate
scandals
LO 1
Sarbanes-Oxley Act (SOX)
• Top management certifies the fairness of financial
information
• Increased penalties for fraudulent financial activity
• Increased the independence of the outside auditors
who review the accuracy of corporate financial
statements
• Increased the oversight role of boards of directors
LO 1
Solving an Ethical Dilemma: Step 1
• Recognize an ethical situation and the ethical issues
involved

Use your personal ethics to identify ethical situations
and issues
• Some businesses and professional organizations
provide written codes of ethics for guidance in some
business situations
LO 1
Solving an Ethical Dilemma: Step 2
• Identify and analyze the principal elements in the
situation.
 Identify the stakeholders who may be harmed or
may benefit
 Ask the question: What are the responsibilities and
obligations of the parties involved?
LO 1
Solving an Ethical Dilemma: Step 3
• Identify the alternatives and weigh the impact of each
alternative on various stakeholders.

Select the most ethical alternative, considering all the
consequences.

Some situations involve a single correct answer
• Some involve more than one right solution; these situations
require you to evaluate each alternative and select the best
one.
LO 1
Ethics Insight:
Dewey & LeBoeuf LLP
“I Felt the Pressure”—Would You?
“I felt the pressure.” That’s what some of the employees of the now-defunct
law firm of Dewey & LeBoeuf LLP said after they helped to overstate revenue
and use accounting tricks to hide losses and cover up cash shortages. These
employees worked for the former finance director and former chief financial
officer (CFO) of the firm. Here are some of their comments:
•
“I was instructed by the CFO to create invoices, knowing they would not be sent to
clients. When I created these invoices, I knew that it was inappropriate.”
•
“I intentionally gave the auditors incorrect information in the course of the audit.”
•
What happened here is that a small group of lower-level employees over a period of
years carried out the instructions of their bosses. Their bosses, however, seemed to
have no concern about unethical practices as evidenced by various emails with one
another in which they referred to their financial manipulations as accounting tricks,
cooking the books, and fake income.
Sources: Ashby Jones, “Guilty Pleas of Dewey Staff Detail the Alleged Fraud,” Wall Street Journal (March 28, 2014); and Sara
Randazzo, “Dewey CFO Escapes Jail Time in Fraud Case Sentencing,” Wall Street Journal (October 10, 2017).
LO 1
Knowledge Check: Organization
Forms
Identify each of the following organizational characteristics
with the organizational form or forms (sole proprietorship,
partnership, corporation) with which it is associated.
1. Easier to raise funds
Corporation
2. Simple to establish
Sole proprietorship; partnership
3. No personal legal liability
4. Tax advantages
Corporation
Sole proprietorship; partnership
5. Easier to transfer ownership Corporation
LO 1
Knowledge Check: Users of Financial
Information
Which of the following consists of external users?
a. Managers and creditors
b. Investors and regulatory agencies
c. Employees and investors
d. Creditors and employees
LO 1
Knowledge Check: Users of Financial
Information
Answer
Which of the following consists of external users?
a. Managers and creditors
b. Answer: Investors and regulatory agencies
c. Employees and investors
d. Creditors and employees
LO 1
Test Your Vocabulary: Flashcards and
Crossword Puzzles
Have some fun! Try out the vocabulary Flashcards and Crossword
Puzzles available in your Wiley Course Resources.
LO 4
Learning Objective 2
Explain the Three Principal Types of
Business Activity
LO 2
Know the Numbers! at Battlaglia’s
Home
LO 2
Three Types of Business Activity
• Financing activities
 Raising money through outside sources
• Investing activities
 Purchasing resources a company needs in order to
operate
• Operating activities
 Performing the day-to-day actions to produce and
sell a product or provide a service
LO 2
Financing Activities - Borrowing
• Debt financing

Borrowing money…

… to creating a liability
• Creditors

Are the party to whom amounts are owed
• Liabilities

Amounts that are owed

Notes payable – money borrowed as a loan

Bonds payable – debt securities sold to investors
LO 2
Financing Activities – Issuing Stock
• Equity financing
 Issuing (selling) shares of stock for cash
• Common stock
 The amount paid by stockholders for shares they
purchase
• Dividends
 Payments to stockholders
LO 2
How Claims of Creditors and
Stockholders Differ
Creditors
Stockholders
• Loan money to a
company
• Owners of the
company
• Legal right to be paid
• No claim to corporate
cash until creditors’
claims are paid
• May legally force the
corporation to sell
assets to pay its debt
LO 2
Investing Activities
• Purchase of resources a company needs in order
to operate
• Assets
 Resources owned by a business
• Property, plant, and equipment
•
Includes computers, delivery trucks, furniture, buildings
• Cash
• Investments in securities
• Stocks or bonds of other companies
LO 2
Investing Activities at Little City
Books
LO 2
Operating Activities
• Activities that involve the day-to-day actions to
produce and sell a product, or provide a service
• Occur after a business obtains financing and
invests in assets required for operation
• Result in

