(Download PDF) Using Financial Accounting Information The Alternative To Debits and Credits 10Th Edition Gary A Porter Full Chapter PDF

Using Financial Accounting
Information: The Alternative to Debits

and Credits 10th Edition Gary A. Porter
Visit to download the full and correct content document:
https://ebookmass.com/product/using-financial-accounting-information-the-alternative
-to-debits-and-credits-10th-edition-gary-a-porter/
More products digital (pdf, epub, mobi) instant
download maybe you interests ...
Using Financial Accounting Information: The Alternative

to Debits and Credits 10th Edition – Ebook PDF Version
https://ebookmass.com/product/using-financial-accounting-
information-the-alternative-to-debits-and-credits-10th-edition-
ebook-pdf-version/
Financial Accounting, 10th Edition 10th Edition, (Ebook

PDF)
https://ebookmass.com/product/financial-accounting-10th-
edition-10th-edition-ebook-pdf/
Financial Accounting: Information for Decisions 9th

Edition, (Ebook PDF)
https://ebookmass.com/product/financial-accounting-information-
for-decisions-9th-edition-ebook-pdf/
Financial Accounting for Decision Makers 10th Edition

Book and MyLab Accounting Pack Peter Atrill
https://ebookmass.com/product/financial-accounting-for-decision-
makers-10th-edition-book-and-mylab-accounting-pack-peter-atrill/
Accounting Information Systems Jr
https://ebookmass.com/product/accounting-information-systems-jr/
Managing and Using Information Systems: A Strategic

Approach
https://ebookmass.com/product/managing-and-using-information-
systems-a-strategic-approach/
Financial & Managerial Accounting 18th Edition
https://ebookmass.com/product/financial-managerial-
accounting-18th-edition/
IT Auditing Using Controls to Protect Information

Assets, Third Edition
https://ebookmass.com/product/it-auditing-using-controls-to-
protect-information-assets-third-edition/
Financial and Managerial Accounting 9th Edition John

Wild
https://ebookmass.com/product/financial-and-managerial-
accounting-9th-edition-john-wild/
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
10e
Using Financial
Accounting Information
THE ALTERNATIVE TO
DEBITS AND CREDITS
Gary A. Porter
DRAKE UNIVERSITY
Curtis L. Norton
ARIZONA STATE UNIVERSITY
Using Financial Accounting Information: ª 2018, 2015 Cengage Learning¤
The Alternative to Debits and Credits,
10th edition ALL RIGHTS RESERVED. No part of this work covered by the copyright herein
Gary A. Porter, Curtis L. Norton may be reproduced or distributed in any form or by any means, except as
permitted by U.S. copyright law, without the prior written permission of the
Vice President, General Manager, copyright owner.
Social Science & Qualitative Business:
Erin Joyner
For product information and technology assistance, contact us at
Executive Product Director: Mike Schenk Cengage Learning Customer & Sales Support, 1-800-354-9706
Product Director: Jason Fremder For permission to use material from this text or product,
Senior Product Manager: Matt Filimonov submit all requests online at www.cengage.com/permissions
Further permissions questions can be emailed to
Content Development Manager: Daniel Celenza permissionrequest@cengage.com
Content Developer: Jonathan Gross
Senior Digital Production Project Manager: Unless otherwise noted, all items are ª Cengage Learning.
Sally Nieman
Screenshots are used with permission from Microsoft Corporation. Microsoft
Executive Marketing Manager: Robin LeFevre
Excel¤ is a registered trademark of Microsoft Corporation. ª 2016 Microsoft.
Senior Content Project Manager: Tim Bailey
Manufacturing Planner: Doug Wilke The financial statements are included for illustrative and education purposes
only. Nothing herein should be construed as financial advice.
Production Service: Cenveo Publisher Services
Senior Art Director: Michelle Kunkler Library of Congress Control Number: 2016954444
Cover and Internal Designer: Red Hanger Design Student Edition ISBN: 978-1-337-27633-7
Cover Image: iStockPhoto.com/Piotr Krzeslak Loose-Leaf Edition ISBN: 978-1-337-27639-9
Connection Design Image:
ª Toria/Shutterstock.com Cengage Learning
20 Channel Center Street
Intellectual Property
Boston, MA 02210
Analyst: Brittani Morgan USA
Project Manager: Betsy Hathaway
Cengage Learning is a leading provider of customized learning solutions with
employees residing in nearly 40 different countries and sales in more than
125 countries around the world. Find your local representative at
www.cengage.com.
Cengage Learning products are represented in Canada by

Nelson Education, Ltd.
To learn more about Cengage Learning Solutions, visit www.cengage.com
Purchase any of our products at your local college store or at our preferred
online store www.cengagebrain.com
Printed in Canada
Print Number: 01 Print Year: 2016
To those who really ‘‘count’’
Melissa
Kathy, Amy, Andrew
In memory of
Sophie
Brief Contents
Contents v
Preface xi
CHAPTER 1 Accounting as a Form of Communication 2
CHAPTER 2 Financial Statements and the Annual Report 50

CHAPTER 3 Processing Accounting Information 100
CHAPTER 4 Income Measurement and Accrual Accounting 148
CHAPTER 5 Inventories and Cost of Goods Sold 208

CHAPTER 6 Cash and Internal Control 276
CHAPTER 7 Receivables and Investments 310
CHAPTER 8 Operating Assets: Property, Plant, and Equipment, and Intangibles 356
CHAPTER 9 Current Liabilities, Contingencies, and the Time Value of Money 402
CHAPTER 10 Long-Term Liabilities 454
CHAPTER 11 Stockholders’ Equity 500

CHAPTER 12 The Statement of Cash Flows 554
CHAPTER 13 Financial Statement Analysis 622
APPENDIX A International Financial Reporting Standards A-1
APPENDIX B Excerpts from Chipotle Mexican Grill, Inc. Form 10-K

for the Fiscal Year Ended December 31, 2015 B-1
APPENDIX C Excerpts from Panera Bread Company Form 10-K for the
Fiscal Year Ended December 29, 2015 C-1
Glossary G-1
Index I-1
iv
Contents
CHAPTER 1 Why Should Accountants Be Concerned with Ethics? 22

Is the Information Relevant and a Faithful
Accounting as a Form of Communication 2 Representation? 22
Moral and Social Context of Ethical Behavior 23
Chipotle Mexican Grill, Inc.: Making Business Accountants and Ethical Judgments 23
Decisions 3 The Changing Face of the Accounting Profession 24
MODULE 1 The Nature of Business 4 CHAPTER 2

Forms of Organization 4 Financial Statements and the Annual
Business Entities 5 Report 50
Sole Proprietorships 5
Partnerships 5
Panera Bread Company: Making Business
Corporations 5
Nonbusiness Entities 6
Decisions 51
Organizations and Social Responsibility 6
MODULE 1 Financial Reporting Objectives and
The Nature of Business Activity 6 Characteristics of Useful Information 52
Financing Activities 6
What Makes Accounting Information Useful?
Investing Activities 7
Qualitative Characteristics 53
Operating Activities 7
Summary of Business Activities 7 Understandability 53
Relevance 54
MODULE 2 Accounting and Financial Statements 9 Faithful Representation 54
Users of Accounting Information and Their Needs 9 Comparability and Consistency 54
Internal Users 9 Materiality 55
External Users 9 Conservatism 55
Using Financial Accounting Information 10 An International Perspective on Qualitative
Characteristics 56
Financial Decision Framework 10
MODULE 2 Classified Balance Sheets 56
Financial Statements: How Accountants Understanding the Operating Cycle 57
Communicate 11 Current Assets 58
The Accounting Equation 11 Noncurrent Assets 58
The Balance Sheet 12 Investments 59
The Income Statement 13 Property, Plant, and Equipment 59
The Statement of Retained Earnings 14 Intangibles 59
The Statement of Cash Flows 14 Current Liabilities 59
Relationships Among the Financial Statements 15 Long-Term Liabilities 60
Looking at Financial Statements for a Real Company: Stockholders’ Equity 60
Chipotle 15
Chipotle’s Balance Sheet 15 Using a Classified Balance Sheet: Introduction to
Chipotle’s Income Statement 18 Ratios 62
MODULE 3 Conceptual Framework Working Capital 62
Current Ratio 62
of Accounting 19
Conceptual Framework for Accounting 19 MODULE 3 Income Statements, Statements of
Economic Entity Concept 20 Retained Earnings, and Statements of Cash Flows 64
Asset Valuation: Cost or Fair Value? 20 What Appears on the Income Statement? 64
Going Concern 20 Format of the Income Statement 64
Time Period Assumption 21 Single-Step Format for the Income Statement 64
Setting Accounting Standards 21 Multiple-Step Format for the Income Statement 65
Who Determines the Rules for Financial Statements? 21 Using an Income Statement 66
The Audit of Financial Statements 22 The Statement of Retained Earnings 67
Introduction to Ethics in Accounting 22 The Statement of Cash Flows 68
v
vi Contents
MODULE 4 Reading and Using the MODULE 1 Accrual Accounting Principles 150
Annual Report 70 Recognition 150
Panera Bread’s Balance Sheet 70 Measurement 150
Panera Bread’s Income Statement 72 Choice 1: The Attribute to Be Measured 150
Choice 2: The Unit of Measure 151
Making Business Decisions: Panera Bread 73 Summary of Recognition and Measurement in
Other Elements of an Annual Report 76 Financial Statements 151
Report of Independent Accountants (Auditors’ Report) 76
The Accrual Basis of Accounting 152
The Ethical Responsibility of Management and the Auditors 76
Management Discussion and Analysis 77 Comparing the Cash and Accrual Bases of Accounting 152
What the Income Statement and the Statement of
Notes to Consolidated Financial Statements 78
Cash Flows Reveal 154
Accrual Accounting and Time Periods 155
CHAPTER 3
The Revenue Recognition Principle 155
Processing Accounting Information 100
Expense Recognition and the Matching
Vail Resorts, Inc.: Making Business Decisions 101 Principle 155
MODULE 1 Transactions and the Accounting MODULE 2 Adjustments 158
Equation 102 Types of Adjustments 158
External and Internal Events 102 (1) Cash Paid Before Expense Is Incurred
(Deferred Expense) 159
The Role of Source Documents in Recording (2) Cash Received Before Revenue Is Recognized
Transactions 102 (Deferred Revenue) 161
Analyzing the Effects of Transactions on the (3) Expense Incurred Before Cash Is Paid (Accrued
Accounting Equation 103 Liability) 162
The Cost Principle 105 (4) Revenue Recognized Before Cash Is Received
Balance Sheet and Income Statement for Glengarry (Accrued Asset) 165
Health Club 105 Accruals and Deferrals 166
What Is an Account? 107 Summary of Adjustments 166
Comprehensive Example of Adjustments 167
Chart of Accounts 107 Income Statement and Balance Sheet for
The General Ledger 107 Duffy Transit 170
Identify and Analyze 108 Ethical Considerations for a Company on the
MODULE 2 Debits and Credits 111 Accrual Basis 171
Accounting Tools: The Double-Entry System 111 MODULE 3 The Accounting Cycle 172
The T Account 111 The Use of a Work Sheet 173
Debits and Credits 112 The Closing Process 174
Interim Financial Statements 174
Debits Aren’t Bad, and Credits Aren’t Good 113
Debits and Credits for Revenues, Expenses, and
Dividends 113
Revenues 113
CHAPTER 5
Expenses 113
Dividends 113 Inventories and Cost of Goods Sold 208
Summary of the Rules for Increasing and Decreasing
Accounts 113 Gap Inc.: Making Business Decisions 209
Normal Account Balances 113
Debits and Credits Applied to Transactions 114 MODULE 1 Sales, Cost of Goods Sold,
Transactions for Glengarry Health Club 114 and Gross Profit 210
MODULE 3 Journal Entries and Trial Balances 117 Three Types of Inventory Costs and Three Forms of
The Journal: The Firm’s Chronological Record of Inventory 210
Transactions 117 Three Types of Manufacturing Costs 210
Three Forms of Inventory 210
The Trial Balance 119
Net Sales of Merchandise 211
CHAPTER 4 Sales Returns and Allowances 212
Credit Terms and Sales Discounts 212
Income Measurement and Accrual
Cost of Goods Sold 213
Accounting 148
The Cost of Goods Sold Model 213
Inventory Systems: Perpetual and Periodic 214
Nordstrom, Inc.: Making Business Decisions 149
Contents vii
Beginning and Ending Inventories in a Periodic System 215 Control Over Cash 278
Cost of Goods Purchased 216 Cash Management 279
Purchases 216 Reading a Bank Statement 279
Purchase Discounts 216 The Bank Reconciliation 281
Purchase Returns and Allowances 217 The Need for Adjustments to the Records 282
Shipping Terms and Transportation Costs 217 Establishing a Petty Cash Fund 283
Shipping Terms and Transfer of Title to Inventory 218
MODULE 2 Internal Control 284
The Gross Profit Ratio 218 The Sarbanes-Oxley Act of 2002 284
Making Business Decisions: Gap Inc. 219 The Control Environment 287
The Accounting System 287
MODULE 2 Inventory Costing Methods 222
Internal Control Procedures 287
Inventory Costs: What Should Be Included? 222
Proper Authorizations 287
Inventory Costing Methods with a Periodic Segregation of Duties 287
System 223 Independent Verification 288
Specific Identification Method 224 Safeguarding of Assets and Records 288
Weighted Average Cost Method 225 Independent Review and Appraisal 288
First-In, First-Out Method (FIFO) 226 Design and Use of Business Documents 288
Last-In, First-Out Method (LIFO) 227 Limitations on Internal Control 289
Selecting an Inventory Costing Method 227 Computerized Business Documents and Internal
Costing Methods and Cash Flow 227 Control 289
LIFO Liquidation 228 Control Over Cash Receipts 289
The LIFO Conformity Rule 229 Cash Received Over the Counter 289
The LIFO Reserve: Estimating LIFO’s Effect on Cash Received in the Mail 290
Income and on Taxes Paid for Winnebago Industries 229 Cash Discrepancies 290
Costing Methods and Inventory Profits 230 The Role of Computerized Business Documents in
Changing Inventory Methods 231 Controlling Cash Disbursements 290
Inventory Valuation in Other Countries 231 Purchase Requisition 290
MODULE 3 Other Inventory Issues 232 Purchase Order 292
Invoice 292
Inventory Errors 232 Receiving Report 293
Valuing Inventory at Lower of Cost or Market 235 Invoice Approval Form 294
Why Replacement Cost Is Used as a Measure of Market 235 Check with Remittance Advice 294
Application of the LCM Rule 236
Lower-of-Cost-or-Market under International Standards 237
CHAPTER 7
MODULE 4 Inventory Management and Receivables and Investments 310
Cash Flow Issues 237
Making Business Decisions: Gap Inc. 238 Apple Inc.: Making Business Decisions 311
How Inventories Affect the Cash Flows Statement 240 MODULE 1 Accounting for Accounts Receivable 312
Appendix: MODULE 5 Inventory Costing The Use of a Subsidiary Ledger 312
Methods with a Perpetual System 242 The Valuation of Accounts Receivable 313
Two Methods to Account for Bad Debts 313
FIFO Costing with a Perpetual System 242 Two Approaches to the Allowance Method of
LIFO Costing with a Perpetual System 243 Accounting for Bad Debts 315
Percentage of Net Credit Sales Approach 315
Moving Average with a Perpetual System 244
Percentage of Accounts Receivable Approach 316
Aging of Accounts Receivable 317
CHAPTER 6 The Accounts Receivable Turnover Ratio 319
Cash and Internal Control 276 Making Business Decisions: Apple 319
Regal Entertainment Group: Making Business MODULE 2 Accounting for Notes Receivable 322
Decisions 277 Important Terms Connected with Promissory Notes 323
MODULE 1 Accounting and Controlling for

Accelerating the Inflow of Cash from Sales 324
Cash 278 Credit Card Sales 325
Discounting Notes Receivable 326
Cash Equivalents and the Statement of Cash Flows 278
viii Contents
MODULE 3 Accounting for Investments 327 CHAPTER 9

