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❯❯ CONTENTS
Preface xv Chapter 2
Visual Walk-Through xviii Transaction Analysis 53
Spotlight: Whole Foods Market, Inc. 53
Chapter 1
Explain What a Transaction Is 55
The Financial Statements 1
Define “Account,” and List and Differentiate
Spotlight: The Gap, Inc. 1 Between Different Types of Accounts 55
Explain Why Accounting Is the Language of Assets 55
Business 3
Liabilities 56
Who Uses Accounting Information? 4
Stockholders’ (Owners’) Equity 56
Two Kinds of Accounting: Financial Accounting and
Management Accounting 4 Show the Impact of Business Transactions on the
Accounting Equation 57
Organizing a Business 5
Example: Freddy’s Auto Service, Inc. 57
Explain and Apply Underlying Accounting Concepts,
Assumptions, and Principles 6 Transactions and Financial Statements 63
The Entity Assumption 8 Mid-Chapter Summary Problem 66

The Continuity (Going-Concern) Assumption 8 Analyze the Impact of Business Transactions
on Accounts 68
The Historical Cost Principle 8
The T-Account 68
The Stable-Monetary-Unit Assumption 9
Increases and Decreases in the Accounts: The Rules
Apply the Accounting Equation to Business
of Debit and Credit 68
Organizations 11
Additional Stockholders’ Equity Accounts: Revenues
Assets and Liabilities 11
and Expenses 70
Owners’ Equity 12
Record ( Journalize and Post) Transactions in
Evaluate Business Operations Through the Books 71
the Financial Statements 14
Copying Information (Posting) from the Journal
The Income Statement Measures Operating to the Ledger 72
Performance 14
The Flow of Accounting Data 73
The Statement of Retained Earnings Shows What a
Accounts after Posting to the Ledger 77
Company Did with Its Net Income 16
The Balance Sheet Measures Financial Construct and Use a Trial Balance 78
Position 17 Analyzing Accounts 79
The Statement of Cash Flows Measures Cash Receipts Correcting Accounting Errors 80
and Payments 20 Chart of Accounts 80
Construct Financial Statements and Analyze the The Normal Balance of an Account 81
Relationships Among Them 21
Account Formats 81
Evaluate Business Decisions Ethically 23 Analyzing Transactions Using Only T-Accounts 82
End-of-Chapter Summary Problem 26 End-of-Chapter Summary Problem 84
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Chapter 3 Chapter 4
Accrual Accounting & Income 113 Internal Control & Cash 192
Spotlight: Starbucks Corporation 113 Spotlight: Cooking the Books: Mid-Atlantic
Explain How Accrual Accounting Manufacturing Company Takes a Hit 192
Differs from Cash-Basis Describe Fraud and Its Impact 195
Accounting 115
Fraud and Ethics 197
Accrual Accounting and Cash Flows 116
Explain the Objectives and Components of
The Time-Period Concept 116 Internal Control 197
Apply the Revenue and Expense Recognition The Sarbanes-Oxley Act (SOX) 198
Principles 116
The Components of Internal Control 199
The Revenue Principle 116
Internal Control Procedures 200
The Expense Recognition Principle 118
Information Technology 202
Ethical Issues in Accrual Accounting 119
Safeguard Controls 203
Adjust the Accounts 119 Internal Controls for E-Commerce 203
Which Accounts Need to Be Updated Security Measures 203
(Adjusted)? 119
The Limitations of Internal Control—Costs
Categories of Adjusting Entries 120 and Benefits 204
Prepaid Expenses 120
Design and Use a Bank Reconciliation 204
Depreciation of Plant Assets 123
Signature Card 205
Accrued Expenses 125
Deposit Ticket 205
Accrued Revenues 127
Check 205
Unearned Revenues 128
Bank Statement 206
Summary of the Adjusting Process 129
Bank Reconciliation 207
The Adjusted Trial Balance 132
Preparing the Bank Reconciliation 208
Construct the Financial Online Banking 211
Statements 133
Mid-Chapter Summary Problem 213
Evaluate Internal Controls Over Cash Receipts
Close the Books 141 and Cash Payments 215
Classifying Assets and Liabilities Based Cash Receipts Over the Counter 215
on Their Liquidity 142
Cash Receipts by Mail 215
Reporting Assets and Liabilities: Starbucks
Corporation 143 Controls Over Payment by Check 216
Formats for the Financial Construct and Use a Cash Budget 218
Statements 143 Report Cash on the Balance Sheet 220
Analyze and Evaluate a Company’s Compensating Balance Agreements 220
Debt-Paying Ability 145
End-of-Chapter Summary Problem 221
Net Working Capital 145
Current Ratio 145 Chapter 5
Debt Ratio 146 Short-Term Investments & Receivables 245
How Do Transactions Affect the Spotlight: Amazing Apple! Short-term
Ratios? 146
investments and accounts receivable are 37 times as
End-of-Chapter Summary Problem 150 large as inventories! 245
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Contents ix
Account for Short-Term Investments 247 Apply and Compare Various Inventory
Reasons to Invest in Other Companies 247 Cost Methods 308
Trading Securities 248 What Goes into Inventory Cost? 308
Reporting on the Balance Sheet and the Income Apply the Various Inventory Costing Methods 309
Statement 252 Compare the Effects of FIFO, LIFO, and Average
Ethics and the Current Ratio 252 Cost on Cost of Goods Sold, Gross Profit, and
Ending Inventory 311
Mid-Chapter Summary Problem 253 Keeping Track of Perpetual Inventories under LIFO
Apply GAAP for Proper Revenue and Weighted-Average Cost Methods 312
Recognition 254 The Tax Advantage of LIFO 313
Shipping Terms, Sales Discounts, and Sales
Returns 255 Mid-Chapter Summary Problem 314
Explain and Apply Underlying GAAP for
Account for and Control Accounts
Inventory 316
Receivable 256
Disclosure Principle 316
Types of Receivables 256
Lower-of-Cost-or-Market Rule 316
Internal Controls Over Cash Collections on
Account 257 Inventory and the Detailed Income
Statement 318
How Do We Manage the Risk of Not
Collecting? 257 Compute and Evaluate Gross Profit (Margin)
Percentage and Inventory Turnover 318
Evaluate Collectibility Using the Allowance for
Uncollectible Accounts 258 Gross Profit Percentage 318
Allowance Method 259 Inventory Turnover 319
Direct Write-Off Method 265 Use the COGS Model to Make Management
Computing Cash Collections from Customers 265 Decisions 320
Computing Budgeted Purchases 321
Account for Notes Receivable 266
Estimating Inventory by the Gross Profit
Accounting for Notes Receivable 267
Method 321
Show How to Speed Up Cash Flow from
Analyze Effects of Inventory Errors 322
Receivables 269
End-of-Chapter Summary Problem 325
Credit Card or Bankcard Sales 269
Selling (Factoring) Receivables 270
Reporting on the Statement of Cash Flows 270 Chapter 7
Plant Assets, Natural Resources, &
Evaluate Liquidity Using Two New Ratios 271
Intangibles 362
Quick (Acid-Test) Ratio 271
Spotlight: FedEx Corporation 362
Days’ Sales in Receivables 271
Measure and Account for the Cost of Plant
End-of-Chapter Summary Problem 273 Assets 365
Land 365
Chapter 6 Buildings, Machinery, and Equipment 365
Inventory & Cost of Goods Sold 300 Land Improvements and Leasehold
Improvements 366
Spotlight: Family Dollar Stores, Inc. 300
Lump-Sum (or Basket) Purchases of
Show How to Account for Inventory 303
Assets 366
Sale Price vs. Cost of Inventory 304
Distinguish a Capital Expenditure from an
Accounting for Inventory in the Perpetual Immediate Expense 367
System 306
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Measure and Record Depreciation on Plant Stock and Bond Prices 430
Assets 369 Reporting Investments on the Balance Sheet 430
How to Measure Depreciation 370
Analyze and Report Investments in
Depreciation Methods 370 Held-to-Maturity Debt Securities 431
Comparing Depreciation Methods 375 Analyze and Report Investments in
Mid-Chapter Summary Problem 377 Available-for-Sale Securities 433
Other Issues in Accounting for Accounting Methods for Long-Term Stock
Plant Assets 378 Investments 433
Depreciation for Tax Purposes 378 The Fair Value Adjustment 435
Depreciation for Partial Years 380 Selling an Available-for-Sale Investment 436
Changing the Useful Life of a Depreciable Analyze and Report Investments in Affiliated
Asset 380 Companies Using the Equity Method 437
Fully Depreciated Assets 382 Buying a Large Stake in Another Company 437
Analyze the Effect of a Plant Asset Accounting for Equity-Method Investments 438
Disposal 382 Analyze and Report Controlling Interests
Disposing of a Fully Depreciated Asset for in Other Corporations Using Consolidated
No Proceeds 383 Financial Statements 440
Selling a Plant Asset 383 Why Buy Controlling Interest in Another
Company? 440
Exchanging a Plant Asset 384
Consolidation Accounting 440
T-Accounts for Analyzing Plant Asset
Transactions 385 The Consolidated Balance Sheet and the Related
Work Sheet 441
Apply GAAP for Natural Resources
and Intangible Assets 387 Goodwill and Noncontrolling Interest 442
Accounting for Natural Resources 387 Income of a Consolidated Entity 442
Accounting for Intangible Assets 388 Mid-Chapter Summary Problem 444

Accounting for Specific Intangibles 388 Consolidation of Foreign Subsidiaries 446
Accounting for Research and Development Foreign Currencies and Exchange Rates 446
Costs 390 The Foreign-Currency Translation
Explain the Effect of an Asset Impairment Adjustment 447
on the Financial Statements 390 Report Investing Activities on the Statement
Analyze Rate of Return on Assets 392 of Cash Flows 448
DuPont Analysis: A More Detailed View of Explain the Impact of the Time Value of Money
ROA 393 on Certain Types of Investments 449
Analyze the Cash Flow Impact of Long-Lived Present Value 450
Asset Transactions 394 Present-Value Tables 451
End-of-Chapter Summary Problem 397 Present Value of an Ordinary Annuity 452
Using Microsoft Excel to Calculate Present
Chapter 8 Value 454
Using the PV Model to Compute Fair Value of
Long-Term Investments &
the Time Value of Money 428 Available-for-Sale Investments 455
Present Value of an Investment in Bonds 456
Spotlight: Intel Holds Several Different
Types of Investments 428 End-of-Chapter Summary Problems 457
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Contents xi
Chapter 9 Reporting on the Balance Sheet 516

Disclosing the Fair Value of Long-Term
Liabilities 482
Debt 517
Spotlight: Southwest Airlines: Still Flying Reporting Financing Activities on the Statement
High! 482 of Cash Flows 517
Account for Current and Contingent End-of-Chapter Summary Problems 518
Liabilities 484
Current Liabilities of Known Amount 484
Current Liabilities That Must Be Estimated 490
Chapter 10
Stockholders’ Equity 550
Contingent Liabilities 491
Are All Liabilities Reported on the Balance
Spotlight: The Home Depot: Building Toward
Sheet? 492 Success 550
Summary of Current Liabilities 493 Explain the Features of a Corporation 552