Revenue
• Amounts generated from the sale of goods or
performance of services

Expenses
• Costs consumed or services used in the process of
generating revenue
LO 2
Operating Activities - Revenue
• The increase in assets or decrease in liabilities
resulting from the sale of goods or the performance
of services in the normal course of business
• Arises from different sources
• Identified by various names depending on the
nature of the business
• Common sources of revenue
o Sales revenue
o Service revenue
o Interest revenue
LO 2
Operating Activities – Assets with
Shorter Lives
• Result from operating activities
 Supplies
• Assets used in day-to-day operations rather than sold
to customers
 Inventory
• Goods available for sale to customers
 Accounts receivable
• Right to receive money in the future from a customer
as the result of a sale
LO 2
Operating Activities - Expenses
• Are the cost of assets
consumed or services used in
the process of generating
revenues
• Common expenses





Cost of goods sold
Selling expenses
Marketing expenses
Administrative expenses
Interest expense
 Income taxes expense
LO 2
Operating Activities - Liabilities
• Often arising from expenses
 Accounts payable
• Goods purchased on credit from suppliers
 Interest payable
• On outstanding amounts owed to the bank
 Wages payable
• Amounts owed to employees
• Sales taxes payable, property taxes payable, and
income taxes payable owed to the government
LO 2
Operating Activities – Net Income or
Loss
• Compare revenues with expenses
for the period
• Results in the profit for the period
• Net income
 Exists when revenues exceed
expenses
• Net loss
 Exists when expenses exceed
revenues
LO 2
Classifying Business Activities
Solution Walkthrough Video: Classifying Business Activities
LO 2
Concept Check: Business Activities
Classify each activity as operating, investing or
financing.
1. Performing a service for a customer
Operating
2. Issuing shares of stock in exchange for cash Financing
3. Purchasing equipment used in operations
Investing
4. Borrowing cash from a bank
Financing
5. Selling goods to a customer
Operating
LO 2
Concept Check: Classifying Items
Classify each item as an asset, liability,
common stock, revenue, or expense.
1. Cost of electric bill
Expense
2. Computers purchased
Asset
3. Notes payable
Liability
4. Issuance of ownership shares
Common stock
5. Amount recorded from performing services Revenue
6. Amounts owed to suppliers
Liability
7. Cash
Asset
LO 2
Learning Objective 3
Describe the Four Financial Statements
and How They Are Prepared
LO 3
The Four Financial Statements
• Income statement

Success of the business during a period of time
• Retained earnings statement

How much income was distributed to owners and how
much was retained
• Balance sheet


A picture at a point in time of what a business owns and
what it owes
Statement of cash flows

Where a business obtained cash during a period of time
and how that cash was used
LO 3
Income Statement
• Are the company’s operations profitable?

Past net income provides information for predicting
future earnings
• Lists the company’s revenues followed by its
expenses for a specific period, for example a month
• Net income results when revenues exceed expenses
• Net loss results when expenses exceed revenues
LO 3
Income Statement Presentation
LO 3
Importance of Income Statement to
Financial Statement Users
• Investors

Buy and sell stock based on their beliefs about a
company’s future performance
• Creditors

Predict whether the company will be profitable
enough to repay amounts owed
LO 3
Preparing an Income Statement
Solution Walkthrough Video: Preparing an Income Statement
LO 3
Knowledge Check: Determining Net
Income
Tua Corporation began operations on January 1, 2025. The following
information is available for Tua on December 31, 2025:
Accounts receivable
Supplies expense
Equipment
Rent expense
Dividends
Service revenue
Supplies
Determine
net income
for 2025.
$ 1,100
2,500
12,900
7,000
2,200
23,000
2,000
Retained earnings
Accounts payable
Cash
Insurance expense
Notes payable
Common stock
Salaries expense
Revenues
Expenses ($2,500 + $7,000 + $800 + $7,200)
Net Income
$
0
1,400
2,400
800
5,700
8,000
7,200
$23,000
17,500
$ 5,500
LO 3
Retained Earnings Statement
• Amounts and causes of changes in retained earnings for
a specific time period
• Net income increases retained earnings
• Net loss decreases retained earnings
• Dividends