Investments in Highly Liquid Financial Instruments 327 Current Liabilities, Contingencies,
Investments in Stocks and Bonds 329
No Significant Influence 329
and the Time Value of Money 402
Significant Influence 330
Control 330 Starbucks Corporation: Making Business
Valuing and Reporting Investments on the Financial Decisions 403
Statements 332
MODULE 1 Current Liabilities 404
MODULE 4 How Liquid Assets Affect the
Accounts Payable 404
Statement of Cash Flows 333
Notes Payable 405
Current Maturities of Long-Term Debt 407
Taxes Payable 408
CHAPTER 8 Other Accrued Liabilities 408
Operating Assets: Property, Plant, and IFRS and Current Liabilities 409
Equipment, and Intangibles 356
MODULE 2 Cash Flow Effects 410
Nike: Making Business Decisions 357 MODULE 3 Contingent Liabilities 411
MODULE 1 Acquisition of Operating Assets 358 Contingent Liabilities That Are Recorded 412
Product Warranties and Guarantees: Common
Acquisition of Property, Plant, and Equipment 358 Contingent Liabilities That Are Recorded 412
Group Purchase 359 Premiums or Coupons: Other Contingent Liabilities
Capitalization of Interest 359 That Are Recorded 413
Land Improvements 360 Some Lawsuits and Legal Claims Are Contingent
MODULE 2 Depreciation and Disposal of Liabilities That Must Be Recorded 413
Contingent Liabilities That Are Disclosed 414
Operating Assets 361
Contingent Liabilities versus Contingent Assets 414
Straight-Line Method 362
Units-of-Production Method 362 IFRS and Contingencies 414
Accelerated Depreciation Methods 363 MODULE 4 Time Value of Money 415
Comparison of Depreciation Methods 364
Depreciation and Income Taxes 364 Simple Interest 416
Choice of Depreciation Method 364 Compound Interest 416
Change in Depreciation Estimate 365 Interest Compounding 416
Capital versus Revenue Expenditures 366 Present Value and Future Value: Single Amounts 417
Future Value of a Single Amount 417
Environmental Aspects of Operating Assets 368
Present Value of a Single Amount 419
Disposal of Property, Plant, and Equipment 368
Present Value and Future Value of an Annuity 420
Gain on Sale of Assets 369
Future Value of an Annuity 420
Loss on Sale of Assets 370
Present Value of an Annuity 421
IFRS and Property, Plant, and Equipment 370
Solving for Unknowns 421
MODULE 3 Intangible Assets 372
Appendix: Accounting Tools: Using
Balance Sheet Presentation 372 Excel¤ for Problems Involving Interest
Acquisition Cost of Intangible Assets 372
Research and Development Costs 372
Calculations 427
Amortization of Intangibles 373
Intangibles with Finite Life 373
Intangibles with Indefinite Life 374 CHAPTER 10
Goodwill and Impairments 374 Long-Term Liabilities 454
IFRS and Intangible Assets 375
MODULE 4 Cash Flow and Analysis Issues 376 Coca-Cola: Making Business Decisions 455
Analyzing Long-Term Assets for Average MODULE 1 Long-Term Liabilities Including
Life and Asset Turnover 378 Bonds Payable 456
Making Business Decisions: Nike 378
Bonds Payable: Characteristics 457
Collateral 458
Contents ix
Due Date 458 Stock Dividends 512

Other Features 458 Stock Splits 514
Issuance of Bonds 458 MODULE 3 Analysis and Cash Flow Issues 516
Factors Affecting Bond Price 458 What Is Comprehensive Income? 517
Premium or Discount on Bonds 460 What Analyzing Stockholders’ Equity
Reveals About a Firm’s Value 518
MODULE 2 Bond Amortization and Bond
Calculating Book Value When Preferred Stock
Retirement 463 Is Present 518
Effective Interest Method: Impact on Expense 463 Market Value per Share 519
Redemption of Bonds 466 How Changes in Stockholders’ Equity Affect the
Retired Early at a Gain or a Loss 466 Statement of Cash Flows 519
Financial Statement Presentation of Gain or Loss 468 Appendix: MODULE 4 Sole Proprietorships
MODULE 3 Liability for Leases 469 and Partnerships 521
Leases 469
Sole Proprietorships 522
Lease Criteria 469
Typical Transactions 522
Operating Leases 469
Capital Leases 470 Partnerships 523
IFRS and Leasing 473 Investments and Withdrawals 524
MODULE 4 Analysis of Long-Term Distribution of Income 525
Liabilities and Cash Flow Issues 473
Making Business Decisions: Pepsico 474 CHAPTER 12
How Long-Term Liabilities Affect the The Statement of Cash Flows 554
Statement of Cash Flows 476
Walgreens Boots Alliance: Making Business
Appendix: MODULE 5 Deferred Tax 478
Decisions 555
MODULE 1 Purpose and Format for the

CHAPTER 11 Statement of Cash Flows 556
Stockholders’ Equity 500 Purpose of the Statement of Cash Flows 556
Reporting Requirements for a Statement of Cash Flows 556
Southwest Airlines: Making Business Decisions 501
The Definition of Cash: Cash and Cash
MODULE 1 Stockholders’ Equity, Issuance Equivalents 558
of Stock, and Treasury Stock 502 Classification of Cash Flows 559
Stockholders’ Equity on the Balance Sheet 503 Operating Activities 560
How Income and Dividends Affect Retained Earnings 503 Investing Activities 560
Identifying Components of the Stockholders’ Financing Activities 561
Equity Section of the Balance Sheet 503 Summary of the Three Types of Activities 561
Number of Shares 504 Noncash Investing and Financing Activities 561
Par Value: The Firm’s ‘‘Legal Capital’’ 504
Additional Paid-In Capital 505 Two Methods of Reporting Cash Flow from
Retained Earnings: The Amount Not Paid as Dividends 505 Operating Activities 563
IFRS and Stockholders’ Equity 505
MODULE 2 Preparing the Statement of
Preferred Stock 505 Cash Flows Using the Direct Method 567
Issuance of Stock 506 The Accounting Equation and the Statement of Cash
Stock Issued for Cash 506 Flows 567
Stock Issued for Noncash Consideration 507 An Approach to Preparing the Statement of Cash Flows:
Direct Method 568
What Is Treasury Stock? 507 Step 2: Determine the Cash Flows from Operating
Retirement of Stock 509 Activities 569
MODULE 2 Cash Dividends, Stock Dividends, Sales Revenue and Accounts Receivable 569
Interest Revenue 571
and Stock Splits 511
Gain on Sale of Machine 571
Cash Dividends 511 Cost of Goods Sold, Inventory, and Accounts Payable 571
Cash Dividends for Preferred and Common Stock 511
x Contents
Salaries and Wages Expense and Salaries and Wages Take Care When Making Comparisons 624
Payable 572 Understand the Possible Effects of Inflation 624
Depreciation Expense 572
Analysis of Comparative Statements: Horizontal
Insurance Expense and Prepaid Insurance 572
Analysis 625
Interest Expense 573
Income Taxes Expense and Income Taxes Payable 573 Analysis of Common-Size Statements: Vertical
Loss on Retirement of Bonds 573 Analysis 629
Compare Net Income with Net Cash Flow from MODULE 2 Liquidity Analysis 632
Operating Activities 573
Step 3: Determine the Cash Flows from Investing Working Capital 632
Activities 575 Current Ratio 633
Long-Term Investments 575 Acid-Test Ratio 633
Land 575 Cash Flow from Operations to Current Liabilities 634
Property and Equipment 575 Accounts Receivable Analysis 635
Step 4: Determine the Cash Flows from Financing Inventory Analysis 636
Activities 576 Cash Operating Cycle 636
Notes Payable 576 MODULE 3 Solvency Analysis 638
Bonds Payable 576
Debt-to-Equity Ratio 638
Capital Stock 576
Times Interest Earned 638
Retained Earnings 577 Debt Service Coverage 639
Using the Three Schedules to Prepare a Statement of Cash Flow from Operations to Capital
Cash Flows 577 Expenditures Ratio 640
MODULE 3 Preparing the Statement of MODULE 4 Profitability Analysis 641
Cash Flows Using the Indirect Method 579
Rate of Return on Assets 641
Net Income 579 Components of Return on Assets 642
Accounts Receivable 579 Return on Common Stockholders’ Equity 643
Gain on Sale of Machine 579 Return on Assets, Return on Equity, and Leverage 643
Inventory 580 Earnings per Share 644
Accounts Payable 580 Price/Earnings Ratio 645
Salaries and Wages Payable 580 Dividend Ratios 646
Depreciation Expense 580 Summary of Selected Financial Ratios 646
Prepaid Insurance 580
Income Taxes Payable 580
Loss on Retirement of Bonds 580 APPENDIX A
Summary of Adjustments to Net Income under the International Financial Reporting
Indirect Method 580 Standards A-1
Comparison of the Indirect and Direct Methods 581
MODULE 4 Cash Flow Analysis 582
APPENDIX B
Creditors and Cash Flow Adequacy 582
Excerpts from Chipotle Mexican Grill, Inc.
Making Business Decisions: Nordstrom 583 Form 10-K for the Fiscal Year Ended
Stockholders and Cash Flow per Share 585 December 31, 2015 B-1
Appendix: MODULE 5 A Work Sheet Approach
to Preparing the Statement of Cash Flows 586 APPENDIX C
Excerpts from Panera Bread Company Form
CHAPTER 13 10-K for the Fiscal Year Ended December 29,
Financial Statement Analysis 622 2015 C-1
Lululemon Athletica Inc.: Making Business

Decisions 623 Glossary G-1
MODULE 1 Horizontal and Vertical Analysis 624 Index I-1
Watch for Alternative Accounting Principles 624
Preface
Seeing the Forest for the Trees

Accounting is more than just recording business events. It is a powerful tool for invest-
ors, managers, and decision makers. It is a common and powerful tool in every business.
This is even more true for the majority of business students who may never see a journal
entry in their entire professional careers. Using Financial Accounting Information, 10e is
written for these students—people who may not become accountants but still need to
understand why accounting is important.
Connecting to the Big Picture

By demonstrating that accounting is an important decision-making tool, Porter/
Norton’s Using Financial Accounting Information, 10e helps students see the big pic-
ture and understand how accounting is more than recording a series of events. Students
who understand why accounting is important are more motivated to learn and succeed.
This text uses a variety of methods to connect students to the big picture. First, a
hallmark of this text has always been emphasizing why accounting is important through
the use of financial statements and other data for real-world company examples, chapter
openers, and end-of-chapter material, giving students the opportunity to use that data to
apply what they’re learning.
This emphasis is continued through the text’s unique transaction model. Each transac-
tion in the text and the solutions manual is notated using a two-part element that focuses
on the relationships between accounts, their increases and decreases, and the resulting artic-
ulation of the financial statements.
This style provides instructors with maximum flexibility in teaching these key concepts.
1. ‘‘Identify and Analyze’’ This element shows how each transaction affects the income
statement and the balance sheet, with key additional information in an active learn-
ing format. Students learn to Identify and Analyze:
• The type of business activity—operating, investing, or financing.
• The accounts affected by the transaction.
• The financial statement(s) affected by the transaction—balance sheet, income
statement, or both.
2. Transaction-Effects Equation This element shows how each transaction affects the
accounting equation, the balance sheet, the income statement, and stockholders’ equity.
This integrated form of notation has benefits for both students and instructors:
• It provides a clear view of how transactions affect the balance sheet.
• Its separation of balance sheet and income statement sides differentiates these two
equations and shows how the income statement elements are affected.
xi
xii Preface
• Its arrow format better communicates the relationship between net income and
stockholders’ equity.
• When a transaction includes a contra account, this form explains clearly the effect of
this account on the equation.
This model is extended into the end-of-chapter material and CengageNOWv2. In
CengageNOWv2, students are also expected to demonstrate that they understand the
link between transactions and financial statements—consistent with the text.
Other features throughout the book help students make the connection and see the
big picture:
• Focus on highly recognizable companies such as Chipotle, Panera Bread, Nike, and
many others draws students into the chapter.
• Financial statements and notes from Chipotle and Panera Bread allow students to
apply the accounting models they’re learning to real financial data from two compa-
nies in the same industry.
The real-world flavor that demonstrates how accounting can be used to make
decisions continues in the end-of-chapter activities. Decision Cases ask students to
read and interpret financial statements:
• Each chapter highlights a focus company and real company information is used
throughout the narrative and end-of-chapter activities to help students develop their
analytical skills.
• Connect to the Real World features ask students to

read and interpret the financial statements of the chap-
ter’s focus company, applying what they have learned in
the chapter.
Preface xiii
• NEW HOW WILL I USE

ACCOUNTING? feature
demonstrates relevance by
providing students with
examples of how marketing,
sales, and management pro-
fessionals use accounting in
their careers.
• The Ratio Analysis Model guides students

through formulating a question about
a real company, and then calculating,
comparing, and interpreting ratios. Stu-
dents will identify relevant financial infor-
mation, analyze that information, and
make better business decisions based on
what they uncover – powerfully demon-
strating the relevance and importance of
accounting.
xiv Preface
The Business Decision Model moves a step beyond ratios by formulating a question
as a user of financial information, gathering and analyzing the necessary information,
making a decision, and then monitoring that decision. This framework, integrated
throughout the text, provides students with models for honing their analysis and deci-
sion-making skills using real company information in a relevant, applicable context.
Built for Today’s Students

In addition to helping students see the big picture and understand why accounting is im-
portant, Porter/Norton’s Using Financial Accounting Information, 10e is built for
today’s students.
Preface xv
• New to this edition, the unique modular organization breaks the chapter into
logical groupings of concepts, allowing students to absorb the chapter content in
smaller sections for better retention.
• Test Yourself reviews, at the end of each module, provide students with an oppor-
tunity to check their understanding, answer questions, and work brief exercises to
build confidence. Solutions to Test Yourself, located at the end of the chapter, allow
students to check their answers.
• Study Tips in the margins alert students to be on the lookout for certain things.
This could be the similarities between two different concepts or a warning to
watch out for a common pitfall.
CengageNOWv2. CengageNOWv2 for Porter/Norton’s Using Financial

Accounting Information, 10e helps elevate student thinking with unique content that
addresses each stage of the learning process from motivation to mastery. This inte-
grated solution provides tools and resources specifically developed to motivate stu-
dents to learn, apply accounting concepts, and achieve mastery of course content.
In a recent survey of nearly 300 CengageNOW student users:
• Motivation: 77% said that using CengageNOW made them more interested/
engaged in the course.
• Application: 87% said that CengageNOW made completing homework an effec-
tive learning process.
• Mastery: 72% said CengageNOW helped them go beyond memorization and
recall to reach higher levels of learning.
• 76% said the use of CengageNOW helped them better understand why accounting
matters and the importance of accounting in making critical business decisions.
xvi Preface
Motivation: Set Expectations and Prepare

Students for the Course
CengageNOWv2 helps motivate students and get them ready to learn by reshaping their
misconceptions about the introductory accounting course, and providing powerful tools
to engage students.
CengageNOWv2 Start-Up Center. Students are often surprised by the
amount of time they need to spend outside of class working through homework assign-
ments in order to succeed. The CengageNOWv2 Start-Up Center will help students
identify what they need to do and where they need to focus in order to be successful
with a variety of brand new resources.
NEW What Is Accounting? Module ensures students understand course expectations
and how to be successful in the introductory accounting course. This module consists of
two assignable videos: Introduction to Accounting and Success Strategies. The Student
Advice Videos offer advice from real students about what it takes to do well in the course.
NEW Math Review Module, designed to help students get up to speed with neces-
sary math skills, includes math review assignments and Show Me How math review
videos to ensure that students have an understanding of basic math skills, including:
• Whole number operations
• Decimal operations and rounding
• Percentage operations and conversion
• Fraction operations
• Converting numbers expressed in one form to a different form
• Positive and negative numbers
• Ratios and averages
NEW How to Use CengageNOWv2 Module focuses on learning accounting, not
on a particular software system. Quickly familiarize your students with Cengage-
NOWv2 and direct them to all of its built-in student resources.
Motivation: Engage Students and Better Prepare Them for Class.
With all the outside obligations accounting students have, finding time to read the text-
book before class can be a struggle. Point students to the key concepts they need to
know before they attend class.
Video: Tell Me More. Short Tell Me More lecture activities explain the core con-
cepts of the chapter through an engaging auditory and visual presentation. Available
both on a stand-alone basis or as an assignment, they are ideal for all class formats—
flipped model, online, hybrid, face-to-face.
Preface xvii
Students don’t want to waste time going over concepts that they have already mastered.
With the NEW Adaptive Study Plan, they can focus on learning new topics and fully
understanding difficult concepts.
NEW Adaptive Study Plan in CengageNOWv2 is an assignable/gradable study
center that adapts to each student’s unique needs and provides a remediation path-
way to keep students progressing. With the NEW Adaptive Study Plan, they can
focus on learning new topics and fully understanding difficult concepts.
How Does It Work?