Organizing a Corporation 553
Stockholders’ Rights 554
Account for Bonds Payable, Notes Payable,
and Interest Expense 494 Stockholders’ Equity 555
Bonds: An Introduction 494 Classes of Stock 555
Issuing Bonds Payable at Par (Face Value) 497 Account for the Issuance of Stock 557
Issuing Bonds Payable at a Discount 499 Common Stock 557
What Is the Interest Expense on These Bonds A Stock Issuance for Other Than Cash Can Create
Payable? 499 an Ethical Challenge 560
Interest Expense on Bonds Issued at a Preferred Stock 561
Discount 501
Partial-Period Interest Amounts 504 Authorized, Issued, and Outstanding Stock 564
Issuing Bonds Payable at a Premium 504
Show how Treasury Stock Affects a Company 564
The Straight-Line Amortization Method: A
How Is Treasury Stock Recorded? 564
Quick and Dirty Way to Measure Interest
Expense 508 Retirement of Treasury Stock 566
Should We Retire Bonds Payable Before Their Resale of Treasury Stock 566
Maturity? 509 Issuing Stock for Employee Compensation 566
Convertible Bonds and Notes 509 Summary of Treasury-Stock Transactions 567
Analyze and Differentiate Financing with Debt Account for Retained Earnings, Dividends,
Versus Equity 510 and Splits 567
The Leverage Ratio 512 Should the Company Declare and Pay Cash
The Times-Interest-Earned Ratio 513 Dividends? 568
Understand Other Long-Term Liabilities 513 Cash Dividends 568
Leases 513 Analyzing the Stockholder’s Equity Accounts 569
Types of Leases 513 Dividends on Preferred Stock 570
Do Lessees Prefer Operating Leases or Capital Stock Dividends 571

Leases? 514 Stock Splits 572
Pensions and Postretirement Liabilities 515 Summary of the Effects on Assets, Liabilities,
and Stockholders’ Equity 573
Report Liabilities 516
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Use Stock Values in Decision Making 573 Compute Earnings per Share 630
Market, Redemption, Liquidation, Analyze the Statement of Comprehensive Income,
and Book Value 573 Footnotes, and Supplemental Disclosures 631
ROE: Relating Profitability to Stockholder Reporting Comprehensive Income 631
Investment 575
For Additional Details, Don’t Forget the
Report Stockholders’ Equity Transactions Footnotes 632
in the Financial Statements 577 Nonfinancial Reports 634
Statement of Cash Flows 577
Differentiate Management’s and Auditors’
Statement of Stockholders’ Equity 578 Responsibilities in Financial Reporting 634
A Detailed Stockholders’ Equity Section of the Management’s Responsibility 634
Balance Sheet 579
Auditor Report 634
End-of-Chapter Summary Problems 581
Chapter 11 Chapter 12
Evaluating Performance: Earnings Quality, The Statement of Cash Flows 664
the Income Statement, & the Statement of
Comprehensive Income 617 Spotlight: Google: The Ultimate Answer
Spotlight: The Gap, Inc.: What a Difference (and Cash) Machine 664
a Year Makes! 617 Identify the Purposes of the Statement of Cash
Flows 666
Evaluate Quality of Earnings 619
How’s Your Cash Flow? Telltale Signs of Financial
Revenue Recognition 620
Difficulty 667
Cost of Goods Sold and Gross Profit
(Gross Margin) 621 Distinguish Among Operating, Investing,
and Financing Activities 668
Operating and Other Expenses 622
Two Formats for Operating Activities 669
Operating Income (Earnings) 622
Prepare a Statement of Cash Flows by the
Account for Foreign-Currency Gains Indirect Method 669
and Losses 623
Cash Flows from Operating Activities 671
Dollars versus Foreign Currency 623
Cash Flows from Investing Activities 675
Reporting Foreign-Currency Gains and Losses on
the Income Statement 624 Cash Flows from Financing Activities 676
Reporting Foreign-Currency Exchange Gains and Noncash Investing and Financing Activities 680
Losses on Cash and Cash Equivalents in the Mid-Chapter Summary Problem 681
Statement of Cash Flows 624
Prepare a Statement of Cash Flows by the
Should We Hedge Our Foreign-Currency- Direct Method 684
Transaction Risk? 625
Cash Flows from Operating Activities 685
Account for Other Items on the Income Depreciation, Depletion, and Amortization
Statement 625
Expense 687
Interest Expense and Interest Income 625
Cash Flows from Investing Activities 687
Corporate Income Taxes 625
Cash Flows from Financing Activities 688
Which Income Number Predicts Future
Noncash Investing and Financing Activities 688
Profits? 627
Computing Operating Cash Flows by the Direct
Discontinued Operations 628
Method 689
Accounting Changes 629
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Computing Investing and Financing Cash Measuring Profitability 766

Flows 693 Analyzing Stock as an Investment 771
Measuring Cash Adequacy: Free Cash Flow 694 The Limitations of Ratio Analysis 773
End-of-Chapter Summary Problems 696 Use Other Measures to Make Investment
Decisions 773
Chapter 13 Economic Value Added (EVA®) 773
Financial Statement Analysis 739 Red Flags in Financial Statement
Analysis 774
Spotlight: How Well Is Amazon.com Doing? 739
It Starts with the Big Picture 741 Efficient Markets 775
Perform Horizontal Analysis 743
Illustration: Amazon.com, Inc. 743 Appendix A:
Trend Percentages 748 Amazon.com 2012 Annual Report 821
Perform Vertical Analysis 749 Appendix B:

Illustration: Amazon.com, Inc. 749 Yum! Brands, Inc. Annual Report 2012 845
Prepare Common-Size Financial Statements 752 Appendix C:

Typical Charts of Accounts for Different Types
Benchmarking 753
of Businesses 863
Benchmarking Against a Key Competitor 753
Appendix D:
Analyze the Statement of Cash Flows 753
Summary of Generally Accepted Accounting
Mid-Chapter Summary Problem 756 Principles (GAAP) 865
Use Ratios to Make Business Decisions 757 Appendix E:
Remember to Start at the Beginning: Company and Summary of Differences Between
Industry Information 758 U.S. GAAP and IFRS Cross Referenced to
Now Let’s Do the Numbers 759 Chapter 867
Measuring Ability to Pay Current Liabilities 759 Company Index 871

Measuring Turnover and the Cash Conversion Glindex 875
Cycle 762
Measuring Leverage: Overall Ability to Pay
Debts 765
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❯❯ Preface
Changes for The Tenth Edition