Decrease retained earnings

Represent the portion of net income distributed to
owners
• Retained earnings ending balance

Represents cumulative net income retained to allow for
further expansion
LO 3
Importance of the Retained Earnings
Statement to Financial Statement Users
• Shows investors a company’s dividend payment
practices
• Enables investors to determine the portion of
earnings reinvested (retained) to increase growth
• Allows lenders to monitor their corporate
customers’ dividend payments

Dividends use cash that could reduce their ability to
repay debts
LO 3
Retained Earnings Statement
Illustrated
• Time period is the same as income statement
• Enables users to evaluate dividend payment practices
LO 3
Preparing a Retained Earnings
Statement
Solution Walkthrough Video: Preparing a Retained Earnings Statement
LO 3
Knowledge Check: Determining
Retained Earnings
Tua Corporation began operations on January 1, 2025. The
following information is available for Tua on December 31, 2025:
Accounts receivable
$ 1,100 Accounts payable
Equipment
12,900 Cash
$1,400
2,400
Dividends
2,200 Notes payable
5,700
Supplies
2,000 Common stock
8,000
0 Net income
Retained earnings, December 1
5,500
$
Retained earnings
Prepare a
retained
earnings
statement
(omit heading).
Add: Net income
0
5,500
5,500
Less: Dividends
Retained earnings, December 31
2,200
$3,300
LO 3
Balance Sheet
• Assets and claims to assets at a specific time
• Subdivides claims to assets into two categories


Claims of creditors (liabilities)
Claims of owners (stockholders’ equity)
• Based upon the basic accounting equation
• Lists assets first, followed by liabilities and
stockholders’ equity
LO 3
The Accounting Equation
LO 3
Components of the Balance Sheet
• Assets

Listed in order of liquidity, how quickly they can be
converted to cash
• Liabilities
• Stockholders’ equity

Separated into two components
• Common stock
• Results when the company sells new shares of stock
• Retained earnings
• Is the net income retained in the corporation
LO 3
Importance of the Balance Sheet to
Financial Statement Users
Financial statements are used
• To determine the likelihood the company will repay
debt
• To evaluate the nature of the company’s assets and
liabilities
• To determine whether cash on hand is sufficient
• To evaluate the relationship between debt and
stockholders’ equity
LO 3
Balance Sheet Illustrated
LO 3
Preparing a Balance Sheet
Solution Walkthrough Video: Preparing a Balance Sheet
LO 3
Knowledge Check: Calculate Total
Assets
Tua Corporation began operations on January 1, 2025. The following
information is available for Tua on December 31, 2025:
Accounts receivable
$ 1,100 Accounts payable
$1,400
Equipment
12,900 Cash
2,400
Dividends
2,200 Notes payable
5,700
Supplies
2,000 Common stock
8,000
Retained earnings, Dec. 31
3,300 Net income
5,500
Cash
Calculate total
assets.
$ 2,400
Accounts receivable
1,100
Supplies
2,000
Equipment
Total assets
12,900
$18,400
LO 3
Knowledge Check: Calculate Total
Liabilities
Tua Corporation began operations on January 1, 2025. The following
information is available for Tua on December 31, 2025:
Accounts receivable
$ 1,100 Accounts payable
$1,400
Equipment
12,900 Cash
2,400
Dividends
2,200 Notes payable
5,700
Supplies
2,000 Common stock
8,000
Retained earnings, Dec. 31
3,300 Net income
5,500
Calculate total
liabilities.
Accounts payable
Notes payable
Total liabilities
$1,400
5,700
$7,100
LO 3
Knowledge Check: Calculate
Stockholders’ Equity
Tua Corporation began operations on January 1, 2025. The following
information is available for Tua on December 31, 2025:
Accounts receivable
$ 1,100 Accounts payable
$1,400
Equipment
12,900 Cash
2,400
Dividends
2,200 Notes payable
5,700
Supplies
2,000 Common stock
8,000
Retained earnings, Dec. 31
3,300 Net income
5,500
Calculate
stockholders’
equity.
Common stock
Retained earnings
Total stockholders’ equity
$ 8,000
3,300
$11,300
LO 3
Statement of Cash Flows
• Provides financial information about the cash
receipts and payments for a specific period of time
• Reports the cash effects of a company’s operating,
investing, and financing activities
• Shows the net increase or decrease in cash during
the period, and the amount of cash at the end of the
period
Cash is a company’s most important asset.
LO 3
Importance of the Statement of Cash
Flows to Financial Statement Users
• Does the company generate enough cash from
operations to fund its investing activities?
• Provides answers to