Step 1: Students take a chapter-level quiz consisting of random questions that cover
both conceptual and procedural aspects of the chapter.
Step 2: Feedback is provided for each answer option explaining why the answer is
right or wrong.
Step 3: Based on the quiz results, students are provided a remediation path that
includes media assets and algorithmic practice problems to help them improve their
understanding of the course material.
Instructors may use prerequisites that require students to achieve mastery in the Adapt-
ive Study Plan before moving on to new material.
Using the Adaptive Study Plan, students may also review
and check their knowledge with the new Practice! Activities. “The new Adaptive Study Plan offers the benefit
These items (generally one per learning objective) build appli- of customization coupled with remediation.”
cation skills by allowing students to complete practice problems – Jennifer Schneider,
and ‘‘Try Another Version.’’ professor at University of North Georgia
xviii Preface
Application: Provide Help Right When Students

Need It
Students often complete homework at odd times. And when they use CengageNOWv2,
they get help right when they need it.
• Check My Work Feedback provides general guidance and hints as students work
through homework assignments.
• NEW Check My Work Feedback in CengageNOWv2 now only reports on what
students have actually attempted, which prevents them from ‘‘guessing’’ their way
through assignments.
Preface xix
• Post-Submission Feedback is available after the assignment has been submitted

and provides a detailed description of how to arrive at the solution.
• Video: Show Me How. Created for the most frequently assigned end-of-chapter
items, NEW Show Me How problem demonstration videos provide a step-by-step Show
model of a similar problem. Embedded tips and warnings help students avoid com- me
mon mistakes and pitfalls.
how
Mastery: Help Students Go Beyond

Memorization to True Understanding.
Students often struggle to understand how concepts relate to one another. For most stu-
dents, an introductory accounting course is their first exposure to both business transac-
tions and the accounting system. While these concepts are already difficult to master
individually, their combination and interdependency in the introductory accounting
course often pose a challenge for students.
• Mastery Problems. New Mastery Problems enable you to assign problems and
activities designed to test students’ comprehension and mastery of difficult concepts.
Can they apply what they have learned to a new problem set that offers a twist?
• Decision Cases. Decision Cases require students to read and interpret financial
statements from real-world companies—applying learned concepts to real firms and
real situations.
Enhanced Reporting Capabilities. CengageNOWv2’s new Gradebook Ana-

lytics allow instructors unprecedented insight into classroom performance. This includes:
• classroom performance versus a variety of objectives, including Learning Objectives,
AACSB, Bloom’s, and more;
• classroom performance on specific items; and,
• classroom performance versus national scores.
xx Preface
Chapter-by-Chapter Changes
Chapter 1
• Introduced modular approach to chapter topics, including Test Yourself with
Review, Question, and Apply at the end of each module.
• Introduced one of two new flagship companies, Chipotle Mexican Grill, Inc., as the
focus company for Chapter 1.
• Revised Exhibits 1-1, 1-3, 1-7, and 1-8 to reflect new flagship company, Chipotle
Mexican Grill, Inc.
• Introduced new feature: How Will I Use Accounting?
• Revised ‘‘Connect to the Real World’’ feature (Real World Practice in prior edition)
to reflect new flagship company.
• Updated end-of-chapter material: E1-9, E1-16, P1-8, P1-9, P1-8A, and P1-9A.
• Revised DC1-1 and DC1-2 to reflect new flagship company, Chipotle Mexican
Grill, Inc.
• Revised DC1-3 to reflect new flagship companies, Chipotle Mexican Grill, Inc., and
Panera Bread Company.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all modules.
• Added Answers to ‘‘Connect to the Real World’’ at the end of the chapter.
Chapter 2
• Introduced one of two new flagship companies, Panera Bread Company, as the
focus company for Chapter 2.
• Revised Exhibits 2-1, 2-2, and 2-3 to reflect new flagship company, Panera Bread
Company.
to reflect new flagship company.
• Revised Ratio Decision and Business Decision Models for the Current Ratio to
reflect new flagship company.
• Revised Ratio Decision Model for the Profit Margin Ratio to reflect new flagship
company.
• Revised Exercise 2-3 to reflect Regal Entertainment Group.
• Updated end-of-chapter material: P2-10 and P2-10A.
• Revised DC2-2 to reflect new flagship company, Panera Bread Company.
Chapter 3
• Introduced Vail Resorts, Inc., as the new focus company for Chapter 3.
to reflect new focus company, Vail Resorts, Inc.
• Revised E3-8 and E3-17 to reflect new focus company, Vail Resorts, Inc.
• Revised DC3-1 to reflect new flagship companies, Chipotle Mexican Grill and
• Updated end-of-chapter material: DC3-3.
Preface xxi
Chapter 4
• Updated the chapter opener with the most current information available and replaced
the financial statements from Nordstrom as the focus company for Chapter 4.
• Revised section on the revenue recognition principle to conform to new accounting
standard.
• Updated ‘‘Connect to the Real World’’ (Real World Practice in prior edition) for
new information for Nordstrom, Inc.
• Updated end-of-chapter material: DC4-2 and DC4-3.
• Revised DC4-1 to reflect new flagship companies, Chipotle Mexican Grill and
Chapter 5
the financial statements from Gap Inc. as the focus company for Chapter 5.
• Revised Net Sales of Merchandise section to conform to new FASB standard on rev-
enue recognition, ‘‘Revenue from Contracts with Customers.’’
• Revised coverage of purchase returns and allowances to conform to coverage of sales
returns and allowances.
• Revised coverage of purchase discounts to illustrate the net method of recording.
• Updated Example 5-14 for Winnebago Industries’ LIFO reserve.
• Revised Exhibit 5-9, substituting a partial statement of cash flows for Chipotle Mex-
ican Grill, Inc.
new information for Gap Inc.
• Updated Ratio Model for the Gross Profit Ratio for new information available.
• Updated Ratio Model for the Inventory Turnover Ratio for new information available.
• Deleted Exercise requiring detailed analysis for purchase discounts, returns, and
allowances.
• Updated end-of-chapter material: E5-15, P5-2, P5-5, P5-8, P5-14, P5-2A, P5-5A,
P5-8A, P5-14A, DC5-2, and DC5-3.
• Revised DC5-1 to reflect new flagship companies, Chipotle Mexican Grill, Inc. and
• Deleted Decision Case on sales returns and allowances.
• Revised DC5-9 to integrate the concept of ethics in accounting with the practice of
modeling ethical decision making.
Chapter 6
• Introduced Regal Entertainment Group as the new focus company for Chapter 6.
xxii Preface
new flagship company, Panera Bread Company.
• Revised Exhibits 6-1, 6-3, and 6-4 to illustrate statements and reports for new focus
company, Regal Entertainment Group.
• Updated end-of-chapter material: DC6-2.
• Added Answers to ‘‘Questions’’ and ‘‘Apply’’ at the end of the chapter for all
modules.
Chapter 7
the financial statements from Apple Inc. as the focus company for Chapter 7.
new information for Apple Inc.
• Updated Ratio Decision Model for the Accounts Receivable Turnover Ratio with
new information available.
• Revised E7-5 to reflect Nike.
• Updated end-of-chapter material: P7-3, P7-3A, DC7-1, DC7-2, and DC7-3.
modules.
Chapter 8
• Updated the chapter opener with the most current information available and
replaced the financial statements from Nike as the focus company for Chapter 8.
• Updated Ratio Decision Model with new information for Nike and Foot Locker.
• Updated end-of-chapter material: DC8-1 features Panera Bread Company, and
DC8-2 reflects Panera Bread Company and Chipotle.
modules.
Chapter 9
the financial statements from Starbucks as the focus company for Chapter 9.
• Changed Exhibit 9-4 concerning contingent liabilities.
• Updated P9-2 for Burger King, P9-3 for Brinker, P9-2A for McDonald’s, and
P9-3A for Darden Restaurants.
• Changed DC9-1 to Panera Bread Company and Chipotle.
• Updated DC9-2 for Caribou Coffee, DC9-3 for Walmart, and DC9-4 for
Hewlett-Packard.
Preface xxiii
Chapter 10
• Updated the chapter opener with the most current information available and replaced the
financial statements from Coca-Cola and Pepsi as the focus companies for Chapter 10.
• Updated Ratio Decision Model with new information for Coca-Cola and Pepsi.
• Eliminated references to extraordinary items because of FASB pronouncement.
• Updated P10-9 on Walgreens and P10-9A on Boeing.
• Retained the section on leasing but noted pending FASB pronouncement. This module
can be skipped by instructors and it will not affect other portions of the chapter.
• DC10-1 features Panera Bread Company, and DC10-2 reflects Panera Bread Com-
pany and Chipotle. DC10-3 has been updated for Pepsi.
Chapter 11
the financial statements from Southwest Airlines as the focus company for Chapter 11.
• Updated end-of-chapter material: P11-7 for Southwest Airlines and P11-7A for Costco.
• DC11-1 features Panera Bread Company and Chipotle, and DC11-2 highlights
• Made substantial changes to Interactive Problem to eliminate leasing as one of the
alternatives. Problem is now more straigtforward.
Chapter 12
the financial statements of the focus company for Chapter 12.
• Deleted exhibit detailing cash flow and net income differences for four companies.
new flagship company Chipotle Mexican Grill, Inc., and for new information for
Walgreens Boots Alliance.
• Updated Ratio Decision Model for the Cash Flow Adequacy Ratio with new
information available.
• Updated end-of-chapter material: E12-4, DC12-2, and DC12-3.
• Revised DC12-1 to reflect new flagship companies, Chipotle Mexican Grill, Inc.,
and Panera Bread Company.
Chapter 13
• Updated the chapter opener with the most current information available and
replaced the financial statements from lululemon athletica inc. as the focus
company for Chapter 13.
xxiv Preface
• Updated Exhibit 13-1, with the most current information available for lululemon
athletica inc.
new information for lululemon athletica inc. and for new flagship company Chipotle
Mexican Grill, Inc.
• Deleted Appendix on Reporting and Analyzing Other Income Statement Items and
end-of-chapter material to conform to new accounting standard to no longer allow
recognition of extraordinary items on the income statement.
• Updated Review Problem for the most current information available for lululemon
athletica inc.
• Updated end-of-chapter material: E13-5, E13-6, E13-7, E13-8, and E13-11.
• Revised DC13-1 and DC13-2 to reflect new flagship company, Chipotle Mexican
Grill, Inc.
• Revised DC13-3 to reflect new flagship companies, Chipotle Mexican Grill, Inc.,
and Panera Bread Company.
Additional Instructor and Student

Supplements
Instructor’s Manual
The Instructor’s Manual contains detailed lecture outlines, lecture topics, and sugges-
tions for classroom activities. The chapter activities in the Instructor’s Manual have been
analyzed and assigned the same set of objectives that are used in the Solutions Manual
and the Test Bank (available on the Instructor Companion website).
Solutions Manual
The Solutions Manual, by the text authors, consists of solutions to all the end-of-chapter
material keyed to learning objectives and using the transaction effects equation found in
the text. (Available on the Instructor Companion website.)
Test Bank
The Test Bank contains a comprehensive set of test items to meet every assessment need
from brief exercises to problems and decision cases. The Test Bank is offered in Cognero.
Cengage Learning Testing Powered by Cognero is a flexible, online system that
allows instructors to:
• author, edit, and manage test bank content from multiple Cengage Learning solutions
• create multiple test versions in an instant
• deliver tests from your LMS, your classroom, or wherever you want
Excel¤ Templates
Selected problems in each chapter may be solved on a Microsoft Excel spreadsheet to
increase awareness of basic software applications. Just download the Excel spreadsheets
for homework items that are identified by icons in the text. (Excel templates are available
on the Student Resources page of the product website. Password-protected Instructor
solutions are available on the Instructor Companion website.)
Preface xxv
PowerPoint¤ Slides
Student PowerPoint Slides, a smaller version of the Instructor PowerPoint Lectures,
allow students to get ready for upcoming lectures, quizzes, homework, and exams with
core material needed for chapter study. (Student PowerPoint Slides are available on the
Student Resources page of the product website. More detailed, password-protected
Instructor PowerPoint Slides are available on the Instructor Companion website.)
Student Web Resources

Chapter-by-chapter quizzes, topical discussions, updates on IFRS integration, and more
are available. These items help reinforce and shed light on text topics. Discover more by
logging into the text website. Visit www.cengagebrain.com.
xxvi Preface
Acknowledgments
Among those who have served as reviewers for this text are the following, to whom we are grateful for their insights:
Scott Ballantyne Carolyn Galantine Wendy K. Potratz

Alvernia University Pepperdine University University of Wisconsin Oshkosh
Cindy Bleasdale Andy Garcia Cindy Powell
Hilbert College Bowling Green State University Southern Nazarene University
Bradley Boercker Amy Giesler Robert Rusnacko
Fletcher College, Lone Star College Butler University North Hennepin Community College
Melba Boling Joohyung Ha Monica Salomon
Virginia Highlands Community College University of San Francisco University of West Florida
Bryan Bouchard Ben Johnson Geeta Shankar
Southern New Hampshire University University of Evansville University of Dayton
Amy Bourne Benjamin W. Johnson Gregory Sinclair, CPA
Oregon State University University of Evansville San Francisco State University
Scott Boylan Kailani Knutson Jere Smith, MBA, PhD (ABD)
Washington and Lee University Porterville College Avila University
Justin Breidenbach Christopher Kwak Ahmad Sohrabian
Ohio Wesleyan University De Anza College California State Polytechnic University,
Amy Browning Brandon Lanciloti Pomona
Ivy Tech Community College Freed-Harmon University Leslie ‘‘Andy’’ Speck
Teresa Buckner Greg Lauer Embry-Riddle Aeronautical University
West Virginia Wesleyan College North Iowa Area Community College Jason Stanfield
Rachel Butts Natasha Librizzi Purdue University
Embry-Riddle Aeronautical University Milwaukee Area Technical College George Starbuck
Edward J. Bysiek Anthony Masino McMurry University
St. Bonaventure University East Tennessee State University Ronald Strittmater
Allen Cherry Keith McBride North Hennepin Community College
Loyola Marymount University Northeast Alabama Community College John Surdick
Cheryl Corke Allison McLeod Xavier University
Genesee Community College University of North Texas Steven Thoede
Louann Cummings Tammy McWherter Texas State University, San Marcos
The University of Findlay Mid-Continent University Robin Thomas
Terena Dampier Michael Meyer North Carolina State University
Embry-Riddle Aeronautical University University of Notre Dame MaryBeth Tobin
Dana D’Angelo Jacqueline Michaud Bridgewater State University
Drexel University Alvirne High School Greg Tondi
Dori Danko Paul San Miguel New Jersey City University
Grand Valley State University Western Michigan University Melanie Torborg
Robert Derstine Don Minyard Globe University/Minnesota School of
West Chester University of Pennsylvania University of Alabama Business
Patricia Dorris-Crenny Jennifer Morton Jeannette Toth
Villanova University Ivy Tech Community College University at Buffalo
Gerald Doyle, CPA Rania Mousa Mark Ulrich
Mountwest Community & Technical University of Evansville St. John’s University
College Albert Nagy Dale Walker
James Emig John Carroll University Harding University; Heifer
Villanova University Ramesh Narasimhan International Education Program
John A. Falk Montclair State University Roddrick West
DeSales University Sy Pearlman Everest College, Dallas
Lucile Faurel California State University Long Beach Wendy Wilson
Arizona State University Janice Pitera Texas Christian University
Kenneth W. Gaines SUNY-Broome Bijan Zayer
East-West University DeVry University
Throughout previous editions, many other individuals have contributed helpful suggestions that have resulted in many
positive changes. Although they are not cited here, we remain grateful for their assistance.
Preface xxvii
We also wish to thank Domenic Tavella, Carlow University. His help with supplements and verification aided us greatly.
We are grateful to Cenveo Publisher Services for their invaluable production assistance. Finally, we are grateful to the editorial,
marketing, media, and production staffs at Cengage Learning, primarily Matt Filimonov, Danny Celenza, Jonathan Gross,
Andrea Meyer, Robin LeFevre, Sally Nieman, and Tim Bailey for their extensive help with the tenth edition and its
supplements.
Gary A. Porter
Curtis L. Norton
September 2016
About the Authors
Gary A. Porter is currently a Distinguished Lecturer at Drake University. He

earned Ph.D. and M.B.A. degrees from the University of Colorado and his B.S.B.A.
from Drake University. As Professor of Accounting, Dr. Porter served as Department
Chair and taught at numerous universities. He has published in the Journal of
Accounting Education, Journal of Accounting, Auditing & Finance, and Journal
of Accountancy, among others, and has conducted numerous workshops on the subjects
of introductory accounting education and corporate financial reporting.
Dr. Porter’s professional activities include experience as a staff accountant with
Deloitte & Touche, a participant in KPMG Peat Marwick Foundation’s Faculty
Development program, and a leader in numerous bank training programs. He has won
an Excellence in Teaching Award from the University of Colorado and Outstanding
Professor Awards from both San Diego State University and the University of Montana.
He served on the Illinois CPA Society’s Innovations in Accounting Education Grants
Committee, the steering committee of the Midwest region of the American Accounting
Association, and the board of directors of the Chicago chapter of Financial Executives
International.
Dr. Porter currently serves on the National Advisory Council for Drake University’s
College of Business and Public Administration. He is a member of the American
Accounting Association and Financial Executives International.
Curtis L. Norton is currently a Clinical Professor at Arizona State University.