In general, the Tenth Edition content has been substantially redesigned and enhanced:
■ The text font has been enlarged from the Ninth Edition to Tenth Edition to make the text easier to read.
■ Chapter openers now only take up one or two pages, with a small silhouetted image of the spotlight
company.
■ Most financial statements, general ledger, and journal entries have been converted to Excel.
■ Special sections called Try It in Excel have been added to every chapter, giving students explicit instruc-
tions as to how to access the chapter focus company’s most recent financial statements in Excel from the
website of the U.S. Securities and Exchange Commission (www.sec.gov).
■ Other sections of most chapters give explicit instructions on how to build Excel templates that streamline
and simplify various accounting tasks. These tasks include preparation of the adjusted trial balance work-
sheet, preparation of financial statements, computation of depreciation by various methods, and computa-
tion of effective-interest bond discount and premium amortization.
■ In all chapters, a new “focus on analysis” company, Yum! Brands, Inc., was selected to replace Radio Shack.
Selections of the financial statement appear in Appendix B.
■ Demo Docs are removed from the text and are now relocated to MyAccountingLab.
Within Chapters 1 through 3:
■ Chapter discussions were revised to be more integrative, using a continuing example of one company that
carries through all three chapters.
■ Excel is used as a facilitating tool to both prepare and analyze financial statements. Excel data files are
available for problems in the end of chapter material for these chapters, also incorporating them into
MyAccountingLab.
■ Summary problems for each of these three chapters are reworked using the Excel format.
Below are the content changes to the Tenth Edition, listed chapter-by-chapter:
Chapter 1
■ Chapter Opener: Spotlight company changed to The Gap, Inc.
■ Provides detailed instructions as to how to access current financial statements of The Gap, Inc. in Excel
on the website of the U. S. Securities and Exchange Commission (SEC).
■ Real World Financial Statement changed to The Gap, Inc. and used to illustrate the interrelationships of
the financial statements.
■ Added coverage of the new financial reporting framework for small and midsize entities that are not public
and that have no intention of going public.
■ Updated information on international financial reporting standards (IFRS) in light of the more recent
trend toward convergence rather than adoption of IFRS on the part of U.S. public companies.
■ Chapter contains eight simulated Excel exercises and problems, gradable Excel exercises and problems in
MyAccountingLab.
Chapter 2
■ Chapter Opener: Spotlight company changed to Whole Foods Market, Inc.
■ Real World company, Freddy’s Auto Service, Inc., is used to illustrate recording of hypothetical transac-
tions and posting entries.
■ Provides instructions on how to access current financial statements of Whole Foods Market, Inc. in Excel
on the website of the U. S. Securities and Exchange Commission (SEC).
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■ Provides detailed instructions as to how to prepare a financial statement in worksheet format using Excel.
■ Detailed instructions provided as to how to prepare a trial balance using Excel.
■ End of Chapter Summary Problem: Transactional analysis company name changed from Genie Car Wash,
Inc. to Magee Service Center, Inc.
■ Simulated Excel exercises and problems increased from two to six.
Chapter 3
■ Provides instructions on how to access current financial statements of Starbucks Corporation in Excel on
the website of the U. S. Securities and Exchange Commission (SEC).
■ Provides detailed instructions as to how to prepare an adjusted trial balance worksheet using Excel.
■ End of Chapter Summary Problem: Transactional analysis company name changed from Genie Car Wash,
Inc. to Badger Ranch, Inc.
■ Simulated Excel exercises and problems increased from 9 to 11.
Chapter 4
■ Chapter Opener: Changed name of Spotlighted Cooking the Books company to Mid-Atlantic Manufac-
turing Company.
■ Updated internal control discussion.
■ Emphasized use of electronic bank reconciliations.
■ Detailed instructions provided on how to prepare a cash budget using Excel.
■ Two simulated Excel problems have been added.
Chapter 5
■ Chapter Opener: Spotlight company changed to Apple, Inc.
■ Provides detailed instructions on how to access current financial statements of Apple, Inc. in Excel on the
website of the U. S. Securities and Exchange Commission (SEC).
■ Updated and clarified discussion of accounting for short-term investments, illustrating distinction between
accounting for trading securities and accounting for available-for-sale securities.
■ Updated discussion on revenue recognition to correspond with new GAAP/IFRS standard.
■ Simulated Excel exercises and problems increased from seven to eight.
Chapter 6
■ Chapter Opener: Changed Spotlight company to Family Dollar Stores, Inc.
■ Provides detailed instructions as to how to access current financial statements of Family Dollar Stores, Inc.
in Excel on the website of the U. S. Securities and Exchange Commission (SEC).
■ Expanded coverage (including journal entries) of how to account for purchase returns and discounts.
Chapter 7
■ Chapter Opener: Retained Spotlight company, FedEx Corporation, and updated information used in
chapter using the FedEx Corporation 2012 Annual Report.
■ Provides detailed instructions as to how to access current financial statements of FedEx Corporation in
Excel on the website of the U. S. Securities and Exchange Commission (SEC).
■ Changed exhibits on three depreciation methods to Excel format, with detailed instructions as to how to
use Excel to compute depreciation expense, accumulated depreciation, and asset book value.
Chapter 8
■ Chapter Opener: Retained spotlight company, Intel Corporation and updated information in chapter
using the 2012 Intel Corporation Annual Report.
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■ Provides detailed instructions as to how to access current financial statements of Intel Corporation in
Chapter 9
■ Chapter Opener: Retained Spotlight company, Southwest Airlines, and updated information in chapter
using the Southwest Airlines 2012 Annual Report.
■ Provides detailed instructions as to how to access current financial statements of Southwest Airlines Com-
pany in Excel on the website of the U. S. Securities and Exchange Commission (SEC).
■ Modified chapter exhibits for bond discount and premium amortization to Excel format, and provided
detailed instructions as to how to prepare effective-interest amortization tables in Excel format.
■ Simulated Excel exercises and problems increased from eight to nine.
Chapter 10
■ Chapter Opener: Changed Spotlight company to The Home Depot, Inc., and updated information in
chapter using the Home Depot, Inc. 2012 Annual Report.
■ Provides detailed instructions as to how to access current financial statements of The Home Depot, Inc. in
■ Relocated coverage of Statement of Stockholders’ Equity from Chapter 11 to Chapter 10 and changed end
of chapter material to reflect this modified coverage.
■ Simulated Excel exercises and problems increased from five to six.
Chapter 11
■ Chapter Opener: Retained Spotlight company, The Gap, Inc. and updated information in chapter using
the The Gap, Inc. 2012 Annual Report.
■ Provides detailed instructions as to how to access current financial statements of The Gap, Inc. in Excel on
■ Moved coverage of Statement of Stockholders’ Equity to Chapter 10 and deleted related end of chapter
material in Chapter 11.
■ Added a section on non-financial measures of performance, such as corporate social responsibility.
■ Added a section on use of footnote disclosures in financial analysis, including segment information. Added
end-of-chapter materials to reflect this expanded coverage.
■ Simulated Excel exercises and problems increased from five to seven.
Chapter 12
■ Chapter Opener: Retained Spotlight company, Google, Inc. and updated information in chapter using the
Google 2012 Annual Report.
■ Provides detailed instructions as to how to access current financial statements of Google, Inc. in Excel on
■ Simulated Excel exercises and problems increased from four to seven.
Chapter 13
■ Chapter Opener: Retained Spotlight company, Amazon.com, Inc. and updated information in chapter
using the Amazon.com 2012 Annual Report.
■ Provides detailed instructions as to how to access current financial statements of Amazon.com, Inc. in
■ Provided detailed instructions as to how to use Excel to perform both horizontal and vertical analyses of
comparative financial statements.
■ Expanded analysis of Amazon.com, Inc., providing comprehensive tables of key financial ratios in Excel format.
■ Simulated Excel exercises and problems increased from six to nine.
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Plant Assets, Natural Resources, & Intangibles 373
Assume that FedEx expects to drive the truck 20,000 miles during the first year, 30,000 dur-
ing the second, 25,000 during the third, 15,000 during the fourth, and 10,000 during the fifth.
Exhibit 7-6 shows the UOP depreciation schedule.
Exhibit 7-6 | Units-of-Production (UOP) Depreciation Schedule for Truck
A1
❯❯ Visual Walk-Through 1
2
Date
A B C
Cost Rate per unit
1/1/2011 41,000
D
Number Units
E F G
Yearly Expense Accum. Deprec. Book Value
41,000
3 12/31/2011 0.4 20,000 8,000 8,000 33,000
4 12/31/2012 0.4 30,000 12,000 20,000 21,000
5 12/31/2013 0.4 25,000 10,000 30,000 11,000
6 12/31/2014 0.4 15,000 6,000 36,000 5,000
7 12/31/2015 0.4 10,000 4,000 40,000 1,000
8
Try It in Excel
NEW!
Describes line-by-line how to retrieve and prepare accounting information (such as
adjusted trial
The balance
amount ofworksheets, ratio computations,
UOP depreciation depreciation
varies with the number of unitsschedules, bond In
the asset produces.
our and
discount example, the total
premium number of units
amortization (miles) produced
schedules, is 100,000.
and financial UOP depreciation
statement analysis)does not
in Excel.
depend directly on time, as with the other methods.
Try It in
❯❯ Excel If you built the straight-line depreciation schedule in Exhibit 7-5 with Excel,
changing the spreadsheet for units-of-production depreciation is a snap.
Steps 1–3 and 6–8 are identical. Only steps 4 and 5, dealing with columns C and D, change. You
might want to start by opening the straight-line schedule you prepared and saving it under another
name: “units-of-production depreciation.” Next, change the column headings for column C and
column D. Column C should be labeled “Rate per unit.” Column D should be labeled “Number
Units.” Assuming you do this, here are the modified steps 4 and 5 of the process we used before:
4. In column C, calculate a per-unit (rather than per-year as we did with straight-line) de-
preciation rate by dividing the depreciable cost ($41,000 $1,000 in Exhibit 7-4) by the
number of units (100,000 miles) to get a fixed depreciation rate per mile ($0.40). Enter
.4 in cell C3 and copy down through cell C7.
5. In cells D3 through D7, respectively, enter the number of miles driven in years 1 through
5 of the asset’s useful life. These are 20,000, 30,000, 25,000, 15,000, and 10,000,
respectively.
All of the other amounts in the table will automatically recalculate to reflect units-of-production
depreciation, exactly as shown in Exhibit 7-6. ■
Double-Declining-Balance Method. An accelerated depreciation method writes off a

larger amount of the asset’s cost near the start of its useful life than the straight-line method
does. Double-declining-balance (DDB) is the most frequently used accelerated depreciation
method. It computes annual depreciation by multiplying the asset’s declining book value at the
xviii
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Preface xix
Excel! Integrated Throughout Text!

NEW!
Excel-based financial statements are used so that students will familiarize themselves
with the accounting information format actually used in the business world.
A1
A B C
FedEx Corporation
1 Consolidated Balance Sheets (Partial, Adapted)
2 (In millions of $) May 31, 2012 May 31, 2011
3 CURRENT ASSETS
4 Cash and cash equivalents $ 2,843 $ 2,328
5 Receivables, less allowances of $178 and $182 4,704 4,581
6 Spare parts, supplies and fuel, less allowances 440 437
7 Deferred income taxes 533 610
8 Prepaid expenses and other 536 329
9 Total current assets 9,056 8,285
10 PROPERTY AND EQUIPMENT, AT COST
11 Aircraft and related equipment 14,360 13,146
12 Package handling and ground support equipment 5,912 5,591
13 Computer and electronic equipment 4,646 4,408
14 Vehicles 3,654 3,294
15 Facilities and other 7,592 7,247
16 Gross property and equipment 36,164 33,686
17 Less accumulated depreciation and amortization (18,916) (18,143)
18 Net property and equipment 17,248 15,543
19 OTHER LONG-TERM ASSETS
20 Goodwill 2,387 2,326
21 Other assets 1,212 1,231
22 Total other long-term assets
TOTAL ASSETS $
Plant Assets, Natural
3,599
29,903 $
3,557Resources, & Intangibles
27,385
395
23
24
❯❯
Exhibit 7-13 | Reporting Investing Activities on FedEx Corporation’s Statement of Cash Flows
This chapter covers the measurement and reporting principles for
long-term
A1 tangible fixed assets (also known as plant assets or property and
equipment) as well as intangible assets A . Unlike inventories that are typically
B
bought, manufactured, and sold, fixed tangible and intangible assets are used
FedEx Corporation
Statement of Cash Flows (Partial, Adapted)
in the
1 business to earn a profit. This
Year Ended chapter
May 31, 2012 also briefly covers measure-
ment2 and reporting principles for natural resources, which begin as(In long-term
millions)
3 Cash Flows from Operang Acvies:
assets.
4 Then, as they are extracted or depleted, their cost is transferred
Net income $ to the
2,032
income
5 statement
Adjustments as an expense.
to reconcile net income
6 to net cash provided by operang acvies:
7 Depreciaon and amorzaon 2,113
8 Other items (summarized) 690
9 Net cash provided by operang acvies 4,835
10 Cash Flows from Invesng Acvies:
11 Capital expenditures (4,007)
Learning Objectives
12 Other asset acquisions and disposions, net (42)
1.13Measure
Net cashand account
(used for the
in) invesng cost of plant assets
acvies 6. Explain the effect(4,049)
of an asset impairment on the
14 Cash Flows from Financing Acvies:
15 Net cash (used in) financing acvies financial statements(244)
2.16Distinguish a capitalrate
Effect of exchange expenditure from an immediate
changes on cash (27)
17expense
Net (increase) in cash and cash equivalents 7. Analyze rate of return
515on assets
18 Cash and cash equivalents, beginning of period 2,328
20Measure and record depreciation on plant assets 8. Analyze the cash flow impact of long-lived asset
Cash and cash equivalents, end of period
3.19
$ 2,843
transactions
4. Analyze the effect of a plant asset disposal
Apply
5.Let’s GAAP for
examine naturalinvesting
FedEx’s resourcesactivities
and intangible assets 2012, FedEx invested $4,007 million
first. During
in capital expenditures (line 11). FedEx also engaged in net acquisition and disposition of other
long-term assets, spending another $42 million (line 12). FedEx’s statement of cash flows reports
Depreciation and amortization (line 7) of $2,113 million. Observe that “Depreciation and amor-
tization” is listed as a positive item under “adjustments to reconcile net income to net cash pro-
vided by operating activities.” Since depreciation and amortization do not affect cash, you may be
wondering why these amounts appear on the statement of cash flows. In this format, the operat-
ing activities section of the statement of cash flows starts with net income (line 4) and reconciles
to net cash provided by operating activities (line 9). Depreciation and amortization decrease net
income but do not affect cash. Depreciation and amortization are therefore added back to net
income to measure cash flow from operations. The add-back of depreciation and amortization to
net income offsets the earlier subtraction of these expenses. The sum of net income plus deprecia-
tion and amortization, therefore, helps to reconcile net income (on the accrual basis) to cash flow
from operations (a cash-basis amount). We revisit this topic in the full context of the statement
of cash flows in Chapter 12.
FedEx’s cash flows are strong. Net cash provided by operating activities exceeds net income
by $2.8 billion. With this excess, the company has made sizeable capital expenditures, signaling
that it has invested in new plant and equipment and other long-term assets needed to expand
and run its business. The company has also had to borrow money in the past to help finance these
purchases. The company used cash in financing activities ($244 million) to help pay off this debt.
The company’s cash and cash equivalents position at the end of 2012, in the amount of $2,843
DESIGN SERVICES OF
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22 Chapter 1
MyAccountingLab 4. The statement of cash flows for the 12 months ended January 28, 2012
a. Reports cash flows from operating, investing, and financing activities. Each category
results in net cash provided (an increase) or used (a decrease).
b. Reports whether cash and cash equivalents increased (or decreased) during the year.
The statement shows the ending cash and cash equivalents balance, as reported on
xx Preface the balance sheet (arrow 3 in Exhibit 1-11).
MyAccountingLab
Exhibit 1-11 | Relationships among the Financial Statements (in millions of $)
Accounting Cycle
NEW!
Examples Simplified A1
A
The Gap, Inc.
B C D E
Consolidated Statement of Income (Adapted)
Accounting Cycle Tutorial (ACT) 1