Where did cash come from during the period?
How was cash used during the period?
What was the change in the cash balance during the
period?
LO 3
Statement of Cash Flows Illustrated
LO 3
People, Planet, and Profit Insight
Beyond Financial Statements
Columbia Sportswear doesn’t just focus on financial success. Several of its factories
continue to participate in a project to increase health awareness of female factory
workers in developing countries. Columbia is also a founding member of the Sustainable
Apparel Coalition, which strives to reduce the environmental and social impact of the
apparel industry. In addition, the company monitors all the independent factories that
produce its products to ensure that they comply with the company’s Standards of
Manufacturing Practices. These standards address such issues as forced labor, child labor,
harassment, wages and benefits, health and safety, and the environment.
With that in mind, should we expand our financial statements to take into account
ecological and social performance, in addition to financial results, in evaluating a
company?
The idea is that a company’s responsibility lies with anyone who is influenced by its
actions. In other words, a company should be interested in benefiting many different
parties, instead of only maximizing stockholders’ interests. A socially responsible business
does not exploit or endanger any group of individuals. It follows fair trade practices,
provides safe environments for workers, and bears responsibility for environmental
damage. Measurement of these factors is difficult, but many interesting and useful efforts
are underway.
LO 3
Interrelationships of Statements
• The retained earnings statement shows net income
amount from the income statement
• The ending balance of retained earnings is reported
on the balance sheet in the stockholders’ equity
section
• The cash balance on the balance sheet also appears
on the statement of cash flows
LO 3
Interrelationship of Income Statement
to the Retained Earnings Statement
LO 3
Interrelationship of Retained Earnings
Statement to the Balance Sheet
Ending balance in
retained earnings is
needed in preparing
the balance sheet.
LO 3
Interrelationship of Balance Sheet
with the Statement of Cash Flows
The cash amount on the balance
sheet equals the end of period
cash reported on the statement of
cash flows.
LO 3
Knowledge Check: Part 1
Use Accounting Equation
At June 1, WestCo had total assets of $40,000 and
total liabilities of $15,000.
1. If total assets increased $12,000 in June and total
liabilities decreased $5,000, what is the amount of
stockholders’ equity at June 30?
Assets, June 30 = $40,000 + $12,000 = $52,000
Liabilities, June 30 = $15,000 − $5,000 = $10,000
Stockholders’ equity, June 30 = $52,000 − $10,000 = $42,000
LO 3
Knowledge Check: Part 2
Use Accounting Equation
At June 1, WestCo had total assets of $40,000 and
total liabilities of $15,000.
2. During the year, total liabilities decreased $3,000
and stockholders’ equity increased $4,000 in June.
What is the amount of total assets at June 30?
Liabilities, June 30 = $15,000 − $3,000 = $12,000
Stockholders’ equity, June 1 = $40,000 − $15,000 = $25,000
Stockholders’ equity, June 30 = $25,000 + $4,000 = $29,000
Assets, June 30 = $12,000 + $29,000 = $41,000
LO 3
Accounting Day-to-Day at Battlaglia’s
Home
LO 3
Knowledge Check: Net Income
Net income will result during a time period when
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.
LO 3
Knowledge Check: Net Income
Answer
Net income will result during a time period when
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. Answer: revenues exceed expenses.
LO 3
Knowledge Check: Financial Statements
Which of the following financial statements is
prepared as of a specific point in time?
a. Balance sheet
b. Income statement
c. Retained earnings statement
d. Statement of cash flows
LO 3
Knowledge Check: Financial Statements
Answer
Which of the following financial statements is
prepared as of a specific point in time?
a. Answer: Balance sheet
b. Income statement
c. Retained earnings statement
d. Statement of cash flows
LO 3
Elements of an Annual Report
Publicly traded U.S. companies must provide
shareholders with an annual report.
• Aids users in performing a complete financial analysis
• Report elements