He is also a Professor Emeritus at Northern Illinois University in Dekalb, Illinois, where
he has taught since 1976. Dr. Norton received his Ph.D. from Arizona State University
and an M.B.A. from the University of South Dakota. Dr. Norton earned the University
Excellence in Teaching Award at NIU and has published in The Accounting Review, The
Journal of Accounting Education, CPA Journal, and other journals. A member of the
American Accounting Association and Financial Executives International, he also con-
sults and conducts training for private and governmental authorities, banks, utilities, and
others.
xxviii
10e
Using Financial
Accounting Information
THE ALTERNATIVE TO
DEBITS AND CREDITS
1 Accounting
as a Form of
Communication
MODULES LEARNING OBJECTIVES WHY IS THIS CHAPTER IMPORTANT?
• You need to know what a business is. (See p. 4.)
1 LO1 Explain what business is about.

• You need to know what forms of organization carry on
The Nature of LO2 Distinguish among the forms of organization. business activities. (See pp. 4–6.)
Business • You need to know in what types of business activities
LO3 Describe the various types of business activities.
those organizations engage. (See pp. 6–8.)
• You need to know what net income is and how it is
2 LO4 Define accounting and identify the primary users

of accounting information and their needs.
measured. (See p. 13.)
Accounting • You need to know how revenue and net income relate to a
and Financial LO5 Explain the purpose of each of the financial state- company’s assets. (See pp. 12–13.)
Statements ments and the relationships among them and
prepare a set of simple statements. • You need to know where the various items appear on a
company’s financial statements. (See pp. 12–15.)
LO6 Identify and explain the primary assumptions made

in preparing financial statements.
3 LO7 Identify the various groups involved in setting
Conceptual accounting standards and the role of auditors in • You need to know who determines the rules for the prepa-
Framework of determining whether the standards are followed. ration of financial statements. (See pp. 21–22.)
Accounting
LO8 Explain the critical role that ethics plays in provid-
ing useful financial information.
MAKING BUSINESS DECISIONS
Area 52 Advertising Inc/Getty Images
CHIPOTLE MEXICAN GRILL, INC.

Why is learning financial accounting important? Why should ing chain. And, in 2006, Chipotle went public on the New York Stock
you care about learning to read the financial statements of a Exchange.
company? With each of these decisions Steve Ells made was a calculated
Simply put, the more you know about how successful companies risk: quitting his job to go it alone, opening new restaurants, bringing
work, the better are your chances of doing well in your chosen field. in new investors, and going public. How can we know whether they
And to know why these companies are successful you need to be were good decisions? The financial statements produced by an
able to read their financial statements. Whatever you plan to do, your accounting system go a long way in assessing a company’s perform-
knowledge of business and accounting helps you compete whether ance. Look at the Revenue data shown below as they appeared in
you invest, work for a company, or go into business for yourself. Chipotle’s 2015 Form 10-K, the annual report filed with the Securities
Consider one very successful company, Chipotle Mexican and Exchange Commission. You can see that Chipotle has grown to a
Grill, Inc. Maybe you are a frequent customer at one of its restau- chain of 2,010 restaurants generating revenue of over $4.5 billion!
rants. The company got its start in 1993, when Steve Ells left his job As you study accounting, you will learn how to read financial
as a chef and with a modest loan from his parents opened his first statements and what they can tell you about a company’s perform-
restaurant in a former ice cream shop in Denver. Over the next few ance and the decisions they make—such as those made by a one-
years, additional restaurants were opened in the Denver area. In 1998 time chef who built one of the most successful restaurant chains in
the entrepreneur brought in outside investors to help finance his grow- the country.
Revenue
Year ended December 31, % increase
(decrease) % increase
2015 over 2014 over
2015 2014 2013 2014 2013
(dollars in millions)
Revenue $4,501.2 $4,108.3 $3,214.6 9.6% 27.8%
Average restaurant sales $ 2.424 $ 2.472 $ 2.169 (1.9%) 14.0%
Comparable restaurant sales increases 0.2% 16.8% 5.6%
Number of restaurants as of the end of the period 2,010 1,783 1,595 12.7% 11.8%
Number of restaurants opened in the period, net of relocations 227 188 185
Source: Chipotle Mexican Grill, Inc.: website and Form 10-K for the Fiscal Year Ended December 31, 2015.
4 Chapter 1 Accounting as a Form of Communication
MODULE 1 THE NATURE OF BUSINESS

Broadly defined, business consists of all activities necessary to provide the members of
LO1 Explain what business is
about. an economic system with goods and services. Certain business activities focus on provid-
ing goods or products such as ice cream, automobiles, and computers. Some of these
Business companies produce or manufacture the products. Other companies are involved in the
All of the activities necessary to distribution of the products while others sell directly to the consumer, as does Chipotle
provide the members of an in its restaurants. Other business activities, by their nature, are service-oriented. A broad
economic system with goods and
services. range of service providers, such as Walt Disney and United Airlines, provide evi-
dence of the growing importance of the service sector in the U.S. economy.
EXAMPLE 1-1 Identifying Types of Businesses

To appreciate the kinds of enterprises in our economy, consider the various types of compa-
nies that have a stake in the delivery of a shipment of cheese to Chipotle. First, a supplier of
raw material, in this case, a dairy, must deliver the milk to make cheese to a manufacturer
or producer. The producer uses the milk to make the cheese. At this stage, the producer
sells the cheese to a distributor or wholesaler, who in turn sells the cheese to a restaurant
such as Chipotle. Additionally, service companies are involved, such as the transportation
companies that deliver the goods to the various companies in the process. Exhibit 1-1 summa-
rizes the various types of businesses.
EXHIBIT 1-1 Types of Businesses
Supplier:
Daisy’s Dairy
milk
Product
Companies
cheddar cheddar
cheese cheese
Manufacturers/ Distributor/ Retailers

Producers: Wholesaler: (Restaurant):
Cheddar Cheese Duffy’s Distributors Chipotle
Company
Service Service Companies:

Companies ABC Transport
Forms of Organization
One convenient way to categorize the many different types of organizations in our society
LO2 Distinguish among the forms
of organization. is to distinguish between those that are organized to earn money and those that exist for
some other purpose. Although the lines can become blurred, business entities such as
Module 1 The Nature of Business 5
Chipotle generally are organized to earn a profit, whereas nonbusiness entities generally
exist to serve various segments of society. Both types are summarized in Exhibit 1-2.
EXHIBIT 1-2 Forms of Organization

Business Entities Nonbusiness Entities
Sole Government Private

Partnerships Corporations
Proprietorships Entities Organizations
Federal State and Hospitals,

Government Local Universities,
and Its Governments Cooperatives,
Agencies and Their and
Agencies Philanthropic
Organizations
Business Entities
Business entities are organized to earn a profit. Legally, a profit-oriented company is Business entity
one of three types: a sole proprietorship, a partnership, or a corporation. An organization operated to earn a
profit.
Sole Proprietorships This form of organization is characterized by a single
owner. Many small businesses are organized as sole proprietorships, often owned and Sole proprietorship
operated by the same person. Because of the close relationship between the owner and A form of organization with a single
the business, the affairs of the two must be kept separate. This is one example in owner.
accounting of the economic entity concept, which requires that a single, identifiable Economic entity concept
unit of organization be accounted for in all situations. For example, assume that Bernie The assumption that a single,
Berg owns a neighborhood grocery store. In paying monthly bills such as utilities and identifiable unit must be accounted
for in all situations.
supplies, Bernie must separate his personal costs from the costs associated with the gro-
cery business. In turn, financial statements prepared for the business must not intermin-
gle Bernie’s personal affairs with the company affairs.
Unlike the distinction made for accounting purposes between an individual’s per-
sonal and business affairs, the Internal Revenue Service (IRS) does not recognize the
separate existence of a proprietorship from its owner. That is, a sole proprietorship is not
a taxable entity; the business’s profits are taxed on the individual’s return.
Partnerships A partnership is a business owned by two or more individuals. Many Partnership

small businesses begin as partnerships. When two or more partners start out, they need A business owned by two or more
an agreement as to how much each will contribute to the business and how they will individuals; the organization form
often used by accounting firms and
divide any profits. This agreement may be an oral understanding between the partners, law firms.
or it may be a formalized written document.
Public accounting firms, law firms, and other types of service companies are often
organized as partnerships. Like a sole proprietorship, a partnership is not a taxable entity.
Individual partners pay taxes on their proportionate shares of the business’s profits.
Corporations Although sole proprietorships and partnerships dominate in sheer

number, corporations control a majority of the private resources in this country. A Corporation
corporation is an entity organized under the laws of a particular state. A form of entity organized under the
To start a corporation, articles of incorporation must be filed with the state. If the laws of a particular state; ownership
evidenced by shares of stock.
articles are approved by the state, a corporate charter is issued and the corporation can
begin to issue stock. A share of stock is a certificate that acts as evidence of ownership Share of stock
in a corporation. Stocks of many corporations are traded on organized stock exchanges A certificate that acts as evidence of
such as the New York Stock Exchange. Chipotle’s stock is traded on the New York ownership in a corporation.
Stock Exchange.
What are the advantages of running a business as a corporation?

• A corporation has the ability to raise large amounts of money in a relatively
brief period of time. This is what prompted Chipotle to eventually ‘‘go public.’’
To raise money, the company sold a specific type of security: stock. Corporations
Bond may also issue bonds. A bond is different from a share of stock because it represents
A certificate that represents a a promise by the company to repay a certain amount of money at a future date. In
corporation’s promise to repay a other words, if you were to buy a bond from a company, you would be lending it
certain amount of money and
interest in the future. money. Interest on the bond is usually paid semiannually.
• Ownership in a corporation is transferred easily. If you hold shares of stock in a
corporation whose stock is actively traded and you decide that you want out, you
simply call your broker and put in an order to sell.
• Stockholders have limited liability. Generally, a stockholder is liable only for the
amount contributed to the business. That is, if a company goes out of business, the most
the stockholder stands to lose is the amount invested. On the other hand, both proprie-
tors and general partners usually can be held personally liable for the debts of the business.
Nonbusiness Entities
Nonbusiness entity Most nonbusiness entities are organized to serve the needs of various segments of
An organization operated for some society. For example, a hospital provides health care to its patients. A municipal govern-
purpose other than to earn a profit. ment is operated for the benefit of its citizens. A local school district meets the educa-
tional needs of the community’s youth.
None of these entities has an identifiable owner. The lack of an identifiable owner
and of the profit motive changes the type of accounting used by nonbusiness entities.
This type, called fund accounting, is discussed in advanced accounting courses. Regard-
less of the lack of a profit motive in nonbusiness entities, they still need the information
provided by an accounting system. For example, a local government needs detailed cost
breakdowns in order to levy taxes. A hospital may want to borrow money and will need
financial statements to present to the prospective lender.
Organizations and Social Responsibility

Although nonbusiness entities are organized specifically to serve members of society,
U.S. business entities recognize the societal aspects of their overall mission and have
established programs to meet these responsibilities. Some companies focus on local char-
ities, while others donate to national or international causes.
The Nature of Business Activity

Corporations engage in many different types of activities. However, these activities can
LO3 Describe the various types of
business activities. be categorized into one of three types: financing, investing, or operating.
Financing Activities
All businesses must start with financing. Steve Ells needed money in the 1990s to
open his first Chipotle restaurant, so he went to his parents for a modest loan. The com-
pany needed additional financing later and thus made the decision in 2006 to sell stock
to the public. Most companies not only sell stock to raise money but also borrow from
various sources to finance their operations. These financing activities bring up two im-
portant accounting terms: liabilities and capital stock.
EXAMPLE 1-2 Distinguishing Between Liabilities and Capital Stock

Liability A liability is an obligation of a business. When a company borrows money at a bank, the
An obligation of a business. liability is called a note payable. When a company sells bonds, the obligation is termed bonds
payable. Amounts owed to the government for taxes are called taxes payable. When Chipotle
buys chicken and the supplier gives Chipotle 30 days to pay the amount owed, Chipotle’s obli-
gation is called accounts payable.
Module 1 The Nature of Business 7
Capital stock is the term used by accountants to indicate the dollar amount of Capital stock
stock sold to the public. Capital stock differs from liabilities in one very important respect. Indicates the owners’ contributions
Those who buy stock in a corporation are not lending money to the business, as are those to a corporation.
who buy bonds in the company or make a loan in some other form. One who buys stock in a
company is called a stockholder, and that person is providing a permanent form of financing Stockholder
to the business. In other words, there is no due date when the stockholder must be repaid. One of the owners of a corporation.
Normally, the only way for a stockholder to get back his or her original investment from buying Alternate term: Shareholder.
stock is to sell it to someone else. One who buys bonds in a company or in some other way
makes a loan to it is called a creditor. A creditor does not provide a permanent form of fi- Creditor
nancing to the business. That is, the creditor expects repayment of the amount loaned and, in Someone to whom a company or
many instances, payment of interest for the use of the money. person has a debt.
Alternate term: Lender.
Investing Activities
Once funds are generated from creditors and stockholders, money is available to invest
in assets. An asset is a future economic benefit to a business. For example, cash is an Asset
asset to a company. To Chipotle, its restaurants are assets, as is its inventory of ingre- A future economic benefit.
dients on hand for use in making menu items. However, not all assets are tangible in na-
ture, as are buildings, equipment, and inventory.
EXAMPLE 1-3 Identifying Assets

Assume that a company acquires a patent that will give it the exclusive right to produce a cer-
tain product. The right to the future economic benefits from the patent is an asset. In sum-
mary, an asset is a valuable resource to the company that controls it.
Notice the tie between assets and liabilities. Although there are some exceptions,
most liabilities are settled by transferring assets. The asset most often used to settle a
liability is cash.
Operating Activities
Once funds are obtained from financing activities and investments are made in
productive assets, a business is ready to begin operations. Every business is organized
with a purpose in mind. The purpose of some businesses, such as Chipotle, is to sell a
product. Other companies provide services. Service-oriented businesses are becoming an
increasingly important sector of the U.S. economy. Some of the largest corporations in
this country, such as banks and airlines, sell services rather than products.
Revenue is the inflow of assets resulting from the sale of products and services. Revenue
When a company makes a cash sale, the asset it receives is cash. When a sale is made on An inflow of assets resulting from
credit, the asset received is an account receivable. Revenue represents the dollar amount the sale of goods and services.
of sales of products and services for a specific period of time.
An expense is the outflow of assets resulting from the sale of goods and services. Expense
Expenses must be incurred to operate a business. An outflow of assets resulting from
the sale of goods and services.
• Chipotle must pay its employees salaries and wages.
• Suppliers must be paid for purchases of inventory, and the utility company has to be
paid for heat and electricity.
• The government must be paid the taxes owed it.
Summary of Business Activities

Exhibit 1-3 summarizes the three types of activities conducted by a business. A company
obtains money from various types of financing activities, uses the money raised to invest
in productive assets, and then provides goods and services to its customers. Actual busi-
nesses have many different financing, investing, and operating activities going on at any
one time.
EXHIBIT 1-3 A Model of Business Activities
Financing
Activities
Raising money to
start the business
Steve Ells started Chipotle with

a modest loan from his parents.
Money raised through
Some profits are financing is needed for
used to pay investing.
creditors
Operating while other profits are reinvested in

Activities productive assets—such as new restaurants. Investing
Generating revenues Activities
(and profits) Buying assets
via sales
Assets are
Chipotle used to Chipotle invested in
sells food generate assets such as equipment
to its customers. revenues. to start its business.
MODULE 1 TEST YOURSELF
• Business consists of all activities necessary to provide members of an economic system with
LO1 Explain what business is goods and services. Suppliers, manufacturers, wholesalers, and retailers are examples of
about. product companies.
• Some entities are organized to earn a profit, while others are organized to serve various seg-
LO2 Distinguish among the ments of society.
forms of organization.
• The three forms of business entities are sole proprietorships, partnerships, and corporations.
Review • All business activities can be categorized as operating, investing, or financing activities.
• Financing activities involve raising money from contributions made by the owners of a busi-
ness as well as obtaining loans from outsiders.
LO3 Describe the various
types of business activities. • Companies invest the amounts raised from financing activities in various types of assets,
such as inventories, buildings, and equipment.
• Once funds are obtained and investments are made in productive assets, a business can
begin operations. Operating activities involve providing goods and services to customers.
1. What is business about? What do all businesses have in common?
2. What is an asset? Give three examples.