2 Net sales
12 Months Ended January 28, 2012
$ 14,549
3 Expenses 13,716
4 Net income $ 833
For more practice and review 5
of accounting cycle concepts in A1

A B C D E
1
chapters 1 through 3, use ACT, the 1

2
Consolidated Statement of Retained Earnings (Adapted)
Beginning retained earnings $ 11,767
Accounting Cycle Tutorial, online 3

4
5
Net income
Cash dividends declared
Ending retained earnings balance $
833
(236)
12,364
at www.myaccountinglab.com. The 6
Tutorial portion of ACT reviews A1

A B C D E
major concepts, the Application 1

2 Assets
Consolidated Balance Sheet (Adapted)
2
provides practice exercises, and the 3 Cash and cash equivalents $ 1,885
4 All other assets 5,537
5 Total assets $ 7,422
Glossary reviews important terms. 6 Liabilities
7 Total liabilities $ 4,667
8 Stockholders’ Equity
9 Common stock and additional paid-in capital 2,922
10 Retained earnings 12,364
11 Other equity (12,531)
12 Total stockholders' equity 2,755
13 Total liabilities and stockholders' equity $ 7,422
14
3
A1
A B C D E
1 Consolidated Statement of Cash Flows (Adapted)
2 Net cash provided by operating activities $ 1,363
3 Net cash used in investing activities (454)
4 Net cash used in financing activities (602)
5 Effect of foreign exchange rate fluctuations on cash 17
6 Net increase (decrease) in cash and cash equivalents 324
7 Cash and cash equivalents, beginning of year 1,561
8 Cash and cash equivalents, end of year $ 1,885
9
Excel Opportunities in MyAccountingLab Increased

NEW!
Now students can get even more real-world Excel practice in their classes in every
chapter:
■ Instructors have the option to assign students end-of-chapter questions that can
be completed in an Excel-simulated environment. These selected questions are
indicated with a green Excel marginal icon.
■ Questions will be auto-graded, reported to, and visible in the grade book.
■ Excel remediation will be available to students.
468 Chapter 8 Internal Control & Cash 235
E8-29B. (Learning Objective 4: Prepare a consolidated balance sheet) Zeta, Inc., owns Theta P4-49A (Learning Objective 5: Construct and use a cash budget) Herman Knorr, chief financial
Corp. These two companies’ individual balance sheets follow: officer of Dallas Wireless, is responsible for the company’s budgeting process. Knorr’s staff is
preparing the Dallas Wireless cash budget for 2015. A key input to the budgeting process is last
year’s statement of cash flows, which follows (amounts in thousands):
A1
A B C D E
Zeta, Inc.
1 Consolidation Work Sheet A1
Theta Elimination A B C
2 Zeta, Inc. Corp. Debit Credit Dallas Wireless
3 Cash $ 48,000 $ 18,000 Statement of Cash Flows
4 Accounts receivable, net 82,000 58,000 1 For the Year Ended December 31, 2014
5 Note receivable from Zeta — 33,000 2 (In thousands)
6 Inventory 54,000 83,000 3 Cash Flows from Operating Activities
7 Investment in Theta 119,000 — 4 Collections from customers $ 61,000
8 Plant assets, net 288,000 98,000 5 Interest received 400
9 Other assets 29,000 11,000 6 Cash payments for inventory (46,000)
10 Total $ 620,000 $ 301,000 7 Cash payments for operating expenses (13,200)
11 8 Net cash provided by operating activities 2,200
12 9 Cash Flows from Investing Activities
13 Accounts payable $ 49,000 $ 35,000 10 Purchases of equipment (4,500)
14 Notes payable 152,000 23,000 11 Purchases of investments (800)
15 Other liabilities 78,000 124,000 12 Sales of investments 900
16 Common stock 107,000 82,000 13 Net cash used for investing activities (4,400)
17 Retained earnings 234,000 37,000 14 Cash Flows from Financing Activities
18 Total $ 620,000 $ 301,000 15 Payment of long-term debt (200)
19 16 Issuance of stock 1,400
17 Payment of cash dividends (500)
18 Net cash provided by financing activities 700
19 Cash
Requirements 20
21
Increase (decrease) in Cash
Cash, beginning of year
(1,500)
3,100
1. Prepare a consolidated balance sheet of Zeta, Inc. It is sufficient to complete the consolida- 22 Cash, end of year $ 1,600
tion work sheet. Use Exhibit 8-7 as a model. 23
2. What is the amount of stockholders’ equity for the consolidated entity?
E8-30B. (Learning Objective 1: Analyze and report held-to-maturity security transac- Requirements
tions) Assume that on September 30, 2014, Rentex, Inc., paid 96 for 7% bonds of Oleander 1. Prepare the Dallas Wireless cash budget for 2015. Date the budget simply “2015,” and
Corporation as a long-term held-to-maturity investment. The maturity value of the bonds will denote the beginning and ending cash balances as “beginning” and “ending.” Assume the
be $80,000 on September 30, 2019. The bonds pay interest on March 31 and September 30. company expects 2015 to be the same as 2014, but with the following changes:
Requirements a. In 2015, the company expects a 25% increase in collections from customers and a 26%
increase in purchases of inventory.
1. What method should Rentex use to account for its investment in the Oleander Corp.
b. There will be no sales of investments in 2015.
bonds?
c. Dallas Wireless plans to issue no stock in 2015.
2. Using the straight-line method of amortizing the discount on bonds, journalize all of
d. Dallas Wireless plans to end the year with a cash balance of $4,675.
Rentex’s transactions on the bonds for 2014.
3. Show how Rentex would report everything related to the bond investment on its balance
sheet at December 31, 2014. Group B
E8-31B. (Learning Objective 6: Calculate the present value of a bond investment) Itaska Corp. P4-50B (Learning Objectives 1, 4: Describe fraud and its impact; evaluate internal controls)
purchased 20 $1,000 4% bonds of Citigroup when the market rate of interest was 3%. Interest Finnish Imports is an importer of silver, brass, and furniture items from Finland. Lois Ferguson
is paid semiannually, and the bonds will mature in five years. Using the PV function in Excel, is the general manager of Finnish Imports. Ferguson employs two other people in the business.
compute the price Itaska paid (the present value) for the bond investment. Mandy Martin serves as the buyer for Finnish Imports. In her work, Martin travels throughout
Finland to find interesting new products. When Martin finds a new product, she arranges for
Finnish Imports to purchase and pay for the item. She helps the artisans prepare their invoices
and then faxes the invoices to Ferguson inDESIGN SERVICES
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Ferguson operates out of an office in Brooklyn, New York. The office is managed by Sandra
Moore, who handles the mail, keeps the accounting records, makes bank deposits, and prepares
Publishing Services
the monthly bank reconciliation. Virtually all of Finnish Imports’ cash receipts arrive by mail—
from sales made to Target, Crate and Barrel, and Williams-Sonoma.
Preface xxi
Stop & Think. . .

> Stop & Think...
How would FedEx divide a $120,000 lump-sum purchase price for land, building, and equipment with
Found within various points of a
estimated market values of $40,000, $95,000, and $15,000, respectively? chapter, this tool includes a question-
Answer:
and-answer snapshot asking students
to apply what they just learned.
Estimated Percentage
Market of Total Total Cost of
Value Market Value Cost Each Asset
Land.................. $ 40,000 26.7%* $120,000 $ 32,040
Building............. 95,000 63.3% $120,000 75,960
Equipment......... 15,000 10.0% $120,000 12,000
Total ................. $150,000 100.0% $120,000
*$40,000/$150,000 0.267, and so on

660 Chapter 11
Taxable income for 2014 includes these modifications from pre-tax accounting income:
a. Additional taxable income of $14,000 earned in 2015 but taxed in 2014
DISTINGUISH A CAPITAL
b. Additional EXPENDITURE
depreciation expense of $21,000 for MACRS tax depreciation in 2014
FROM The
ANincome tax rate is 32%.
IMMEDIATE EXPENSE
Requirements
When a company spends money on a plant asset, it must decide whether to record an asset or an 2 Distinguish a capital
1. Compute
expense. Examples Neighbor’s
of these taxable income
expenditures rangefor 2014.
from FedEx’s purchase of an airplane to replacing expenditure from an
2. Journalize
the tires on a FedEx truck. the corporation’s income taxes for 2014.
immediate expense
3. Prepare the corporation’s single-step income statement for 2014.
Expenditures that increase the asset’s capacity or extend its useful life are called capital
expenditures. For example, the cost of a major overhaul that extends the useful life of a FedEx
Challenge Problem
truck is a capital expenditure. Capital expenditures are said to be capitalized, which means the cost
Critical Thinking Challenge
P11-62.
is added to an (Learning
asset account andObjectives 1, 2, 4, 5:immediately.
not expensed Analyze how various transactions
A major decisionaffinectaccounting
the income for plant
statement and EPS) Aerostar, Inc., operates as a retailer of casual apparel. A recent, condensed
Problems Increased!
assets is whether to capitalize or to expense a certain cost.
income statement for Aerostar follows:
Costs that do not extend the asset’s capacity or its useful life, but merely maintain the asset
or restore it to working order, are recorded as expenses. For example, Repair Expense is reported
Additional problems developed to
on the income statement A1 and matched against revenue. The costs of repainting a FedEx delivery provide students with the opportunity
truck, repairing a dented fender, and replacing
shows the distinction betweenForcapital
A tires are also expensed immediately.
Income Statement
B Exhibit
C 7-2
for applied critical thinking.
1 the Yearexpenditures
Ended January 31,and
2012immediate expenses for ordinary repairs.
2 Sales revenue $ 2,400,000
3 Operating expenses:
4 Cost of goods sold $ 1,500,000
|
Exhibit 7-25 Capital
Selling Expenditures
and administrative
6 Operating income
expenses
vs. Immediate Expenses 500,000 2,000,000
400,000
7 Other revenue (expenses) 50,000
8 Income before tax
Record Repair and Maintenance 450,000
9 Income tax expense (40% tax rate) 180,000
Record
10 an Asset for
Net income Expense (Not an Asset) $ 270,000
11 Earnings
Capital per share (50,000 shares)
Expenditures for an Expense $ 5.40
12
Extraordinary repairs: Ordinary repairs:
Major engine overhaul
Requirements Repair of transmission or other mechanism
Modification of body for new use Oil change, lubrication, and so on
1. Assume that the following transactions were inadvertently omitted at the end of the year.
of truck Replacement
Using the categories in the table, indicate the of of
effect of each tires
theand windshield,
transactions on each cat-
Addition to storage
egory; use capacity of truck
1 for increase, or a for
2 for decrease, and NE paint
no job
effect. Provide dollar amounts for
each column except Earnings per Share.
Operating Income Earnings per