Financial statements
Management discussion and analysis
Notes to the financial statements
Independent auditor's report
LO 3
Management Discussion and Analysis
Presents management’s view on the
company’s
• Ability to pay near-term obligations
• Ability to fund operations and expansion
• Results of operations
Consists of
Often called
MD&A
• Highlights by management of favorable or
unfavorable trends
• Significant events and uncertainties that
affect management’s views
LO 3
Management Discussion and Analysis
Example
Columbia Sportswear Company
Management’s Discussion and Analysis of
Seasonality and Variability of Business
Our business is affected by the general seasonal trends
common to the industry, including discretionary consumer
shopping and spending patterns, as well as seasonal
weather. Our products are marketed on a seasonal basis,
and our sales are weighted substantially toward the third
and fourth quarters, while our operating costs are more
equally distributed throughout the year.
LO 3
Notes to the Financial Statements
• An integral part of the statements
• Clarify and provide additional detail
• Essential to understanding a company’s operating
performance and financial position
• Examples

Descriptions of the significant accounting policies
and methods used in preparing the statements

Explanations of uncertainties and contingencies
LO 3
Notes to the Financial Statements
Example
Columbia Sportswear Company
Notes to Financial Statements
Revenue Recognition
Revenues are recognized when our performance obligations are satisfied as
evidenced by transfer of control of promised goods to our customers, in an
amount that reflects the consideration we expect to be entitled to receive in
exchanges for those goods or services. Within our wholesale channel, control
generally transfers to the customer upon shipment to, or upon receipt by,
the customer depending on the terms of sale with the customer. Within our
DTC channel, control generally transfers to the customer at the time of sale
within our retail stores and concession-based arrangements and upon
shipment to the customer with respect to e-commerce transactions.
LO 3
Auditor’s Report
• Prepared by an independent outside auditor