Question
3. What is a liability? How does the definition of liability relate to the definition of asset?
4. Business entities are organized as one of three distinct forms. What are these three forms?
1. What does it mean when you own a share of stock in a company rather than one of its bonds?
2. Consider your own situation in terms of assets and liabilities. Name three of your financial assets. Name three of your financial
liabilities.
Apply
3. What are the three distinct types of business activity in which companies engage? Assume that you start your own company to
rent bicycles in the summer and skis in the winter. Give an example of at least one of each of the three types of business
activities in which you would engage.
Answers are located at the end of the chapter.

Module 2 Accounting and Financial Statements 9
MODULE 2 ACCOUNTING AND

FINANCIAL STATEMENTS
Accounting is often referred to as the language of business. In fact, accounting is ‘‘the
LO4 Define accounting and identify
process of identifying, measuring, and communicating economic information to permit the primary users of accounting
informed judgments and decisions by users of the information.’’1 Each of the three activ- information and their needs.
ities in this definition—identifying, measuring, and communicating—requires the judg-
ment of a trained professional. Note that the definition refers to the users of economic Accounting
The process of identifying,
information and the decisions they make. measuring, and communicating
economic information to various
Users of Accounting Information and Their Needs users.
Internal users, primarily the managers of a company, are involved in the daily affairs of
the business. All other groups are external users.
Internal Users The management of a company is in a position to obtain financial in-

formation in a way that best suits its needs. For example, if Chipotle’s management wants
to find out if the monthly payroll is more or less than the budgeted amount, a report can be
generated to provide the answer. Management accounting is the branch of accounting Management accounting
concerned with providing internal users (management) with information to facilitate plan- The branch of accounting
ning and control. The ability to produce management accounting reports is limited only concerned with providing
management with information to
by the extent of the data available and the cost involved in generating the information. facilitate planning and control.
External Users External users, those not directly involved in the operations of a
business, need information that differs from that needed by internal users. In addition,
the ability of external users to obtain the information is more limited. Without day-to-
day contact with the business’s affairs, outsiders must rely on the information presented
by the company’s management.
Certain external users such as the IRS require that information be presented in a
very specific manner, and they have the authority of the law to ensure that they get the
required information. Stockholders and creditors must rely on financial statements for
their information.2 Financial accounting is the branch of accounting concerned with Financial accounting
communication with outsiders through financial statements. The branch of accounting
concerned with the preparation of
Stockholders and Potential Stockholders Both existing and potential stockholders financial statements for outsider
use.
need financial information about a business. If you currently own stock in Chipotle, you
need information that will aid in your decision either to continue to hold the stock or to
sell it. If you are considering buying stock, you need financial information that will help in
choosing among competing alternative investments. What has been the recent perform-
ance of the company in the stock market? What were its profits for the most recent year?
How do these profits compare with those of the prior year? Did the company pay any divi-
dends? One source for much of this information is the company’s financial statements.
Bondholders, Bankers, and Other Creditors Before buying a bond in a company,

you need assurance that the company will be able to pay you the amount owed at matu-
rity and the periodic interest payments. Financial statements can help you to decide
whether to purchase a bond. Similarly, before lending money, a bank needs financial in-
formation that will help it determine the company’s ability to repay both the amount of
the loan and interest.
Government Agencies Numerous government agencies have information needs speci-

fied by law. For example, the IRS is empowered to collect a tax on income from both
1
American Accounting Association, A Statement of Basic Accounting Theory (Evanston, Ill.: American Accounting Asso-
ciation, 1966), p. 1.
2
Technically, stockholders are insiders because they own stock in the business. In most large corporations, however, it
is not practical for stockholders to be involved in the daily affairs of the business. Thus, they are better categorized here
as external users because they normally rely on general-purpose financial statements, as do creditors.
individuals and corporations. Every year, a company prepares a tax return to report to the
IRS the amount of income it earned. Another government agency, the Securities and
Exchange Commission (SEC), was created in the aftermath of the Great Depression. This
regulatory agency sets the rules under which financial statements must be prepared for cor-
porations that sell their stock to the public on organized stock exchanges. Companies oper-
ating in specialized industries submit financial reports to other regulatory agencies such as
the Interstate Commerce Commission (ICC) and the Federal Trade Commission (FTC).
Increasingly, global companies must consider the reporting requirements in foreign
countries where they operate. For example, a company might be listed on a stock
exchange in the United States as well as in Tokyo or London. Additionally, companies
often need to file tax returns in other countries.
Other External Users Many other individuals and groups rely on financial informa-
tion. A supplier of raw material needs to know the creditworthiness of a company before
selling it a product on credit. To promote its industry, a trade association must gather fi-
nancial information on the various companies in the industry. Other important users are
stockbrokers and financial analysts. They use financial reports in advising their clients on
investment decisions. All of these users rely to a large extent on accounting information
provided by management. Exhibit 1-4 summarizes the various users of financial informa-
tion and the types of decisions they must make.
EXHIBIT 1-4 Users of Accounting Information

Categories of Users Examples of Users Common Decision Relevant Question
Internal Management Should we add another restaurant to our chain? How much will it cost to build the restaurant?
External Stockholder Should I buy shares of Chipotle’s stock? How much did the company earn last year?
Banker Should I lend money to Chipotle? What debts or liabilities does the company have?
Employee Should I ask for a raise? How much are the company’s revenues, and
how much is it paying out in salaries and
wages? Is the compensation it is paying
reasonable compared to its revenues?
Supplier Should I allow Chipotle to buy What is the current amount of the company’s
chicken from me and pay me later? accounts payable?
Using Financial Accounting Information

You are considering whether you should buy stock in Chipotle. The Financial Decision
Framework below can be used to help make such investment decisions.
Let’s say you have been eagerly awaiting an earnings announcement from Chipotle.
You have eaten at the company’s restaurants for a few years but never gave much
thought to the financial side of its business. Use the Financial Decision Framework to
help you make the decision.
FINANCIAL DECISION FRAMEWORK
Use the following decision process to help you make an investment decision about
Chipotle or any other public company.
1. Formulate the Question

I saved $1,000 from my summer job.
• Should I invest $1,000 in Chipotle stock?
2. Gather Information from the Financial Statements and Other Sources

The information needed will come from a variety of sources:
• My personal finances at the present time
• Alternative uses for the $1,000
• The outlook for the industry
• Publicly available information about Chipotle, including its financial statements
3. Analyze the Information Gathered

The information in the financial statements can be used to perform:
• Ratio analysis (looking at relationships among financial statement items)
• Horizontal analysis (looking at trends over time)
• Vertical analysis (comparing financial statement items in a single period)
• Comparisons with competitors
• Comparisons with industry averages
4. Make the Decision

Taking into account all of the various sources of information, you decide either to:
• Use the $1,000 for something else
• Invest the $1,000 in Chipotle
5. Monitor Your Decision

If you do decide to invest, you will want to monitor your investment periodically.
Whether you made a good decision will be based on the answers to these two questions:
• Have I received any dividends on my shares?
• Has the price of the stock increased above what I paid for it?
A critical step in this framework is gathering information from the financial statements,
the means by which an accountant communicates information about a company to those
interested in it.
Financial Statements: How Accountants

Communicate
The primary focus of this book is financial accounting. This branch of accounting is con-
LO5 Explain the purpose of each of
cerned with informing management and outsiders about a company through financial the financial statements and the
statements. We turn now to the composition of the four major statements: balance relationships among them and
sheet, income statement, statement of retained earnings, and statement of cash flows. prepare a set of simple statements.
The Accounting Equation STUDY TIP

The accounting equation is the foundation for the entire accounting system:
The accounting equation and the
Assets = Liabilities + Owners’ Equity
financial statements are at the
• The left side of the accounting equation refers to the assets of the company. heart of this course. Memorize
the accounting equation and
Those items that are valuable economic resources and that will provide future
make sure you study this intro-
benefit to the company should appear on the left side of the equation. duction to how the financial
• The right side of the equation indicates who provided, or has a claim to, those statements should look, how to
assets. Some of the assets were provided by creditors, and they have a claim to them. read them, and what they say
For example, if a company has a delivery truck, the dealer that provided the truck to about a company.
the company has a claim to the assets until the dealer is paid. The delivery truck would
appear on the left side of the equation as an asset to the company; the company’s
liability to the dealer would appear on the right side of the equation. Other assets are Owners’ equity
provided by the owners of the business. Their claims to these assets are represented by The owners’ claims on the assets of
the portion of the right side of the equation called owners’ equity. an entity.
The term stockholders’ equity, or shareholders’ equity, is used to refer to the owners’ eq-
Stockholders’ equity uity of a corporation. Stockholders’ equity is the difference between a corporation’s
The owners’ equity in a corporation. assets and its obligations, or liabilities. That is, after the amounts owed to bondhold-
Alternate term: shareholders’ equity. ers, banks, suppliers, and other creditors are subtracted from the assets, the amount
remaining is the stockholders’ equity, the amount of interest or claim that the owners
have on the assets of the business.
Stockholders’ equity arises in two distinct ways.
1. It is created when a company issues stock to an investor. It represents the amounts
contributed by the owners to the company.
2. As owners of shares in a corporation, stockholders have a claim on the assets of a
Retained earnings business when it is profitable. Retained earnings represents the owners’ claims
The part of stockholders’ equity that to the company’s assets that result from its earnings that have not been paid
represents the income earned less out in dividends. It is the earnings accumulated or retained by the company.
dividends paid over the life of an
entity.
The Balance Sheet
Balance sheet The balance sheet (sometimes called the statement of financial position) is the fi-
The financial statement that nancial statement that summarizes the assets, liabilities, and owners’ equity of a
summarizes the assets, liabilities, company. It is a snapshot of the business at a certain date. A balance sheet can be pre-
and owners’ equity at a specific
point in time. pared on any day of the year, although it is most commonly prepared on the last day of a
Alternate term: Statement of
month, quarter, or year. At any point in time, the balance sheet must be ‘‘in balance.’’
financial position. That is, assets must equal liabilities and owners’ equity.
The financial statements for real companies can be quite complex. Therefore, before
we attempt to read Chipotle’s statements, we will start with a hypothetical company.
EXAMPLE 1-4 Preparing a Balance Sheet

Top of the World owns and operates a ski resort in the Rockies. The company’s balance sheet on June 30, 2017, the end of its first year
of business, is presented below. As you study the balance sheet, note the description for each item to help you understand it better.
Cash on hand Amounts

Top of the World owed to
as well as Balance Sheet
in checking suppliers
June 30, 2017
and savings (in thousands of dollars) Amounts
accounts owed to
Assets Liabilities and Stockholders’ Equity
Amounts Cash $ 200 Accounts payable $ 700 employees
owed by Accounts receivable 600 Salaries and wages payable 400 Amounts
customers Land 4,000 Notes payable 3,000 owed to
Lodge, lifts, and equipment 2,500 Capital stock 2,000 the bank
The ski Retained earnings 1,200
mountain Total liabilities and
owned by the Total assets $ 7,300 stockholders’ equity $ 7,300
company Owners’
Income earned less contributions
The building, ski lifts, to the
and ski equipment dividends paid over
owned by the company the life of the corporation corporation
Two items should be noted in the heading of the statement. First, the company chose a date other than December 31, the calendar
year-end, to finish its accounting, or fiscal, year. Although December 31 is the most common year-end, some companies choose a dif-
ferent year-end date. Often, this choice is based on when a company’s peak selling season is over. For example, Gap Inc. ends its
accounting year on the Saturday closest to January 31, after the busy holiday season. By June 30, Top of the World’s ski season has
ended and the company can devote its attention to preparing its financial statements. The second item to note in the heading of the
statement is the last line: ‘‘in thousands of dollars.’’ This means, for example, that rather than cash being $200, the amount is actually
1,000 $200, or $200,000.
Exhibit 1-5 summarizes the relationship between the accounting equation and the
items that appear on a balance sheet.
EXHIBIT 1-5 The Relationship Between the Accounting Equation

and the Balance Sheet
Assets = Liabilities + Owners’ Equity
Economic resources Creditors’ claims Owners’ claims

Examples: to the assets to the assets
• Cash Examples: Examples:
• Accounts receivable • Accounts payable • Capital stock
• Land • Notes payable • Retained earnings
Terminology Note: Exhibit 1-5 refers to Owners’ Equity, while Example 1-4 refers to
Income statement
Stockholders’ Equity. Owners’ equity is the general term by which we refer to ownership. A statement that summarizes
“Stockholders’ equity” refers only to ownership of a corporation by shareholders. revenues and expenses.
Because we emphasize corporations in this book, we will use the term Alternate term: Statement of
Stockholders’ equity. income.
Net income
The Income Statement The excess of revenues over
An income statement, or statement of income, summarizes the revenues and expenses.
expenses of a company for a period of time. Alternate term: Profits, earnings.
EXAMPLE 1-5 Preparing an Income Statement

An income statement for Top of the World for its first year in business is shown below. Unlike the balance sheet, an income state-
ment is a flow statement. That is, it summarizes the flow of revenues and expenses for the year. The top portion of the income
statement makes it clear that the ski company has two distinct types of revenues: those from selling lift tickets and those from rent-
ing ski equipment. For example, if you paid the company $50 for a one-day lift ticket and another $30 to rent equipment for the day,
each of those amounts would be included in Top of the World’s revenues for the year. The expenses reported on the income state-
ment represent all of the various costs necessary to run a ski resort. For example, a significant cost for such an operation is payroll,
as represented by salaries and wages on the income statement. Note that the amount reported for salaries and wages expense on
the income statement is not the same amount that appeared as salaries and wages payable on the balance sheet. The expense of
$2,000 on the income statement represents the total cost for the year, while the payable of $400 on the balance sheet is the amount
owed to employees on June 30, 2017. Finally, note that the excess of revenues over expenses, or net income, appears as the bot-
tom line on the income statement. A company’s net income is sometimes referred to as its profits or earnings.
Top of the World

Income Statement
For the Year Ended June 30, 2017
(in thousands of dollars)
Revenues:
Two types
Lift tickets $5,800
of revenues
Equipment rentals 2,200
Total revenues $8,000
Expenses:
Salaries and wages $2,000
All costs of Depreciation 100
running a ski Water, gas, and electricity 1,500
resort Insurance 1,100
Interest 300
Income taxes 1,000
Total expenses 6,000
Net income $2,000
The Statement of Retained Earnings