The distinction between a capital expenditure
Transaction Income (a long-term
Before asset) andShare
Tax Net Income an immediate expense
requires judgment: Does the cost
Unadjusted extend400,000
balances the asset’s usefulness
450,000 or its useful life? If so, record an
270,000
a.
asset. If the cost merely maintains the asset in its present condition or returns it to its prior condi-
b.
tion, then record an expense.
c.
d.
e.
f.
g.
h.
i.
Totals
a. Purchased inventory on account from a German company. The price was 100,000 euros.
The exchange rate of the euro was $1.47.
b. Sold inventory on account, $120,000 (cost of inventory, $75,000).
DESIGN SERVICES OF
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xxii Preface
Dear Valued Colleagues,
Welcome to the Tenth Edition of Financial Accounting. We are grateful for your
support as an adopter of our text as we celebrate over 20 years of success in the
market. The Tenth Edition of Financial Accounting has been improved in many
respects, as explained below.
Several editions ago, we shifted the focus of Financial Accounting more
toward meeting the needs of users of accounting information for a more balanced
presentation. Despite this shift, we still cover the “basic nuts-and-bolts of financial
accounting”—the accounting cycle and financial statement preparation. In this
edition, we added more discussion of key financial ratios, detailing what those ratios
measure and how they are used.
Try It in Excel. As educators, we often have conversations with those who recruit
our students. Based on these conversations, we found that students often complete
their study of financial accounting without sufficient knowledge of how to use
Excel to perform accounting tasks. To respond to this concern, we have adapted
most of the illustrations of key accounting tasks in the book to Excel format and
have added new sections in key chapters entitled “Try It in Excel,” which describe
line-by-line how to retrieve and prepare accounting information (such as adjusted
trial balance worksheets, ratio computations, depreciation schedules, bond discount
and premium amortization schedules, and financial statement analysis) in Excel
format. In addition, we have designated many applications to homework exercises
and problems that can be completed in Excel and that are automatically graded in
MyAccountingLab.
Student success. We feel we have the most advanced student learning materials
in the market with MyAccountingLab. These include automatically graded
homework, DemoDocs, learning aid videos, and audio PowerPoints. We believe
that the use of MyAccountingLab homework will greatly enhance student
understanding of accounting with its instantaneous feedback. MyAccountingLab
makes the study of financial accounting a more interactive and fun experience for
students.
Professor expectations. As professors, we know that you want a book that
contains the most relevant and technically correct content available. We also know
that you want excellent end-of-chapter material that is as up-to-date and error-
free as possible. We reviewed and created the end-of-chapter questions, exercises,
problems, and cases taking into account the types of assignments we ourselves
use in class and assign as homework. Based on comments from adopters, we have
thoroughly reviewed every end-of-chapter exercise and problem, with the goal of
eliminating redundancy and adding relevance. The textbook and solutions manual
have been put through a rigorous accuracy check to ensure that they are as complete
and error-free as possible.
We welcome your comments and suggestions. Please don’t hesitate to send
feedback about this book to: HorngrensAccounting@pearson.com
Walter Harrison
Bill Thomas
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Preface xxiii
Student and Instructor Resources

For Students
MyAccountingLab
MyAccountingLab online Homework and Assessment Manager includes:
■ Pearson eText
■ Simulated Excel exercises and problems
■ Audio and Student PowerPoint® Presentations
■ Data Files
■ Accounting Cycle Tutorial
■ Videos
■ MP3 Files with Chapter Objectives and Summaries
■ Demo Docs
■ Flash Cards
■ Working Papers
Student resource website: pearsonhighered.com/harrison
This website contains the following:
■ Data Files: Select end-of-chapter problems have been set up in different software applica-
tions, including Excel, QuickBooks 2012, and general ledger software.
■ Working Papers
For Instructors
MyAccountingLab
Instructor Resource Center: pearsonhighered.com/accounting
For the instructor’s convenience, the instructor resources are available on CD or can be down-
loaded from the textbook’s catalog page (pearsonhighered.com/harrison) and MyAccountingLab.
Available resources include the following:
■ Online Instructor’s Manual: Includes chapter summaries, teaching tips provided by review-
ers, pitfalls for new students, and “best of ” practices from instructors across the country.
Additional resources offered in this online manual include the following:
■ Introduction to the Instructor’s Manual with a list of resources and a roadmap to help
navigate what’s available in MyAccountingLab.
■ Instructor tips for teaching courses in multiple formats—traditional, hybrid, or online.
■ “First Day of Class” student handout that includes tips for success in the course,
as well as an additional document that shows students how to register and log on to
MyAccountingLab.
■ Sample syllabi for 10- and 16-week courses.
■ Chapter overview and teaching outline that includes a brief synopsis and overview of
each chapter.
■ Key topics that walk instructors through what material to cover and what examples to
use when addressing certain items within the chapter.
■ Student chapter summary handout.
■ Assignment grid that outlines all end-of-chapter exercises and problems, the topic being
covered in that particular exercise or problem, estimated completion time, level of dif-
ficulty, and availability in Excel templates.
■ Ten-minute quizzes that quickly assess students’ understanding of the chapter material.
■ Demonstration Problems for use in class.
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xxiv Preface
■ Instructor’s Solutions Manual: Contains solutions to all end-of-chapter questions, includ-