Audits performed only be certified public
accountants (CPAs)
Unqualified opinion
• Presents an opinion that the auditor is satisfied that
the financial statements provide a fair presentation of
the financial position and results of operations and
their conformance with generally accepted accounting
principles
• Includes critical audit matters
• Items that are material in size that involve complex
judgment
LO 3
Auditor’s Report Example
Columbia Sportswear Company
Excerpt from Auditor’s Report
We have audited the accompanying consolidated balance sheets of
Columbia Sportswear Company and subsidiaries (the “Company”) as of
December 31, 2019 and 2018, the related consolidated statements of
operations, comprehensive income, equity, and cash flows for each of the
three years in the period ended December 31, 2019, and the related notes
and schedule listed in the Index at Item 15 (collectively referred to as the
“financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the three years ended December 31, 2019, in conformity
with accounting principles generally accepted in the United States of
America.
LO 3
Accounting Across the Organization
Spinning the Career Wheel
How will the study of accounting help you? A working knowledge of accounting is desirable for
virtually every field of business. Some examples of how accounting is used in business careers
include the following.
General management: Managers of Harley-Davidson, a Qdoba franchise, and a Trek bike shop all
need to understand accounting data in order to make wise business decisions.
Marketing: Marketing specialists at Hulu must be sensitive to costs and benefits to ensure that
marketing efforts increase company profits.
Finance: Do you want to work for Robinhood, E-Trade, or Goldman Sachs? Financial fields rely
heavily on accounting knowledge to analyze financial statements. In fact, it is difficult to get a good
job in a finance function without two or three courses in accounting.
Real estate: Because a third party—the bank—is almost always involved in financing a real estate
transaction, brokers at Prudential Real Estate must understand the numbers involved.
Accounting: Certified public accountants (CPAs) examine (audit) the financial statements and issue
opinions on the accuracy of the financial presentation. Some CPAs offer tax advice and planning.
Others work for for-profit companies such as Starbucks or Google, or for non-profit entities such as
the Red Cross, where they manage the accounting information systems and prepare financial
statements. Opportunities also exist in government, including the Federal Bureau of Investigation
(FBI). Finally, forensic accountants conduct investigations into theft and fraud.
LO 3
Knowledge Check: Components of Annual
Report
State whether each of the following items is most closely
associated with the management discussion and analysis (MD&A),
the notes to the financial statements, or the auditor’s report.
1. View on the ability to pay near-term obligations MD&A
2. Explanation of uncertainties Notes
3. Unqualified opinion Auditor’s report
4. Ability to fund operations MD&A
5. Certified public accountant (CPA) Auditor’s report
6. Descriptions of significant accounting policies Notes
LO 3
Knowledge Check: Annual Report
Identify the area of the annual report each of the following items
would be presented. If likely not found in an annual report, state as
None.
1. Total cash received from customers
Financial statements
2. Management’s assessment of the company’s
results of operations
MD&A
3. Total paid to stockholders during the year
Financial statements
4. An independent assessment of whether the
financial statements present a fair
representation of the company’s results and
financial position
Auditor’s opinion
5. Explanations of uncertainties
Notes to financial
statements
LO 3
Learning Objective 4
Appendix A
Explain the Career Opportunities in
Accounting
LO 4
Why is Accounting A Popular Career
Choice?
• There are a lot of jobs
• Accounting matters
• Sarbanes-Oxley Act significantly increased the
accounting and internal control requirements for
corporations
• Emerging technologies such as automation,
blockchain, and data analytics are changing the way
accountants work
LO 4
Career Options: Public Accounting
Type of Work
• Auditing
• Accountants audit the financial
statements and issue opinions on
the fairness of the financial
presentation
• Taxation
• CPAs offer tax advice and planning
• Management consulting
• Accountants design and install
accounting software and enterprise
resource planning systems and
support mergers and acquisitions
Examples of
Employers
Certification
Opportunities
Deloitte,
EY, KPMG,
PwC, Grant
Thornton,
BDO, Baker
Tilly
Certified public
accountants
(CPAs),
Enrolled agent
(EA), Certified
information
systems
auditor (CISA)
LO 4
Career Options: Private Accounting
Type of Work
• Financial accountants manage the
accounting information system and
prepare financial statements
• Managerial accountants manage
costs and budgets
• Internal auditors ensure compliance
with policies and regulations
Examples of
Employers
Certification
Opportunities
For-profit:
Starbucks,
Google,
Under
Armour
Certified
management
accountant
(CMA),
Certified
internal
Non-profit: auditor (CIA)
Salvation
Army,
Red Cross
LO 4
Career Options: Governmental and
Forensic Accounting
Type of Work
Examples of Employers
Governmental
Internal Revenue
Service (IRS)
• There are opportunities in
government at the local, state,
and federal levels
Forensic accounting
• Accountants conduct
investigations into theft and
fraud
Certification
Opportunities
Certified government
financial manager
(CGFM)
Federal Bureau of
Investigation (FBI)
Insurance companies, Certified fraud
law firms, FBI
examiner (CFE)
LO 4
Show Me the Money
Jobs in Public and Private Accounting
Average salary estimates
Employer
Jr. Level (0-3 yrs.) Sr. Level (4-6 yrs.)
Public accounting (large firm)
$63,250–$83,250
$78,500–$106,500
Public accounting (medium firm
$56,500–$67,750
$70,500–$96,000
Public accounting (small
company)
$51,500–$60,500
$63,750–$81,500
Corporate accounting (large
company)
$53,750–$69,500
$68,750–$87,750
Source: See www.startheregoplaces.com/students/why-accounting/salary-and-demand/
for information regarding the salaries listed.
LO 4
Show Me the Money
Upper-Level Management in Corporate
Accounting
Average salary estimates
Large Company
Small to Medium
Company
Chief financial officer
$207,000–$465,750
$105,250–$208,750
Corporate controller
$140,000–$224,750
$92,000–$161,250
Tax manager
$112,000–$158,250
$88,000–$124,750
Position
Source: See www.startheregoplaces.com/students/why-accounting/salary-and-demand/
for information regarding the salaries listed.
LO 4
Knowledge Check: Career Options
Which of the following may increase a starting salary
about 10 to 15% more in a public accounting firm
above the averages given in the chapter?
a. A CMA license
b. A professional resume
c. A CPA license
d. Professional interviewing
4
Knowledge Check: Career Options
Answer
Which of the following may increase a starting salary
about 10 to 15% more in a public accounting firm
above the averages given in the chapter?
a. A CMA license
b. A professional resume
c. Answer: A CPA license
d. Professional interviewing
4
Copyright
Copyright © 2022 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Act without the express written permission of the
copyright owner is unlawful. Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up
copies for his/her own use only and not for distribution or resale. The Publisher assumes
no responsibility for errors, omissions, or damages, caused by the use of these programs
or from the use of the information contained herein.
105