Statement of retained A statement of retained earnings explains the change in retained earnings for
earnings the period. As discussed earlier, Retained Earnings represents the accumulated earn-
The statement that summarizes the ings of a corporation less the amount paid in dividends to stockholders. Dividends
income earned and dividends paid
over the life of a business. are distributions of the net income of a business to its stockholders. Most compa-
nies that pay dividends do so four times a year. However, not all businesses pay
Dividends cash dividends.
A distribution of the net income of a
business to its stockholders.
EXAMPLE 1-6 Preparing a Statement of Retained Earnings
A statement of retained earnings for Top of the World is shown below. Revenues minus
expenses, or net income, is an increase in retained earnings, and dividends are a decrease in
the balance. Why are dividends shown on a statement of retained earnings instead of on an
income statement? Dividends are a distribution of the income of the business. They are not
an expense and thus are not a component of net income.
Top of the World

Statement of Retained Earnings
Retained earnings, beginning of the year $ 0

Net income for the year 2,000
Dividends for the year (800)
Retained earnings, end of the year $1,200
Recall that stockholders’ equity consists of two parts: capital stock and retained earnings.
In lieu of a separate statement of retained earnings, many corporations prepare a comprehen-
sive statement to explain the changes both in the various capital stock accounts and in
retained earnings during the period. Chipotle for example, presents the more comprehensive
statement.
The Statement of Cash Flows

Statement of cash flows The statement of cash flows summarizes the cash flow effects of a company’s
The financial statement that operating, investing, and financing activities for the period. In essence, it shows
summarizes a company’s cash the reader where a company got cash during the year and how it used that cash.
receipts and cash payments during
the period from operating, investing,
and financing activities.
EXAMPLE 1-7 Preparing a Statement of Cash Flows
A statement of cash flows for Top of the World is shown on the next page. Note the three cat-
egories of cash flow: operating, investing, and financing. The one source of cash to the
company from its operations was the cash it collected from its customers. After deducting
cash payments for operating activities, the ski company generated $2,600 from its operations.
During the period, the company spent $6,600 on various assets. The last category shows that
the issuance of a note generated $3,000 of cash and the issuance of stock produced another
$2,000. Finally, the company paid dividends of $800. The net increase in cash from these
three categories is $200, and since the company was new this year, this number is also its
ending cash balance.
Top of the World

Statement of Cash Flows
Cash flows from operating activities:

Cash collected from customers $ 7,400
Cash payments for:
Salaries and wages $ 1,600
Water, gas, and electricity 1,500
Insurance 400
Interest 300
Income taxes 1,000
Total cash payments 4,800
Net cash provided by operating activities $ 2,600
Cash flows from investing activities:
Purchase of land $(4,000)
Purchase of lodge, lifts, and equipment (2,600)
Net cash used by investing activities (6,600)
Cash flows from financing activities:
Proceeds from issuance of long-term note $ 3,000
Proceeds from issuance of capital stock 2,000
Dividends declared and paid (800)
Net cash provided by financing activities 4,200
Net increase in cash $ 200
Cash at beginning of year 0
Cash at end of year $ 200
Relationships Among the Financial Statements

Note the natural progression in the items from one statement to another. Normally, a
company starts the period with balances in each of the items on its balance sheet. Because
Top of the World is a new company, Exhibit 1-6 shows zero balances on July 1, 2016, the
beginning of its first year in business. The company’s operations during the year resulted
in net income of $2,000 as shown on the income statement at the top of the exhibit. The
net income naturally flows ˚ onto the statement of retained earnings. Again, because the
ski company is new, its beginning retained earnings balance is zero. After the distribution
of $800 in cash dividends ¸, the ending retained earnings amounts to $1,200. The ending
retained earnings number flows onto the ending balance sheet along with the other
June 30, 2017, balance sheet items. Finally, the net increase in cash at the bottom of the
statement of cash flows equals ˝ the amount shown on the June 30, 2017, balance sheet.
Looking at Financial Statements

for a Real Company: Chipotle
You would expect the financial statements of actual companies to be more complex than
those for a hypothetical company such as Top of the World. Still, even this early in your
study of accounting, there are certain fundamental points about all financial statements,
real-world or otherwise, that you can appreciate.
Chipotle’s Balance Sheet

Balance sheets for Chipotle at the end of two recent years are shown in Exhibit 1-7.
For comparative purposes, the company reports its financial position at the end of the
two most recent years. Also note that the amounts are in thousands of dollars.
EXHIBIT 1-6 Relationships Among the Financial Statements
Top of the World

Income Statement
Revenues $8,000
Expenses 6,000
Net income $2,000
Top of the World

Statement of Retained Earnings
Retained earnings, beginning of the year $ 0
Net income 2,000
Cash dividends (800)
Retained earnings, end of the year $1,200
Top of the World

Balance Sheets
JUNE 30, 2017 JULY 1, 2016
Assets:
Cash $ 200 $0
Accounts receivable 600 0
Land 4,000 0
Lodge, lifts, and equipment 2,500 0
Total assets $7,300 $0
Liabilities $4,100 $0
Capital stock 2,000 0
Retained earnings 1,200 0
Total liabilities and stockholders’ equity $7,300 $0
Top of the World

Statement of Cash Flows
Net cash provided by operating activities $ 2,600
Net cash used by investing activities (6,600)
Net cash provided by financing activities 4,200
Net increase in cash $ 200
Cash at beginning of year 0
Cash at end of year $ 200
For example, this means that Chipotle had