ing short exercises, exercises, and problems.
■ TestBank: Includes more than 3,000 questions. Both objective-based questions and com-
putational problems are available.
■ PowerPoint Presentations: These presentations help facilitate classroom discussion by
demonstrating where the numbers come from and what they mean to the concept at hand.
Includes NEW Demonstration Problem slides:
– Instructor PowerPoint Presentations—complete with lecture notes
– Student PowerPoint Presentations
– Audio Narrated PowerPoint Presentations
– Clicker Response System (CRS) PowerPoint Presentations
■ Working Papers and Solutions in Excel and PDF Format
■ Image Library
■ Data and Solution Files: Select end-of-chapter problems have been set up in different
software applications, including QuickBooks 2012 and General Ledger. Corresponding
solution files are also provided.
Acknowledgments
A special thank you to Betsy Willis and Mignon Worman Tucker for their dedication through-
out the project. Thank you to Carolyn Streuly for her help with accuracy checking and to Jill
Kolongowski for managing the supplements.
Thanks also to Carolyn Streuly for preparing the Test Bank, to Betsy Willis for prepar-
ing the Instructor’s Resource Manual, and to Coby Harmon for preparing the PowerPoint
presentation.
We would like to thank the following reviewers for the Tenth Edition for their valuable in-
put: Mary Ewanechko, MBA, Monroe Community College; Dr. Geoffrey J. Gurka, PhD, Colo-
rado Mesa University; Maria U. Ku, CPA, Accounting Instructor, Ohlone College & Diablo
Valley College; Molly McFadden-May, MT (Master of Taxation), Tulsa Community College;
and Sue Van Boven, Paradise Valley Community College.
In revising previous editions of Financial Accounting, we had the help of instructors from
across the country who have participated in online surveys, chapter reviews, and focus groups.
Their comments and suggestions for both the text and the supplements have been a great help
in planning and carrying out revisions, and we thank them for their contributions.
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Another random document with
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metaphysics, inverting the usual mode of definition given by our
erudite scholars, call the invisible types the only reality, and
everything else the effects of the causes, or visible prototypes—
illusions. However contradictory their various elucidations of the
Pentateuch may appear on their surface, every one of them tends to
show that the sacred literature of every country, the Bible as much
as the Vedas or the Buddhist Scriptures, can only be understood and
thoroughly sifted by the light of Hermetic philosophy. The great
sages of antiquity, those of the mediæval ages, and the mystical
writers of our more modern times also, were all Hermetists. Whether
the light of truth had illuminated them through their faculty of
intuition, or as a consequence of study and regular initiation, virtually,
they had accepted the method and followed the path traced to them
by such men as Moses, Gautama-Buddha, and Jesus. The truth,
symbolized by some alchemists as dew from heaven, had
descended into their hearts, and they had all gathered it upon the
tops of mountains, after having spread clean linen cloths to receive
it; and thus, in one sense, they had secured, each for himself, and in
his own way, the universal solvent. How much they were allowed to
share it with the public is another question. That veil, which is
alleged to have covered the face of Moses, when, after descending
from Sinai, he taught his people the Word of God, cannot be
withdrawn at the will of the teacher only. It depends on the listeners,
whether they will also remove the veil which is “upon their hearts.”
Paul says it plainly; and his words addressed to the Corinthians can
be applied to every man or woman, and of any age in the history of
the world. If “their minds are blinded” by the shining skin of divine
truth, whether the Hermetic veil be withdrawn or not from the face of
the teacher, it cannot be taken away from their heart unless “it shall
turn to the Lord.” But the latter appellation must not be applied to
either of the three anthropomorphized personages of the Trinity, but
to the “Lord,” as understood by Swedenborg and the Hermetic
philosophers—the Lord, who is Life and Man.
The everlasting conflict between the world-religions—Christianity,
Judaism, Brahmanism, Paganism, Buddhism, proceeds from this
one source: Truth is known but to the few; the rest, unwilling to
withdraw the veil from their own hearts, imagine it blinding the eyes
of their neighbor. The god of every exoteric religion, including
Christianity, notwithstanding its pretensions to mystery, is an idol, a
fiction, and cannot be anything else. Moses, closely-veiled, speaks
to the stiff-necked multitudes of Jehovah, the cruel, anthropomorphic
deity, as of the highest God, burying deep in the bottom of his heart
that truth which cannot be “either spoken of or revealed.” Kapila cuts
with the sharp sword of his sarcasms the Brahman-Yoggins, who in
their mystical visions pretend to see the highest one. Gautama-
Buddha conceals, under an impenetrable cloak of metaphysical
subtilties, the verity, and is regarded by posterity as an atheist.
Pythagoras, with his allegorical mysticism and metempsychosis, is
held for a clever impostor, and is succeeded in the same estimation
by other philosophers, like Apollonius and Plotinus, who are
generally spoken of as visionaries, if not charlatans. Plato, whose
writings were never read by the majority of our great scholars but
superficially, is accused by many of his translators of absurdities and
puerilities, and even of being ignorant of his own language;[510] most
likely for saying, in reference to the Supreme, that “a matter of that
kind cannot be expressed by words, like other things to be
learned;”[511] and making Protagoras lay too much stress on the use
of “veils.” We could fill a whole volume with names of misunderstood
sages, whose writings—only because our materialistic critics feel
unable to lift the “veil,” which shrouds them—pass off in a current
way for mystical absurdities. The most important feature of this
seemingly imcomprehensible mystery lies perhaps in the inveterate
habit of the majority of readers to judge a work by its words and
insufficiently-expressed ideas, leaving the spirit of it out of the
question. Philosophers of quite different schools may be often found
to use a multitude of different expressions, some dark and
metaphorical—all figurative, and yet treating of the same subject.
Like the thousand divergent rays of a globe of fire, every ray leads,
nevertheless, to the central point, so every mystic philosopher,
whether he be a devotedly pious enthusiast like Henry More; an
irascible alchemist, using a Billingsgate phraseology—like his
adversary, Eugenius Philalethes; or an atheist (?) like Spinoza, all
had one and the same object in view—man. It is Spinoza, however,
who furnishes perhaps the truest key to a portion of this unwritten
secret. While Moses forbids “graven images” of Him whose name is
not to be taken in vain, Spinoza goes farther. He clearly infers that
God must not be so much as described. Human language is totally
unfit to give an idea of this “Being” who is altogether unique.
Whether it is Spinoza or the Christian theology that is more right in
their premises and conclusion, we leave the reader to judge for
himself. Every attempt to the contrary leads a nation to
anthropomorphize the deity in whom it believes, and the result is that
given by Swedenborg. Instead of stating that God made man after
his own image, we ought in truth to say that “man imagines God after
his image,”[512] forgetting that he has set up his own reflection for
worship.
Where, then, lies the true, real secret so much talked about by the
Hermetists? That there was and there is a secret, no candid student
of esoteric literature will ever doubt. Men of genius—as many of the
Hermetic philosophers undeniably were—would not have made fools
of themselves by trying to fool others for several thousand
consecutive years. That this great secret, commonly termed “the
philosopher’s stone,” had a spiritual as well as a physical meaning
attached to it, was suspected in all ages. The author of Remarks on
Alchemy and the Alchemists very truly observes that the subject of
the Hermetic art is man, and the object of the art is the perfection of
man.[513] But we cannot agree with him that only those whom he
terms “money-loving sots,” ever attempted to carry a purely moral
design (of the alchemists) into the field of physical science. The fact
alone that man, in their eyes, is a trinity, which they divide into Sol,
water of mercury, and sulphur, which is the secret fire, or, to speak
plain, into body, soul, and spirit, shows that there is a physical side
to the question. Man is the philosopher’s stone spiritually—“a triune
or trinity in unity,” as Philalethes expresses it. But he is also that
stone physically. The latter is but the effect of the cause, and the
cause is the universal solvent of everything—divine spirit. Man is a
correlation of chemical physical forces, as well as a correlation of
spiritual powers. The latter react on the physical powers of man in
proportion to the development of the earthly man. “The work is
carried to perfection according to the virtue of a body, soul, and
spirit,” says an alchemist; “for the body would never be penetrable
were it not for the spirit, nor would the spirit be permanent in its
supra-perfect tincture, were it not for the body; nor could these two
act one upon another without the soul, for the spirit is an invisible
thing, nor doth it ever appear without another garment, which
garment is the soul.”[514]
The “philosophers by fire” asserted, through their chief, Robert
Fludd, that sympathy is the offspring of light, and “antipathy hath its
beginning from darkness.” Moreover, they taught, with other
kabalists, that “contrarieties in nature doth proceed from one eternal
essence, or from the root of all things.” Thus, the first cause is the
parent-source of good as well as of evil. The creator—who is not the
Highest God—is the father of matter, which is bad, as well as of
spirit, which, emanating from the highest, invisible cause, passes
through him like through a vehicle, and pervades the whole universe.
“It is most certain,” remarks Robertus di Fluctibus (Robert Fludd),
“that, as there are an infinity of visible creatures, so there is an
endless variety of invisible ones, of divers natures, in the universal
machine. Through the mysterious name of God, which Moses was
so desirous of him (Jehova) to hear and know, when he received
from him this answer, Jehova is my everlasting name. As for the
other name, it is so pure and simple that it cannot be articulated, or
compounded, or truly expressed by man’s voice ... all the other
names are wholly comprehended within it, for it contains the property
as well of Nolunty as volunty, of privation as position, of death as life,
of cursing as blessing, of evil as good (though nothing ideally is bad
in him), of hatred and discord, and consequently of sympathy and
antipathy.”[515]
Lowest in the scale of being are those invisible creatures called by
the kabalists the “elementary.” There are three distinct classes of
these. The highest, in intelligence and cunning, are the so-called
terrestrial spirits, of which we will speak more categorically in other
parts of this work. Suffice to say, for the present, that they are the
larvæ, or shadows of those who have lived on earth, have refused all
spiritual light, remained and died deeply immersed in the mire of
matter, and from whose sinful souls the immortal spirit has gradually
separated. The second class is composed of the invisible antitypes
of the men to be born. No form can come into objective existence—
from the highest to the lowest—before the abstract ideal of this form
—or, as Aristotle would call it, the privation of this form—is called
forth. Before an artist paints a picture every feature of it exists
already in his imagination; to have enabled us to discern a watch,
this particular watch must have existed in its abstract form in the
watchmaker’s mind. So with future men.
According to Aristotle’s doctrine, there are three principles of
natural bodies: privation, matter, and form. These principles may be
applied in this particular case. The privation of the child which is to
be we will locate in the invisible mind of the great Architect of the
Universe—privation not being considered in the Aristotelic
philosophy as a principle in the composition of bodies, but as an
external property in their production; for the production is a change
by which the matter passes from the shape it has not to that which it
assumes. Though the privation of the unborn child’s form, as well as
of the future form of the unmade watch, is that which is neither
substance nor extension nor quality as yet, nor any kind of
existence, it is still something which is, though its outlines, in order to
be, must acquire an objective form—the abstract must become
concrete, in short. Thus, as soon as this privation of matter is
transmitted by energy to universal ether, it becomes a material form,
however sublimated. If modern science teaches that human thought
“affects the matter of another universe simultaneously with this,” how
can he who believes in an Intelligent First Cause, deny that the
divine thought is equally transmitted, by the same law of energy, to
our common mediator, the universal ether—the world-soul? And, if
so, then it must follow that once there the divine thought manifests
itself objectively, energy faithfully reproducing the outlines of that
whose “privation” was first born in the divine mind. Only it must not
be understood that this thought creates matter. No; it creates but the
design for the future form; the matter which serves to make this
design having always been in existence, and having been prepared
to form a human body, through a series of progressive
transformations, as the result of evolution. Forms pass; ideas that
created them and the material which gave them objectiveness,
remain. These models, as yet devoid of immortal spirits, are
“elementals,“properly speaking, psychic embryos—which, when their
time arrives, die out of the invisible world, and are born into this
visible one as human infants, receiving in transitu that divine breath
called spirit which completes the perfect man. This class cannot
communicate objectively with men.
The third class are the “elementals” proper, which never evolve
into human beings, but occupy, as it were, a specific step of the
ladder of being, and, by comparison with the others, may properly be
called nature-spirits, or cosmic agents of nature, each being confined
to its own element and never transgressing the bounds of others.
These are what Tertullian called the “princes of the powers of the
air.”
This class is believed to possess but one of the three attributes of
man. They have neither immortal spirits nor tangible bodies; only
astral forms, which partake, in a distinguishing degree, of the
element to which they belong and also of the ether. They are a
combination of sublimated matter and a rudimental mind. Some are
changeless, but still have no separate individuality, acting
collectively, so to say. Others, of certain elements and species,
change form under a fixed law which kabalists explain. The most
solid of their bodies is ordinarily just immaterial enough to escape
perception by our physical eyesight, but not so unsubstantial but that
they can be perfectly recognized by the inner, or clairvoyant vision.
They not only exist and can all live in ether, but can handle and
direct it for the production of physical effects, as readily as we can
compress air or water for the same purpose by pneumatic and
hydraulic apparatus; in which occupation they are readily helped by
the “human elementary.” More than this; they can so condense it as
to make to themselves tangible bodies, which by their Protean
powers they can cause to assume such likeness as they choose, by
taking as their models the portraits they find stamped in the memory
of the persons present. It is not necessary that the sitter should be
thinking at the moment of the one represented. His image may have
faded many years before. The mind receives indelible impression
even from chance acquaintance or persons encountered but once.
As a few seconds exposure of the sensitized photograph plate is all
that is requisite to preserve indefinitely the image of the sitter, so is it
with the mind.
According to the doctrine of Proclus, the uppermost regions from
the zenith of the universe to the moon belonged to the gods or
planetary spirits, according to their hierarchies and classes. The
highest among them were the twelve ŭper-ouranioi, or supercelestial
gods, having whole legions of subordinate demons at their
command. They are followed next in rank and power by the
egkosmioi, the intercosmic gods, each of these presiding over a
great number of demons, to whom they impart their power and
change it from one to another at will. These are evidently the
personified forces of nature in their mutual correlation, the latter
being represented by the third class or the “elementals” we have just
described.
Further on he shows, on the principle of the Hermetic axiom—of
types, and prototypes—that the lower spheres have their
subdivisions and classes of beings as well as the upper celestial
ones, the former being always subordinate to the higher ones. He
held that the four elements are all filled with demons, maintaining
with Aristotle that the universe is full, and that there is no void in
nature. The demons of the earth, air, fire, and water are of an elastic,
ethereal, semi-corporeal essence. It is these classes which officiate
as intermediate agents between the gods and men. Although lower
in intelligence than the sixth order of the higher demons, these
beings preside directly over the elements and organic life. They
direct the growth, the inflorescence, the properties, and various
changes of plants. They are the personified ideas or virtues shed
from the heavenly ulê into the inorganic matter; and, as the
vegetable kingdom is one remove higher than the mineral, these
emanations from the celestial gods take form and being in the plant,
they become its soul. It is that which Aristotle’s doctrine terms the
form in the three principles of natural bodies, classified by him as
privation, matter, and form. His philosophy teaches that besides the
original matter, another principle is necessary to complete the triune
nature of every particle, and this is form; an invisible, but still, in an
ontological sense of the word, a substantial being, really distinct from
matter proper. Thus, in an animal or a plant, besides the bones, the
flesh, the nerves, the brains, and the blood, in the former, and
besides the pulpy matter, tissues, fibres, and juice in the latter, which
blood and juice, by circulating through the veins and fibres,
nourishes all parts of both animal and plant; and besides the animal
spirits, which are the principles of motion; and the chemical energy
which is transformed into vital force in the green leaf, there must be
a substantial form, which Aristotle called in the horse, the horse’s
soul; Proclus, the demon of every mineral, plant, or animal, and the
mediæval philosophers, the elementary spirits of the four kingdoms.
All this is held in our century as metaphysics and gross
superstition. Still, on strictly ontological principles, there is, in these
old hypotheses, some shadow of probability, some clew to the
perplexing “missing links” of exact science. The latter has become so
dogmatical of late, that all that lies beyond the ken of inductive
science is termed imaginary; and we find Professor Joseph Le Conte
stating that some of the best scientists “ridicule the use of the term
‘vital force,’ or vitality, as a remnant of superstition.”[516] De Candolle
suggests the term “vital movement,” instead of vital force;[517] thus
preparing for a final scientific leap which will transform the immortal,
thinking man, into an automaton with a clock-work inside him. “But,”
objects Le Conte, “can we conceive of movement without force? And
if the movement is peculiar, so also is the form of force.”
In the Jewish Kabala, the nature-spirits were known under the
general name of Shedim and divided into four classes. The Persians
called them all devs; the Greeks, indistinctly designated them as
demons; the Egyptians knew them as afrites. The ancient Mexicans,
says Kaiser, believed in numerous spirit-abodes, into one of which
the shades of innocent children were placed until final disposal; into
another, situated in the sun, ascended the valiant souls of heroes;
while the hideous spectres of incorrigible sinners were sentenced to
wander and despair in subterranean caves, held in the bonds of the
earth atmosphere, unwilling and unable to liberate themselves. They
passed their time in communicating with mortals, and frightening
those who could see them. Some of the African tribes know them as
Yowahoos. In the Indian Pantheon there are no less than
330,000,000 of various kinds of spirits, including elementals, which
latter were termed by the Brahmans the Daityas. These beings are
known by the adepts to be attracted toward certain quarters of the
heavens by something of the same mysterious property which