CONNECT TO THE CHIPOTLE
REAL WORLD READING THE BALANCE SHEET
$2,725,066 1,000, or $2,725,066,000, or over
$2.7 billion of total assets at the end of 2015. The
total liabilities of $597,092 thousand at the end of
1-1 State Chipotle’s financial position at the end of 2015 in
terms of the accounting equation. What amount of cash
and cash equivalents does Chipotle have at the end of this year?
2015, when added to the total stockholders’ equity
of $2,127,974 thousand, equals $2,725,066 thou-
What amount does Chipotle owe its suppliers at the end of this sand, the same amount as the total assets.
year? (See answers on p. 48.) A quick comparison of Chipotle’s assets with
those of Top of the World reveals one significant
difference. Because the ski company is a service
Another random document with
no related content on Scribd:
threatened with the evils of foreign invasion. A Saracen fleet, well
manned and equipped, descended upon the defenceless Spanish
coast, ravaged the fields, plundered the villages, and carried the
inhabitants into captivity. To provide against this new danger a naval
expedition was fitted out, and entrusted to the command of
Theodomir, an officer of approved experience, and a noble of the
highest rank. Setting sail, the Gothic admiral lost no time in
encountering the hostile fleet. A bloody engagement took place; two
hundred of the enemy’s vessels were destroyed or taken; and the
embryotic maritime power of the Moslems was swept from the seas.
In the following year a war with the Franks, the cause of which is
unknown, was carried on for several months with the indecisive
results characteristic of the operations of desultory warfare. Egiza,
being advanced in years and conscious of his infirmities, was
desirous of associating his son Witiza with him in the administration,
and of securing to him the succession at his decease. A council
having been convoked for this purpose, his wishes were realized
without opposition, and Witiza was raised to the regal dignity. The
following year the old King died, leaving to his young and
inexperienced successor the sole responsibility of government, and
a series of difficulties and embarrassments such as no other
monarch of his time had hitherto been forced to contend with, and
which involved both the stability of the Visigothic empire and the
preservation of the Christian faith. The accession of Witiza promised
a happy and prosperous future to the country afflicted with so many
calamities. His youth had been distinguished by the practice of the
virtues of temperance, generosity, justice, and filial reverence. As
soon as he attained to absolute power, he evinced a disposition to
win the attachment of the people by making amends for the
pecuniary exactions and oppressive laws which had been imposed
by the avarice and extortions of his family. A general amnesty was
proclaimed. The forged documents by which the wealthy had been
plundered were destroyed. All taxes, except such as were absolutely
necessary to the support of the government, were remitted. Great
numbers of exiles were invited to return, and their possessions were
surrendered. The Jews were restored to partial favor; but, as the
popular prejudice was still bitter and universal, a politic appearance
of severity was maintained, which, however, it was evident would be
entirely removed in time. Under such favorable auspices began the
reign of Witiza, whose magnanimity, tact, and affable demeanor had
already won the hearts of his subjects. The opinion of the latter was
at first confirmed by the mild disposition and virtuous behavior of
their youthful sovereign. But this fair promise of future greatness was
fallacious, for Witiza soon plunged into excesses which awakened
the horror of his subjects, and provoked the censures of the clergy,
ever disposed to be lenient towards such transgressions except
when they threatened their influence or their revenues. The whole
court was soon abandoned to indiscriminate licentiousness. Not only
was the violation of the most sacred traditions of the Church
permitted, but polygamy and concubinage were openly encouraged
by sacerdotal authority and example. The pious instructors of the
people were the first to improve the opportunities afforded by these
impolitic enactments, and the feelings of the devout were outraged
by excesses which did not respect even the sacred precincts of the
altar and the confessional. No scandals, however, aroused such
indignation as the indulgence which was manifested towards the
Jews. Every ecclesiastic, especially, considered any moderation of
the condition of this down-trodden race an affront to his order, and a
crime worse than sacrilege. Enraged by the contempt with which
Witiza treated their remonstrances, the clergy lost no occasion of
increasing the prevailing discontent, and, with a view to
strengthening their position by enlisting the aid of the Holy See, they
secretly despatched an embassy to Rome. The ire of the Pope was
excited by the representations of the envoys of the Spanish Church,
whose prelates, though not acknowledging his supreme jurisdiction,
did not disdain to solicit his intervention as an affair which seemed to
involve the interests of Christendom. Elated by the hope of
establishing his authority in the Peninsula, the Holy Father
Constantine, without delay, sent a message to the recalcitrant
monarch threatening him with the loss of his kingdom, unless he at
once revoked the offensive edicts and permitted the unrestricted
persecution of the Jews. To this Witiza retorted with contempt that if
the Pope did not cease intermeddling with what did not concern him,
he would drive him from the Vatican; and he forthwith published an
edict that no attention should be paid to the mandates of the Papacy
under penalty of death. These proceedings further embittered the
prejudices of both the clergy and the people, and the popular clamor
became so loud that Witiza began to tremble for both his crown and
his life. Agitated by his fears, and resolved to afford as little
encouragement as possible to any treasonable undertaking, he
dismantled the principal fortresses, and razed the walls of every city
in the kingdom, excepting those of Toledo, Astorga, and Lugo; an act
of folly which not only failed of its object, but in the end directly
contributed to the overthrow of the monarchy. The Jews, on the other
hand, now placed in positions of profit and responsibility, far from
appreciating the honors with which they were invested and the
confidence which was reposed in them, with characteristic treachery
and ingratitude, availed themselves of their power for the destruction
of their royal benefactor. Aided by their intrigues, a formidable
conspiracy broke out. The majority of the clergy and a considerable
body of the nobles joined the insurgents; a rival king was elected;
and, after a short conflict, Witiza was deposed and probably
murdered, for history has preserved no record of his fate.
The new monarch, Roderick, although he had reached the great
age of eighty-two years, retained, in an unusual degree, the strength
and activity of early manhood. His life had been passed amidst the
athletic pastimes which exercised the leisure of the Gothic youth,
and, in occasional expeditions undertaken against the hardy
mountaineers of Galicia and Biscay, he had earned a well-merited
reputation for courage and military skill. Although not of royal blood,
his natural endowments, the dignity of his carriage, the apparent but
deceptive austerity of his manners, and the mildness of his temper,
gained for him the respect of all who were admitted to his presence.
In the elegant luxury of his palace, in the splendor of his retinue, in
the majestic pomp which distinguished every public ceremony over
which he presided, he far surpassed his predecessors, and
emulated, with no little success, the magnificence of the Roman
court in the age of imperial decadence.
The intriguing spirit which animated the subjects of a monarchy
essentially elective, but one where courtesy and real or apparent
merit occasionally made an exception in favor of hereditary descent,
had established, among the Visigoths, the custom of retaining near
the throne the children of powerful families; nominally for purposes of
education, but in fact to insure the fidelity of their relatives often
entrusted with the custody of frontier strongholds or important
military commands. The sons, until they attained to manhood, served
as pages in the royal household, and were trained in all the manly
and martial exercises of the time. The attendants of the queens were
recruited from the noble maidens, whom this prudent custom placed
and retained in the precincts of the court, and who were carefully
instructed in the few but graceful accomplishments indispensable to
the position of ladies of distinguished lineage. Among the latter, at
the court of Roderick, was the daughter of Count Julian, formerly a
vassal of the Byzantine Empire, and the commandant of the fortress
of Ceuta; whom political necessity, the isolation consequent upon the
subjugation of every Greek settlement in Africa, and the rapidly
increasing power of the Moors, had compelled to appeal to the
nearest Christian monarch for protection, and to transfer his
allegiance to the court of Toledo. This girl, who was of great beauty,
excited the licentious desires of the King, who, failing to accomplish
his object by fair means, in an evil hour resorted to force. Informed of
the injury which had been inflicted upon his family, Count Julian,
braving without hesitation the storms of winter, hastened to the
capital. Dissembling, with true Greek astuteness, his outraged
feelings, he asked permission to remove his daughter to the bedside
of her mother whom he represented as being dangerously ill.
Without any misgivings Roderick granted the request, and,
manifesting every appearance of respect and loyalty, the veteran
officer left the court and retraced his steps. No sooner had he arrived
at his post, than he began to carry out the plan of vengeance which
he had already fully matured. The castle of Ceuta was the key of
Europe. Impregnable to all the resources of military engineering in
an age when gunpowder was unknown, its value as an obstacle to
foreign invasion was not understood by the Visigoths. The immunity
of centuries; the contempt for barbarians; the ignorance of the
mighty and unexampled power of Islam; the inertia produced partly
by the influence of climate, but principally by an abuse of all the
pleasures of unbridled luxury, had disposed the sovereigns of Toledo
to consider their kingdom inaccessible to attack, and their empire
eternal. As has already been mentioned, this haughty and corrupt
nation was constantly agitated and its integrity menaced by a score
of discordant factions. Its recent monarchs had bent all their
energies to the abrogation of the statesmanlike measures
inaugurated by their forefathers. The nobles and the clergy, inflamed
with mutual animosity, suspicious of their partisans, and arrayed
against each other, were engaged in a mortal struggle for superiority.
The Jews, indulged and persecuted by turns, lived in a continual
state of apprehension and despair. All the salutary restraints of
religion were apparently removed; the Church was regarded as a
convenient instrument for the attainment of political power; the
priesthood were devoted to the practice of nameless vices; the
people to indiscriminate libertinage. A large body of slaves, who,
under the lash of brutal masters, still preserved the traditions of
liberty, were ripe for revolt, and longed for the day of their
deliverance. A disastrous famine, followed by its usual successor the
pestilence, and whose effects were still apparent in untilled fields
and deserted hamlets, had contributed to increase the popular
suffering and discontent. Fortified on one side against the incursions
of the Franks by the natural rampart of the Pyrenees, and isolated on
the others by the Mediterranean and the ocean, the inhabitants of
the Peninsula, in the enjoyment of a salubrious climate and fruitful
soil, rested in fancied security, and had long since laid aside the
armor whose weight had become oppressive, and abandoned those
warlike exercises whose preservation was their only safeguard.
Incited by a spirit of desperation which considered neither the
consequences of his acts nor the means by which they were to be
accomplished, Count Julian sought the presence of Musa. He found
the Moslem general at Kairoan, which had been selected as the seat
of the viceregal government of Western Africa. The intrepid
character of his visitor was not unknown to the great Arab soldier
whose designs upon Ceuta had been twice frustrated, by the valiant
Greek, after the employment of all the resources at the command of
the Khalif, and Count Julian was received with every token of honor
and respect. Unfolding his project, he descanted long and earnestly
upon the riches of the Gothic monarchy and the facility of its
conquest. He explained the feuds and bitter feelings engendered by
disappointed ambition, by religious persecution, by the seizure of
hereditary estates, by the sufferings of wounded pride. He expatiated
on the sense of injury experienced by the advocates of hereditary
descent, who considered the reigning monarch of foreign lineage
and inferior rank that had justly incurred the odium of usurpation. He
portrayed in glowing terms the innumerable attractions of the
country, its productive valleys, its crystal streams, the medicinal
value of its herbs and plants to which magical virtues were attributed
by popular report, its mines, its fisheries, the precious spoil which
awaited the hand of the invader, the transcendent beauty of its
women. He described the effeminate character of the inhabitants,
enervated by idleness, luxury, and sensual indulgence. Much of this
information was already familiar to Musa, but hitherto the impassable
barrier of the fortress defended by the stubborn courage of the
governor of Ceuta had checked the aspirations of the Moslem
commander; nor had it been possible to even confirm the accuracy
of the wonderful tales which had been related concerning Ghezirah-
al-Andalus, or the Vandal Peninsula, as Spain was known to the
Arabs.
Thoroughly appreciating the importance of the proposal, the
magnitude of the interests involved, and the uncertainty which would
attend the issue of the expedition, and, at the same time, distrusting
the good faith of the Goth, Musa determined to obtain the consent of
the Khalif before returning a definite answer. Despatches, with
complete information, were accordingly sent to Damascus. The reply
of Al-Walid, who then occupied the throne of the khalifate, was
favorable; but he strongly advised the exercise of caution, a
recommendation entirely superfluous in the case of a man of Musa’s
suspicious and crafty disposition. Sending for Count Julian, Musa
informed him that he would be required to prove his fidelity by
heading a reconnaissance into the enemy’s country. The count
accepted the condition with alacrity; crossed the strait with a small
detachment of soldiers belonging to his garrison; ravaged the coast
in the neighborhood of Medina Sidonia; burned several churches;
destroyed the growing harvests, and returned with considerable
booty. Knowing his ally to be now compromised beyond all hope of
pardon, and the trifling resistance encountered having apparently
demonstrated the feasibility of the enterprise, Musa announced his
willingness to negotiate. The conditions of the compact which
disposed of one of the richest kingdoms of Europe have escaped the
notice of history. There is reason to believe, however, that Count
Julian was promised substantial pecuniary remuneration in addition
to the gratification of revenge; and that their hereditary estates were
to be restored to the family of Witiza, whose sons were present at
the conference, and whose brother Oppas was not only privy to the
conspiracy but was one of its principal promoters. The keys of Ceuta
were surrendered, and Count Julian, having sworn allegiance to the
Khalif, was invested with a command in the Moslem army.
The wary old veteran Musa was not yet satisfied, and determined
to send a second expedition, under one of his own captains, to
explore the Spanish coast. He selected for this purpose one of his
trusty freed-men, Abu-Zarah-Tarif by name, who, embarking with one
hundred cavalry and three hundred infantry, landed at Ghezirah-al-
Khadra, now Algeziras, in July, 710. The incursion of Tarif differed
little in its results from that of his predecessor, but confirmed the
representations of the latter, and proved beyond doubt the
defenceless condition of the Visigothic kingdom. Preparations for
war were now made upon a larger scale, but one which still could not
contemplate the overthrow of the monarchy in the incredibly short
period required to accomplish it, and which, indeed, was designed
only as a predatory expedition. The command of the troops was
given to Tarik-Ibn-Zeyad, a Berber, whose red hair and light
complexion disclosed his descent from the Vandals. The similar
names of these two officers, both of whom were freed-men of Musa,
have led to a confusion and mistaken identity, which has greatly
embarrassed the narratives of both ancient chroniclers and modern
historians. Tarik was a soldier of approved experience, extraordinary
enterprise, and unflinching courage. His army was one of the most
motley forces which had ever been assembled under the Moslem
standard. The number was comparatively insignificant, amounting to
only seven thousand, of whom but few were cavalry. The bulk of the
troops was composed of Berbers—fierce savages of the Atlas
Mountains, proselytes reclaimed from fetichism by the policy and
eloquence of Musa—among them being representatives of the tribes
of Ghomarah, Masmoudah, and Zenetah, names destined to a cruel
celebrity in the subsequent history of Spain. Every nation whose
types chance, misfortune, the love of plunder, or the spirit of
adventure had impelled upon the African coast, was represented in
the ranks of the invaders; descendants of the Vandals and the
Goths; Bedouins from the Hedjaz; political exiles from the far Orient;
conspirators from Syria; apostate Byzantines who had renounced
allegiance to the Emperor of Constantinople; and a considerable
body of Jews, whose relations with their Spanish brethren rendered
them valuable auxiliaries, swelled the command of Tarik. In the latter
were adherents of every form of religion,—the adorer of fire, the
worshipper of the stars, the Pagan votary of the gods of Olympus,
the orthodox and the heretic Christian. Each tribe was marshalled
under its respective banner, and the varied nationality of the rank
and file was equally displayed in the widely diverse origin of the
subordinate officers—Count Julian the renegade Greek, Tarik the
Berber, Mugayth-al-Rumi the Goth, and Kaula-al-Yahudi the Jew.
Vessels for the passage of the strait were furnished by Count Julian,
who impressed such merchantmen as lay at anchor in the ports
under his jurisdiction, the only ones obtainable; the number of these,
however, was so insufficient that the transportation of the army
consumed several days. The Moslems finally disembarked at the
foot of an immense promontory known to the ancient world as Calpe,
but which, rechristened by the Arabs Gebal-al-Tarik, the Mountain of
Tarik, has transmitted its new appellation, almost unchanged, to
future ages as the famous Gibraltar. Scarcely had the invaders
landed, when they were attacked by the Goths under Theodomir,
that chieftain whose successful conduct of the naval expedition
during the reign of Egiza had induced Roderick to invest him with the
command of the forces at his disposal. The ill-equipped and
undisciplined troops of the Gothic general at once disclosed their
inability to withstand the onset of the fiery horsemen of the Desert,
and Theodomir was compelled to retreat. He sent, without delay, the
alarming news of the invasion to the King, revealing the universal
dismay with which this strange enemy was regarded, in the following
language: “Our land has been invaded by people whose name,
country, and origin are unknown to me. I cannot even tell thee
whence they came, whether they fell from the skies or sprang from
the earth.” This ominous despatch reached Roderick before the walls
of Pampeluna, which had recently revolted against his authority.
Whatever were his faults, the Gothic monarch was certainly not
deficient in courage and resolution. Raising the siege, he hastened
to Cordova, and devoted all his energies to the assembling of an
immense army for the defence of the kingdom. Every resource was
employed,—promises of amnesty, threats, bounties, and
conscription, until a hundred thousand men had been mustered
under the royal standard. But this great host was formidable only in
appearance. The levies of which it was composed were wholly
wanting in discipline and unaccustomed to the perils of warfare.
Their weapons were mainly implements whose use was familiar in
the practice of the peaceful arts of husbandry. The rank and file, a
tumultuous rabble of slaves and hirelings, marched on foot. Horses
were few and expensive in the Peninsula; only the nobles were
mounted; and to the deficiency of cavalry among the Goths the Arab
historians have largely attributed the crushing reverses sustained by
their arms. To the unwieldy and disorderly character of the Gothic
army was added the secret and fatal influence of treason.
Thousands had been enrolled to defend the imperilled crown of
Roderick, whose chief desire was the transfer of that crown to a rival
dynasty. Others, high in rank, had tendered their services with the
hope that, amidst the general confusion, they might push their
political fortunes and gratify an inordinate ambition. The imperative
necessity of the occasion had compelled the enlistment of the
leaders of the hostile faction who had been injured beyond
reparation, and whom it was equally dangerous to trust or further to
offend. At the head of these were the sons and brothers of Witiza,
who, while they repulsed the conciliatory overtures of Roderick,
eagerly accepted a command which might promote their schemes of
vengeance. Scores of those belonging to the noble and
ecclesiastical orders, and the Jews to a man, inflamed with revenge
and hatred, were in daily communication with the head-quarters of
the enemy. The jealousy of rival commanders tended still further to
impair the efficiency of the Christians, whose feuds and discontent
being well known to their adversaries had a tendency to inspire the
latter with a well-grounded hope of victory.
In the mean time, Tarik had seized and occupied the ancient town
of Carteja, and, fortifying himself securely, sent foraging expeditions
far and wide throughout the surrounding country. These were,
without exception, successful, and the rapid movements of the Arab
cavalry, their seemingly invincible character, and the valuable booty
they secured, not only struck terror into the astonished natives, but
greatly encouraged the main body of the invading army, encamped
under the shadow of Gibraltar. The emissaries and secret allies of
Tarik, who swarmed in the court and camp of Roderick, lost no time
in apprising him of the preparations being made for his destruction.
Alarmed by the accounts he received, he despatched a messenger
to Musa for reinforcements. A detachment of five thousand Berber
cavalry was sent to his aid, which with the remainder of his troops
amounted to twelve thousand veterans; a mere handful when
compared with the army of the Goths, but composed of warriors
inured to privation, accustomed to conquer, inflamed with religious
zeal, and bearing a devoted and unswerving attachment to their
commander.
On the morning of a beautiful July day, in the year 711, the
beginning of an era most notable in the annals of Spain, the hostile
armies faced each other near Lake La Janda, upon the rolling plains
of Medina-Sidonia. The Moors, flushed with the uniform success
which had hitherto attended their arms, relying upon the dissensions
of the enemy as much as upon their own valor, and impatient for the
conflict, appeared in glittering mail, wearing snowy turbans, and
equipped with sword and lance; while over their shoulders was
suspended the Arabian bow, whose shafts, like those of the
Parthian, made the archer all the more formidable in retreat. The
Moorish general, after performing the rites of his faith, addressed his
soldiers in a few stirring and well-chosen words. With consummate
skill, he availed himself of the strongest passions which control
humanity,—avarice, military glory, the love of woman, the priceless
rewards of religious constancy. He revealed to them a dream, in
which the Prophet had announced that the issue of the conflict would
be favorable to the adherents of Islam, and which portended the
confusion of the infidel. He placed before them their desperate
position, where defeat implied annihilation, and victory was the only
hope. He exhorted them to banish all thought of fear, and to rely
upon their courage tested upon many fields of battle. He pictured in
burning language the attractions of the country and the matchless
charms of the Gothic houris who inhabited it. He repeated the
passages of the Koran which promised that all the martyrs who fell in
battle would at once receive the reward of their devotion amidst the
ineffable delights of Paradise.
Upon the other hand, the bribes, the appeals, and the threats of
Roderick had brought together the entire available military power of
the Gothic monarchy. The King, surrounded by his nobles and
escorted by his guards, displayed all the pomp and splendor of the
Orient. He was borne to the front by white mules, upon a litter of
ivory richly inlaid with silver, and sheltered by a canopy of many-
colored silk; a purple cloak covered his shoulders, upon his head
was the royal diadem, and his robes of cloth of gold were enriched
with priceless jewels. The devices of the nobles marked the order of
the various divisions, and in the rear was led a train of many
thousand beasts of burden whose only loads were ropes with which
to bind the prisoners. The details of the battle which changed the
destiny of Western Europe are unusually meagre, even for the
unlettered and credulous age in which it occurred. It seems to have
consisted of a series of indecisive skirmishes which lasted eight
days, during which time the two armies traversed a distance of
twenty miles, to the neighborhood of the modern city of Jerez de la
Frontera. Here, with amazing ignorance, or with fatal disregard of the
elementary rules of military tactics, the Goths took up their position
with the river Guadalete in their rear. Upon the final charge of the
Arabs, the treason of the former partisans of Witiza became
apparent. A large body of nobles with their retainers openly
deserted; a panic ensued; and the vast array took to headlong flight.
Pressing forward with the shrill war-cry of the Moslem, which struck
terror into the defeated Goths, the Moorish squadrons drove the
enemy into the rapid waters of the Guadalete. The carnage was
terrible. Exasperated by days of fighting, and haunted by the
constant jeopardy of servitude and death, the soldiers of Tarik gave
no quarter. The ground was heaped with corpses. The channel of the
river was choked with the dead and dying, with horses, and chariots,
and camp equipage, with treasures which the fugitives vainly tried to
save. Of the invaders, three thousand are said to have fallen, but no
computation was made of the loss of the Goths. The remnants of the
army which escaped the swords of the Arabs were pursued to the
very gates of the neighboring cities. Many were cut to pieces before
they could reach a place of safety; and finally, satiated with blood,
the conquerors found upon their hands a great number of prisoners
whom the ropes which they themselves had provided now served to
secure. The war-horse of Roderick covered with trappings of great
value was taken, but no trace remained of the King. One of his
sandals, encrusted with rubies and emeralds, was found on the bank
of the river, which would seem to indicate that he perished by
drowning; but his body was never recovered, and his fate is a
mystery; notwithstanding that Spanish romance and monkish
credulity have invested his disappearance with many extravagant
legends, attested by a formidable array of ecclesiastical evidence.
The booty which fell into the hands of the Moslems was incalculable.
The number of horses taken was so large that the entire army was
mounted, thereby adding greatly to its efficiency. The housings of
these animals—whose possession among the Goths implied the
enjoyment of rank and fortune—were of the costliest description;
many of the finest chargers were shod with silver or gold. The Gothic
nobles, rather accustomed to vie with each other in the service of
their tables, the size of their retinues, and the magnificence of their
equipages than in valor and military knowledge, and little dreaming
of the result, had brought with them their most valuable possessions
in plate and jewels. Their love of ostentation caused them to
surround themselves with multitudes of slaves, whose daily broils
kept the camp in a continuous uproar, and between whom and the
enemy existed a secret understanding, whose effects were fearfully
manifested in the hour of disaster. All of this wealth, together with the
ornaments and insignia of the royal household, became the spoil of
the conqueror. The fifth, which according to the law of Islam
belonged to the Khalif, having been set aside, the remainder was
divided on the field, amidst the tumultuous acclamations of the
exultant soldiery.
The battle of the Guadalete is justly ranked with the great and
decisive victories of the world. Indeed, if we consider the relative
number of the combatants, the duration of the action, and the
importance of its results, it has no parallel in the annals of warfare.
While the intrigues of unscrupulous factions contributed largely to the
success of the Arabs, the fact must not be lost sight of, that the
numbers of the latter were scarcely appreciable when compared with
the vast masses of their antagonists, and that they labored under the
additional disadvantage of fighting in the enemy’s country. As to
generalship, none could have been displayed on either side. The
Moslems were little better than banditti, commanded by barbarians
and renegades whose sole military experience had been acquired by
predatory raids in the African Desert. The Goths, idle and effeminate
in life, debilitated in body, cowardly, debased, and wholly unused to
arms, were dominated by inordinate vanity and filled with contempt
for their opponents. The tyranny, excesses, and arbitrary acts of
Witiza having caused the exclusion of his posterity from the throne,
the partisans of the latter were willing to sacrifice their country and
their religion to insure the overthrow of the usurper and to satisfy
their insatiable cravings for revenge.
Thus fell the enfeebled and tottering monarchy of the Goths. It
had long survived its glory and its prestige. The severe political
maxims of its founders, suited to the frigid regions of the Baltic, had
been found incompatible with the physical and moral conditions
imposed by the voluptuous climate of Bætica and Lusitania.
Undermined by the vices of the nobility, by the turbulent ambition of
the priesthood, by the treasonable machinations of the Jews, and by
the supine indifference of the masses to any fate—provided only that
it involved a change of masters— the first shock of a determined
enemy swept it from the face of the earth. In its stead arose a new
empire and a strange dynasty of exotic origin, foreign alike in dress,
in laws, in customs, in constitution, in religion. Far from being
uncongenial, the meteorological conditions of the semi-tropical
Peninsula, which have insensibly determined the manners, the
policy, and the fate of so many races, were eminently favorable to
the highest intellectual development of its people. Through the wise
and noble ambition of its rulers was established that universal culture
which made Cordova the intellectual centre from whence diverged
those rays of light which illumined the darkness of the mediæval
world. From the genius of its statesmen, the skill of its generals, and
the prowess of its armies arose that constant apprehension of
impending disaster, a portentous shadow, which, hanging over
Europe like the imperfectly defined outlines of a gigantic spectre,
threatened for centuries the overthrow of the Seat of St. Peter, and
the destruction of that system of faith which had risen upon the ruins
of Pagan idolatry and superstition.
Great and wide-spread was the consternation which seized the
Goths after the rout of the Guadalete. The entire resources of the
kingdom had been staked and lost. The sovereign had mysteriously
disappeared. In the carnage of the field, and in that which had
accompanied the still more disastrous retreat, the nobility had
suffered so greatly that few, if any, of its members who were eligible
to the throne had survived or remained at liberty. The sacred
profession of the priesthood, which had encouraged by its presence
and exhortations the flagging spirits of the soldiery, had not been
able to protect them from the edge of the Moorish scimetar. The
hatred and fanaticism of the invaders were aroused to frenzy by the
sight of the vestments and insignia of the Church, and even the most
venerable prelates were massacred; for the ferocious Moslem gave
no quarter to the ministers of Christianity, and disdained even the
menial services of those who had denounced to eternal perdition the
followers of the Prophet. The accumulated wealth of generations,
which the vanity and ostentation of the palatines had exhibited at the
court, on the march, and in the camp, had been swept into the
coffers of the victor. The fugitives who were so fortunate as to
escape took refuge in the neighboring cities; whither they were soon
followed by the peasantry, who beheld with dismay the sight of their
burning homes and desolated fields. In one engagement, and
virtually in a single day, one of the most populous and opulent
countries of Europe had succumbed to the impetuous but desultory
attack of an unknown foe. For the space of two centuries, and under
far less favorable circumstances, the Carthaginian and Iberian
provinces of the Peninsula had successfully defied the resources
and the prestige of the Roman arms. For three centuries longer, the
Visigoths, relying upon the traditions and military fame of their
ancestors, had protected, without difficulty, their possessions
wrested from the feeble hands of the Cæsars, and had repeatedly
rolled back the tide of Frankish invasion from the slopes of the
Pyrenees.
With the advent of overwhelming national misfortune, there fell
upon the terror-stricken people the apathy of despair. The public
wretchedness was augmented by the censures of the clergy, who,
with characteristic effrontery, declared the invasion to be a divine
punishment for the crimes of the wicked; crimes in which they
themselves had not only participated, but by their shameless
conduct had obtained an infamous pre-eminence in an age of
unprecedented corruption.
The Moslems under the lead of the enterprising Tarik, who
displayed the talents of a skilful general in his ability to profit by
every advantage, lost no time in securing the fruits of victory. From
the army—now a compact and active body of cavalry—were sent in
all directions detachments to cut off straggling parties of the enemy,
and to capture supplies destined for the overcrowded cities already
threatened with the horrors of starvation.
Tidings of the wonderful success upon the plains of Jerez soon
spread far and wide through the towns and provinces of Africa.
Animated by the hope of plunder and glory, the Moslems, many of
them abandoning their homes and making use of every available
craft to cross the strait, flocked by thousands to the standard of Tarik.
The latter, after thoroughly reorganizing his new recruits, and
appointing to the command officers of tried fidelity and experience,
took Sidonia. The strongly fortified city of Carmona next claimed his
attention. As its reduction by the slow process of a siege was out of
the question with the resources at his command, resort was had to
stratagem. A squadron of the retainers of Count Julian, headed by
that worthy in person, and apparently pursued by a body of the
enemy, appeared before the walls. Shelter was at once given the
fugitives, who in the dead of night killed the sentinels and opened the
gates to the enemy. Thence Tarik advanced upon Ecija, where the
greater portion of the survivors of the battle of the Guadalete had
taken refuge. The Goths, disdaining the protection of their defences,
and nerved to despair by their situation, which involved the
alternative of slavery or famine, boldly encountered the Moslems in
the field. The action was hotly contested, and although the loss
sustained by the invaders was greater, in proportion to the number of
combatants engaged, than any suffered during the Conquest, the
Goths were in the end defeated, and the city taken. Ecija swarmed
with members of the monastic orders, and the nuns, who largely
predominated, were famous for their beauty. The prospect of the
infidel harem filled these pious virgins with horror; and they adopted
the heroic expedient of mutilating their features, hoping by the
sacrifice of their charms to preserve both their honor and their lives.
The compassion of the Moslem freebooter, infuriated by this attempt
to deprive him of his prey, was not moved by the evidences of saintly
devotion; the sight of a conventual habit became the signal for
outrage; death followed fast upon violence; and many hundreds of
the self-mutilated spouses of Christ received the crown of
martyrdom.
In the mean time, Musa had forwarded despatches to Damascus
announcing the victory, but, actuated by the petty jealousy which
formed such a prominent feature of his character, he carefully
concealed from the Khalif the name of the successful commander.
Having formed the determination to cross over to Spain and conduct
the campaign in person, he sent peremptory orders to Tarik not to
advance farther until he arrived. But the hero of the Guadalete, fully
alive to the importance of affording the enemy no opportunity for rest
and reorganization, and advised by Count Julian to march at once on
Toledo, was of the opinion that the interests of his sovereign, as well
as his own fortunes, would be promoted by disobedience of the
commands of his superior. He therefore paraded his troops, and
after enjoining them to make war only upon those actually in arms, to
leave all non-combatants unmolested, and scrupulously to respect
the religious prejudices of the people, set out for Cordova at the
head of a numerous army. The latter city was strong and well
defended, and Tarik, after nine days, seeing that the siege would
probably be of long duration, left its conduct to his lieutenant,
Mugayth-al-Rumi, and moved without delay upon Toledo. The
governor of Cordova, who was of the royal blood of the Goths, and a
brave and determined officer, inspirited by the departure of the main
body of the enemy, made no question of his ability to defend the city
against a force not greatly exceeding his own in numbers. But the
good fortune which seemed to attend the Moslems upon every
occasion did not desert them in the present emergency. Information
was soon brought to Mugayth-al-Rumi of a weak point in the
fortifications which might be scaled. Aided by a dark night and the
noise made by a storm of hail, a detachment crossed the river under
the guidance of a shepherd, and reached the place which had been
indicated. A fig-tree which stood near the wall was mounted by an
active soldier, who, unrolling his turban, drew up several of his
comrades, who occupied the battlements without resistance; for the
severity of the tempest had driven the sentries from their posts.
Proceeding quietly and rapidly through the streets, the guard at the
gates was surprised and cut to pieces, the army was admitted, and
by daybreak the city was in the hands of the Moslems. The governor,
with four hundred of the garrison, fled to the church of St. George,
which stood outside the western wall, and being surrounded by a
moat and supplied with water by a subterranean conduit from a
spring in the neighboring mountains, offered all the obstacles of a
fortress whose towers and barbicans could bid defiance to an enemy
destitute of military engines and ignorant of the mode of conducting
a siege. For a considerable time the Goths repulsed the attacks of
the band of Mugayth-al-Rumi, until at last, after diligent search, the
source of the water-supply having been discovered and the
aqueduct cut, the besieged, reduced to extremity, were compelled to
surrender. The majority of the garrison were permitted to join their
countrymen in the North, but the officers and the governor—who was
a personage of too great importance to be set at liberty—were
retained in the camp of the victor.
Before leaving Ecija, Tarik had sent one of his officers, Zeyd-Ibn-
Kesade, at the head of a considerable force, to overrun the southern
portion of Andalusia. In this region, as elsewhere, the mysterious
terror which attended the exploits of the invaders had preceded
them. Baja, Antequera, Elvira, and the adjoining districts yielded
almost without resistance, but Granada, relying upon its fortifications,
refused to accept the proffered terms and was carried by storm. The
small number of the Moslems rendered it impossible for them to
leave garrisons in the captured towns, and the most important of the
latter were placed in charge of Arab governors, with whom the Jews,
who seemed to have thriven under persecution, engaged
themselves to co-operate. So numerous was the Hebrew element in
Granada that it was practically a Jewish community, and, with its aid,
a single company was sufficient to hold in subjection a city of nearly
a hundred thousand souls. Having accomplished the object of his
expedition with trifling loss, loaded with rich booty, and accompanied
by innumerable slaves of both sexes, Zeyd, sacking Jaen on his
way, hastened to join Tarik at Toledo.
Eight months had elapsed since the battle of the Guadalete
before the Moslem army appeared before the gates of the Visigothic
capital. Perched upon a lofty eminence, and almost surrounded by
the Tagus, whose current ran swiftly through a deep channel worn in
the living rock, art had combined with nature to render its position
impregnable. Walls built of stones of almost cyclopean dimensions
environed it, and rose to a great height even on the side towards the
river, where the precipitous cliffs themselves discouraged all
attempts at escalade. The approach from the north had been
protected by barbicans and outworks of double strength. These
defences had been designed and perfected by Wamba, the last of
the Gothic kings whose martial genius had, for a brief period, revived
the glorious traditions and long forgotten exploits of the ancient
dynasty. The imperial capital, a citadel in itself, where all the
resources of a vast monarchy had been lavished and all the
knowledge of military engineering of the age had been employed to
insure the safety of the court, now trembled in the presence of a few
thousand roving barbarians. The dread which was associated with
the unknown enemy was augmented by the rapidity of his
movements, which to the superstitious fears of the Visigoths made
him appear ubiquitous. A sufficient military force had been available
to defend this fortress, but the sentiments of patriotism, loyalty, and
courage, so essential to the preservation of obedience and
discipline, had disappeared. Instead of preparing for resistance,
each individual thought only of his own preservation, when news
arrived that the foe was approaching. The majority of the citizens,
leaving their possessions, fled to Galicia and the Asturias. The
lawless soldiers of the garrison pillaged the deserted houses, and
stripped without hindrance the defenceless fugitives. The clergy,
considering the evil as only temporary, walled up the treasures of
chapel and convent in crypts, where to-day the greater portion of
them still remain undiscovered. The primate, laden with the most
precious effects of the churches, and leaving his ecclesiastical
inferiors to contend for the prize of martyrdom offered by the infidel,
accompanied his terrified parishioners in their flight, nor did he arrest
his steps until safe within the walls of Rome. A disorderly rabble of
priests and monks, actuated either by faith or indolence, remaining
at their posts, endeavored to avert the impending calamity by fasting,
prayer, and pilgrimage to the innumerable shrines situated both
within and without the city. Unfortunately, however, no divine
response was vouchsafed to these last frantic efforts of a despairing
hierarchy. The waving pennons and sparkling lances of the Arab
cavalry appeared in the distance, and their light and active
squadrons swept around the walls. The fields were laid waste. The
convents and the villas which embellished the suburbs were razed to
the ground or burnt. Every unlucky straggler was compelled, at the
point of the sword, to renounce the religion of his fathers or submit to
the fate of a slave. In a town deserted by its garrison, half
depopulated, without provisions, deprived of every prospect of relief,
and principally occupied by non-combatants and Jews who were in
sympathy with the enemy, no idea of resistance could be
entertained. The usual conditions offered by the Moslems were
eagerly accepted. All had permission to retire who desired to do so,
with the understanding that such abandonment of their homes
involved a forfeiture of every description of property. Those who
preferred to remain were assured of protection, under payment of a
reasonable tribute. Both Jews and Christians were indulged in the
practice of their religious rites; but half of the churches were
confiscated for the use of Islam, and no new houses of worship
could be constructed without permission of the government. The
tributaries were left subject to their own laws, enforced by their own
tribunals, as long as these did not conflict with the policy of the
dominant power. No impediments to proselytism were tolerated, and
severe punishment was denounced against such as should offer
intimidation or insult to Christian renegades. Such were the terms
imposed upon the inhabitants of the Peninsula by the generous
policy of the conqueror; a pleasing contrast to the brutality of the
barbarians, the duplicity of Carthage, and the avarice and
selfishness of Rome.
Notwithstanding the most valuable treasures of the imperial
capital had been carried away by the fleeing population, the plunder
secured by the Moslems was immense, and even their rapacity,
ordinarily insatiable, was for once appeased. The variety and
number of the precious objects which met their bewildered gaze was
so great, that the rude warriors of the Atlas not infrequently turned
aside from the splendid vestments and jewel-studded furniture
destined for the service of the Church, to more portable and
gorgeous baubles which caught their momentary fancy. It is related
by the most accurate of the Christian and Moorish chroniclers, that
two Berbers, having found an altar-cloth of gold brocade enriched
with rows of hyacinths and emeralds which was too heavy for them
to carry, cut out that portion containing the jewels and rejected the
balance as worthless. Another, who had secured a golden vase filled
with pearls, kept the precious receptacle, but, ignorant of their value,
cast away its contents. In the cathedral were found many votive
crowns of gold, each inscribed with the name of a Gothic king. The
confusion incident to a hasty flight had left in the religious houses of
every description a vast amount of wealth, which fell into the hands
of the conqueror. An apartment was discovered in the palace
occupied by Tarik which was literally filled with the treasures and
royal insignia of the various dynasties which had for ages swayed
the fortunes of the Visigothic monarchy. Chains and diadems, urns
and uncut jewels, sceptres, richly decorated weapons, costly armor,
robes of cloth of gold, have been enumerated among the spoil by the

(Download PDF) Using Financial Accounting Information The Alternative To Debits and Credits 10Th Edition Gary A Porter Full Chapter PDF

Uploaded by

Copyright:

Available Formats

You might also like

(Download PDF) Using Financial Accounting Information The Alternative To Debits and Credits 10Th Edition Gary A Porter Full Chapter PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

(Download PDF) Using Financial Accounting Information The Alternative To Debits and Credits 10Th Edition Gary A Porter Full Chapter PDF

Uploaded by

Copyright:

Available Formats

Using Financial Accounting

Information: The Alternative to Debits

Using Financial Accounting Information: The Alternative

Financial Accounting, 10th Edition 10th Edition, (Ebook

Financial Accounting: Information for Decisions 9th

Financial Accounting for Decision Makers 10th Edition

Managing and Using Information Systems: A Strategic

Financial & Managerial Accounting 18th Edition

IT Auditing Using Controls to Protect Information

Financial and Managerial Accounting 9th Edition John

Cengage Learning products are represented in Canada by

To learn more about Cengage Learning Solutions, visit www.cengage.com

CHAPTER 2 Financial Statements and the Annual Report 50

CHAPTER 5 Inventories and Cost of Goods Sold 208

CHAPTER 11 Stockholders’ Equity 500

APPENDIX A International Financial Reporting Standards A-1

APPENDIX B Excerpts from Chipotle Mexican Grill, Inc. Form 10-K

CHAPTER 1 Why Should Accountants Be Concerned with Ethics? 22

MODULE 1 The Nature of Business 4 CHAPTER 2

MODULE 1 Accounting and Controlling for

MODULE 3 Accounting for Investments 327 CHAPTER 9

Due Date 458 Stock Dividends 512

MODULE 1 Purpose and Format for the

Lululemon Athletica Inc.: Making Business

Seeing the Forest for the Trees

Connecting to the Big Picture

• Connect to the Real World features ask students to

• NEW HOW WILL I USE

• The Ratio Analysis Model guides students

Built for Today’s Students

CengageNOWv2. CengageNOWv2 for Porter/Norton’s Using Financial

Motivation: Set Expectations and Prepare

How Does It Work?

Application: Provide Help Right When Students

• Post-Submission Feedback is available after the assignment has been submitted

Mastery: Help Students Go Beyond

Enhanced Reporting Capabilities. CengageNOWv2’s new Gradebook Ana-

Additional Instructor and Student

Student Web Resources

Scott Ballantyne Carolyn Galantine Wendy K. Potratz

Gary A. Porter is currently a Distinguished Lecturer at Drake University. He

Curtis L. Norton is currently a Clinical Professor at Arizona State University.

MODULES LEARNING OBJECTIVES WHY IS THIS CHAPTER IMPORTANT?

• You need to know what a business is. (See p. 4.)

1 LO1 Explain what business is about.

• You need to know what net income is and how it is

2 LO4 Define accounting and identify the primary users

LO6 Identify and explain the primary assumptions made

Area 52 Advertising Inc/Getty Images

CHIPOTLE MEXICAN GRILL, INC.

MODULE 1 THE NATURE OF BUSINESS

EXAMPLE 1-1 Identifying Types of Businesses

EXHIBIT 1-1 Types of Businesses

Manufacturers/ Distributor/ Retailers

Service Service Companies:

EXHIBIT 1-2 Forms of Organization

Sole Government Private

Federal State and Hospitals,