makes the magnetic needle turn toward the north, and certain plants
to obey the same attraction. The various races are also believed to
have a special sympathy with certain human temperaments, and to
more readily exert power over such than others. Thus, a bilious,
lymphatic, nervous, or sanguine person would be affected favorably
or otherwise by conditions of the astral light, resulting from the
different aspects of the planetary bodies. Having reached this
general principle, after recorded observations extending over an
indefinite series of years, or ages, the adept astrologer would require
only to know what the planetary aspects were at a given anterior
date, and to apply his knowledge of the succeeding changes in the
heavenly bodies, to be able to trace, with approximate accuracy, the
varying fortunes of the personage whose horoscope was required,
and even to predict the future. The accuracy of the horoscope would
depend, of course, no less upon the astrologer’s knowledge of the
occult forces and races of nature, than upon his astronomical
erudition.
Eliphas Levi expounds with reasonable clearness, in his Dogme et
Rituel de la Haute Magie, the law of reciprocal influences between
the planets and their combined effect upon the mineral, vegetable,
and animal kingdoms, as well as upon ourselves. He states that the
astral atmosphere is as constantly changing from day to day, and
from hour to hour, as the air we breathe. He quotes approvingly the
doctrine of Paracelsus that every man, animal, and plant bears
external and internal evidences of the influences dominant at the
moment of germinal development. He repeats the old kabalistic
doctrine, that nothing is unimportant in nature, and that even so
small a thing as the birth of one child upon our insignificant planet
has its effect upon the universe, as the whole universe has its own
reäctive influence upon him.
“The stars,” he remarks, “are linked to each other by attractions
which hold them in equilibrium and cause them to move with
regularity through space. This net-work of light stretches from all the
spheres to all the spheres, and there is not a point upon any planet
to which is not attached one of these indestructible threads. The
precise locality, as well as the hour of birth, should then be
calculated by the true adept in astrology; then, when he shall have
made the exact calculation of the astral influences, it remains for him
to count the chances of his position in life, the helps or hindrances
he is likely to encounter ... and his natural impulses toward the
accomplishment of his destiny.” He also asserts that the individual
force of the person, as indicating his ability to conquer difficulties and
subdue unfavorable propensities, and so carve out his fortune, or to
passively await what blind fate may bring, must be taken into
account.
A consideration of the subject from the standpoint of the ancients,
affords us, it will be seen, a very different view from that taken by
Professor Tyndall in his famous Belfast address. “To supersensual
beings,” says he, “which, however potent and invisible, were nothing
but species of human creatures, perhaps raised from among
mankind, and retaining all human passions and appetites, were
handed over the rule and governance of natural phenomena.”
To enforce his point, Mr. Tyndall conveniently quotes from
Euripides the familiar passage in Hume: “The gods toss all into
confusion, mix everything with its reverse, that all of us, from our
ignorance and uncertainty, may pay them the more worship and
reverence.” Although enunciating in Chrysippus several Pythagorean
doctrines, Euripides is considered by every ancient writer as
heterodox, therefore the quotation proceeding from this philosopher
does not at all strengthen Mr. Tyndall’s argument.
As to the human spirit, the notions of the older philosophers and
mediæval kabalists while differing in some particulars, agreed on the
whole; so that the doctrine of one may be viewed as the doctrine of
the other. The most substantial difference consisted in the location of
the immortal or divine spirit of man. While the ancient Neo-platonists
held that the Augoeides never descends hypostatically into the living
man, but only sheds more or less its radiance on the inner man—the
astral soul—the kabalists of the middle ages maintained that the
spirit, detaching itself from the ocean of light and spirit, entered into
man’s soul, where it remained through life imprisoned in the astral
capsule. This difference was the result of the belief of Christian
kabalists, more or less, in the dead letter of the allegory of the fall of
man. The soul, they said, became, through the fall of Adam,
contaminated with the world of matter, or Satan. Before it could
appear with its enclosed divine spirit in the presence of the Eternal, it
had to purify itself of the impurities of darkness. They compared “the
spirit imprisoned within the soul to a drop of water enclosed within a
capsule of gelatine and thrown in the ocean; so long as the capsule
remains whole the drop of water remains isolated; break the
envelope and the drop becomes a part of the ocean—its individual
existence has ceased. So it is with the spirit. As long as it is
enclosed in its plastic mediator, or soul, it has an individual
existence. Destroy the capsule, a result which may occur from the
agonies of withered conscience, crime, and moral disease, and the
spirit returns back to its original abode. Its individuality is gone.”
On the other hand, the philosophers who explained the “fall into
generation” in their own way, viewed spirit as something wholly
distinct from the soul. They allowed its presence in the astral capsule
only so far as the spiritual emanations or rays of the “shining one”
were concerned. Man and soul had to conquer their immortality by
ascending toward the unity with which, if successful, they were finally
linked, and into which they were absorbed, so to say. The
individualization of man after death depended on the spirit, not on his
soul and body. Although the word “personality,” in the sense in which
it is usually understood, is an absurdity, if applied literally to our
immortal essence, still the latter is a distinct entity, immortal and
eternal, per se; and, as in the case of criminals beyond redemption,
when the shining thread which links the spirit to the soul, from the
moment of the birth of a child, is violently snapped, and the
disembodied entity is left to share the fate of the lower animals, to
gradually dissolve into ether, and have its individuality annihilated—
even then the spirit remains a distinct being. It becomes a planetary
spirit, an angel; for the gods of the Pagan or the archangels of the
Christian, the direct emanations of the First Cause, notwithstanding
the hazardous statement of Swedenborg, never were or will be men,
on our planet, at least.
This specialization has been in all ages the stumbling-block of
metaphysicians. The whole esoterism of the Buddhistical philosophy
is based on this mysterious teaching, understood by so few persons,
and so totally misrepresented by many of the most learned scholars.
Even metaphysicians are too inclined to confound the effect with the
cause. A person may have won his immortal life, and remain the
same inner-self he was on earth, throughout eternity; but this does
not imply necessarily that he must either remain the Mr. Smith or
Brown he was on earth, or lose his individuality. Therefore, the astral
soul and terrestrial body of man may, in the dark Hereafter, be
absorbed into the cosmical ocean of sublimated elements, and
cease to feel his ego, if this ego did not deserve to soar higher; and
the divine spirit still remain an unchanged entity, though this
terrestrial experience of his emanations may be totally obliterated at
the instant of separation from the unworthy vehicle.
If the “spirit,” or the divine portion of the soul, is preëxistent as a
distinct being from all eternity, as Origen, Synesius, and other
Christian fathers and philosophers taught, and if it is the same, and
nothing more than the metaphysically-objective soul, how can it be
otherwise than eternal? And what matters it in such a case, whether
man leads an animal or a pure life, if, do what he may, he can never
lose his individuality? This doctrine is as pernicious in its
consequences as that of vicarious atonement. Had the latter dogma,
in company with the false idea that we are all immortal, been
demonstrated to the world in its true light, humanity would have been
bettered by its propagation. Crime and sin would be avoided, not for
fear of earthly punishment, or of a ridiculous hell, but for the sake of
that which lies the most deeply rooted in our inner nature—the desire
of an individual and distinct life in the hereafter, the positive
assurance that we cannot win it unless we “take the kingdom of
heaven by violence,” and the conviction that neither human prayers
nor the blood of another man will save us from individual destruction
after death, unless we firmly link ourselves during our terrestrial life
with our own immortal spirit—our God.
Pythagoras, Plato, Timæus of Locris, and the whole Alexandrian
school derived the soul from the universal World-Soul; and the latter
was, according to their own teachings—ether; something of such a
fine nature as to be perceived only by our inner sight. Therefore, it
cannot be the essence of the Monas, or cause, because the anima
mundi is but the effect, the objective emanation of the former. Both
the human spirit and soul are preëxistent. But, while the former
exists as a distinct entity, an individualization, the soul exists as
preëxisting matter, an unscient portion of an intelligent whole. Both
were originally formed from the Eternal Ocean of Light; but as the
theosophists expressed it, there is a visible as well as invisible spirit
in fire. They made a difference between the anima bruta and the
anima divina. Empedocles firmly believed all men and animals to
possess two souls; and in Aristotle we find that he calls one the
reasoning soul—νοῦς, and the other, the animal soul—ψυχή.
According to these philosophers, the reasoning soul comes from
without the universal soul, and the other from within. This divine and
superior region, in which they located the invisible and supreme
deity, was considered by them (by Aristotle himself) as a fifth
element, purely spiritual and divine, whereas the anima mundi
proper was considered as composed of a fine, igneous, and ethereal
nature spread throughout the universe, in short—ether. The Stoics,
the greatest materialists of ancient days, excepted the Invisible God
and Divine Soul (Spirit) from any such a corporeal nature. Their
modern commentators and admirers, greedily seizing the
opportunity, built on this ground the supposition that the Stoics
believed in neither God nor soul. But Epicurus, whose doctrine
militating directly against the agency of a Supreme Being and gods,
in the formation or government of the world, placed him far above
the Stoics in atheism and materialism, taught, nevertheless, that the
soul is of a fine, tender essence, formed from the smoothest,
roundest, and finest atoms, which description still brings us to the
same sublimated ether. Arnobius, Tertullian, Irenæus, and Origen,
notwithstanding their Christianity, believed, with the more modern
Spinoza and Hobbes, that the soul was corporeal, though of a very
fine nature.
This doctrine of the possibility of losing one’s soul and, hence,
individuality, militates with the ideal theories and progressive ideas of
some spiritualists, though Swedenborg fully adopts it. They will never
accept the kabalistic doctrine which teaches that it is only through
observing the law of harmony that individual life hereafter can be
obtained; and that the farther the inner and outer man deviate from
this fount of harmony, whose source lies in our divine spirit, the more
difficult it is to regain the ground.
But while the spiritualists and other adherents of Christianity have
little if any perception of this fact of the possible death and
obliteration of the human personality by the separation of the
immortal part from the perishable, the Swedenborgians fully
comprehend it. One of the most respected ministers of the New
Church, the Rev. Chauncey Giles, D.D., of New York, recently
elucidated the subject in a public discourse as follows: Physical
death, or the death of the body, was a provision of the divine
economy for the benefit of man, a provision by means of which he
attained the higher ends of his being. But there is another death
which is the interruption of the divine order and the destruction of
every human element in man’s nature, and every possibility of
human happiness. This is the spiritual death, which takes place
before the dissolution of the body. “There may be a vast
development of man’s natural mind without that development being
accompanied by a particle of love of God, or of unselfish love of
man.” When one falls into a love of self and love of the world, with its
pleasures, losing the divine love of God and of the neighbor, he falls
from life to death. The higher principles which constitute the
essential elements of his humanity perish, and he lives only on the
natural plane of his faculties. Physically he exists, spiritually he is
dead. To all that pertain to the higher and the only enduring phase of
existence he is as much dead as his body becomes dead to all the
activities, delights, and sensations of the world when the spirit has
left it. This spiritual death results from disobedience of the laws of
spiritual life, which is followed by the same penalty as the
disobedience of the laws of the natural life. But the spiritually dead
have still their delights; they have their intellectual endowments and
power, and intense activities. All the animal delights are theirs, and
to multitudes of men and women these constitute the highest ideal of
human happiness. The tireless pursuit of riches, of the amusements
and entertainments of social life; the cultivation of graces of manner,
of taste in dress, of social preferment, of scientific distinction,
intoxicate and enrapture these dead-alive; but, the eloquent
preacher remarks, “these creatures, with all their graces, rich attire,
and brilliant accomplishments, are dead in the eye of the Lord and
the angels, and when measured by the only true and immutable
standard have no more genuine life than skeletons whose flesh has
turned to dust.” A high development of the intellectual faculties does
not imply spiritual and true life. Many of our greatest scientists are
but animate corpses—they have no spiritual sight because their
spirits have left them. So we might go through all ages, examine all
occupations, weigh all human attainments, and investigate all forms
of society, and we would find these spiritually dead everywhere.
Pythagoras taught that the entire universe is one vast system of
mathematically correct combinations. Plato shows the deity
geometrizing. The world is sustained by the same law of equilibrium
and harmony upon which it was built. The centripetal force could not
manifest itself without the centrifugal in the harmonious revolutions
of the spheres; all forms are the product of this dual force in nature.
Thus, to illustrate our case, we may designate the spirit as the
centrifugal, and the soul as the centripetal, spiritual energies. When
in perfect harmony, both forces produce one result; break or damage
the centripetal motion of the earthly soul tending toward the centre
which attracts it; arrest its progress by clogging it with a heavier
weight of matter than it can bear, and the harmony of the whole,
which was its life, is destroyed. Individual life can only be continued if
sustained by this two-fold force. The least deviation from harmony
damages it; when it is destroyed beyond redemption the forces
separate and the form is gradually annihilated. After the death of the
depraved and the wicked, arrives the critical moment. If during life
the ultimate and desperate effort of the inner-self to reunite itself with
the faintly-glimmering ray of its divine parent is neglected; if this ray
is allowed to be more and more shut out by the thickening crust of
matter, the soul, once freed from the body, follows its earthly
attractions, and is magnetically drawn into and held within the dense
fogs of the material atmosphere. Then it begins to sink lower and
lower, until it finds itself, when returned to consciousness, in what the
ancients termed Hades. The annihilation of such a soul is never
instantaneous; it may last centuries, perhaps; for nature never
proceeds by jumps and starts, and the astral soul being formed of
elements, the law of evolution must bide its time. Then begins the
fearful law of compensation, the Yin-youan of the Buddhists.
This class of spirits are called the “terrestrial” or “earthly
elementary,” in contradistinction to the other classes, as we have
shown in the introductory chapter. In the East they are known as the
“Brothers of the Shadow.” Cunning, low, vindictive, and seeking to
retaliate their sufferings upon humanity, they become, until final
annihilation, vampires, ghouls, and prominent actors. These are the
leading “stars” on the great spiritual stage of “materialization,” which
phenomena they perform with the help of the more intelligent of the
genuine-born “elemental” creatures, which hover around and
welcome them with delight in their own spheres. Henry Kunrath, the
great German kabalist, has on a plate of his rare work, Amphitheatri
Sapientiæ Æternæ, representations of the four classes of these
human “elementary spirits.” Once past the threshold of the sanctuary
of initiation, once that an adept has lifted the “Veil of Isis,” the
mysterious and jealous goddess, he has nothing to fear; but till then
he is in constant danger.
Although Aristotle himself, anticipating the modern physiologists,
regarded the human mind as a material substance, and ridiculed the
hylozoïsts, nevertheless he fully believed in the existence of a
“double” soul, or spirit and soul.[518] He laughed at Strabo for
believing that any particles of matter, per se, could have life and
intellect in themselves sufficient to fashion by degrees such a
multiform world as ours.[519] Aristotle is indebted for the sublime
morality of his Nichomachean Ethics to a thorough study of the
Pythagoric Ethical Fragments; for the latter can be easily shown to
have been the source at which he gathered his ideas, though he
might not have sworn “by him who the tetractys found.”[520] Finally,
what do we know so certain about Aristotle? His philosophy is so
abstruse that he constantly leaves his reader to supply by the
imagination the missing links of his logical deductions. Moreover, we
know that before his works ever reached our scholars, who delight in
his seemingly atheistical arguments in support of his doctrine of fate,
these works passed through too many hands to have remained
immaculate. From Theophrastus, his legator, they passed to Neleus,
whose heirs kept them mouldering in subterranean caves for nearly
150 years;[521] after which, we learn that his manuscripts were
copied and much augmented by Apellicon of Theos, who supplied
such paragraphs as had become illegible, by conjectures of his own,
probably many of these drawn from the depths of his inner
consciousness. Our scholars of the nineteenth century might
certainly profit well by Aristotle’s example, were they as anxious to
imitate him practically as they are to throw his inductive method and
materialistic theories at the head of the Platonists. We invite them to
collect facts as carefully as he did, instead of denying those they
know nothing about.
What we have said in the introductory chapter and elsewhere, of
mediums and the tendency of their mediumship, is not based upon
conjecture, but upon actual experience and observation. There is
scarcely one phase of mediumship, of either kind, that we have not
seen exemplified during the past twenty-five years, in various
countries. India, Thibet, Borneo, Siam, Egypt, Asia Minor, America
(North and South), and other parts of the world, have each displayed
to us its peculiar phase of mediumistic phenomena and magical
power. Our varied experience has taught us two important truths,
viz.: that for the exercise of the latter personal purity and the
exercise of a trained and indomitable will-power are indispensable;
and that spiritualists can never assure themselves of the
genuineness of mediumistic manifestations, unless they occur in the
light and under such reasonable test conditions as would make an
attempted fraud instantly noticed.
For fear of being misunderstood, we would remark that while, as a
rule, physical phenomena are produced by the nature-spirits, of their
own motion and to please their own fancy, still good disembodied
human spirits, under exceptional circumstances, such as the
aspiration of a pure heart or the occurrence of some favoring
emergency, can manifest their presence by any of the phenomena
except personal materialization. But it must be a mighty attraction
indeed to draw a pure, disembodied spirit from its radiant home into
the foul atmosphere from which it escaped upon leaving its earthly
body.
Magi and theurgic philosophers objected most severely to the
“evocation of souls.” “Bring her (the soul) not forth, lest in departing
she retain something,” says Psellus.[522]
“It becomes you not to behold them before your body is

initiated,
Since, by always alluring, they seduce the souls of the
uninitiated,”
says the same philosopher, in another passage.[523]

They objected to it for several good reasons. 1. “It is extremely
difficult to distinguish a good dæmon from a bad one,” says
Iamblichus. 2. If a human soul succeeds in penetrating the density of
the earth’s atmosphere—always oppressive to her, often hateful—
still there is a danger the soul is unable to come into proximity with
the material world without that she cannot avoid; “departing, she
retains something,” that is to say, contaminating her purity, for which
she has to suffer more or less after her departure. Therefore, the
true theurgist will avoid causing any more suffering to this pure
denizen of the higher sphere than is absolutely required by the
interests of humanity. It is only the practitioner of black magic who
compels the presence, by the powerful incantations of necromancy,
of the tainted souls of such as have lived bad lives, and are ready to
aid his selfish designs. Of intercourse with the Augoeides, through
the mediumistic powers of subjective mediums, we elsewhere speak.
The theurgists employed chemicals and mineral substances to
chase away evil spirits. Of the latter, a stone called Μνίζουριν was
one of the most powerful agents.
“When you shall see a terrestrial demon approaching,

Exclaim, and sacrifice the stone Mnizurin,”
exclaims a Zoroastrian oracle (Psel., 40).

And now, to descend from the eminence of theurgico-magian
poetry to the “unconscious” magic of our present century, and the
prose of a modern kabalist, we will review it in the following:
In Dr. Morin’s Journal de Magnétisme, published a few years since
in Paris, at a time when the “table-turning” was raging in France, a
curious letter was published.
“Believe me, sir,” wrote the anonymous correspondent, “that there
are no spirits, no ghosts, no angels, no demons enclosed in a table;
but, all of these can be found there, nevertheless, for that depends
on our own wills and our imaginations.... This mensabulism[524] is an
ancient phenomenon ... misunderstood by us moderns, but natural,
for all that, and which pertains to physics and psychology;
unfortunately, it had to remain incomprehensible until the discovery
of electricity and heliography, as, to explain a fact of spiritual nature,
we are obliged to base ourselves on a corresponding fact of a
material order....
“As we all know, the daguerreotype-plate may be impressed, not
only by objects, but also by their reflections. Well, the phenomenon
in question, which ought to be named mental photography,
produces, besides realities, the dreams of our imagination, with such
a fidelity that very often we become unable to distinguish a copy
taken from one present, from a negative obtained of an image....
“The magnetization of a table or of a person is absolutely identical
in its results; it is the saturation of a foreign body by either the
intelligent vital electricity, or the thought of the magnetizer and those
present.”
Nothing can give a better or a more just idea of it than the electric
battery gathering the fluid on its conductor, to obtain thereof a brute
force which manifests itself in sparks of light, etc. Thus, the electricity
accumulated on an isolated body acquires a power of reaction equal
to the action, either for charging, magnetizing, decomposing,
inflaming, or for discharging its vibrations far away. These are the
visible effects of the blind, or crude electricity produced by blind
elements—the word blind being used by the table itself in
contradistinction to the intelligent electricity. But there evidently
exists a corresponding electricity produced by the cerebral pile of
man; this soul-electricity, this spiritual and universal ether, which is
the ambient, middle nature of the metaphysical universe, or rather of
the incorporeal universe, has to be studied before it is admitted by
science, which, having no idea of it, will never know anything of the
great phenomenon of life until she does.
“It appears that to manifest itself the cerebral electricity requires
the help of the ordinary statical electricity; when the latter is lacking
in the atmosphere—when the air is very damp, for instance—you
can get little or nothing of either tables or mediums....
“There is no need for the ideas to be formulated very precisely in
the brains of the persons present; the table discovers and formulates
them itself, in either prose or verse, but always correctly; the table
requires time to compose a verse; it begins, then it erases a word,
corrects it, and sometimes sends back the epigram to our address ...
if the persons present are in sympathy with each other, it jokes and
laughs with us as any living person could. As to the things of the
exterior world, it has to content itself with conjectures, as well as
ourselves; it (the table) composes little philosophical systems,
discusses and maintains them as the most cunning rhetorician
might. In short, it creates itself a conscience and a reason properly
belonging to itself, but with the materials it finds in us....

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The Entity Assumption 8 Mid-Chapter Summary Problem 66

Trading Securities 248 What Goes into Inventory Cost? 308

Accounting for Natural Resources 387 Income of a Consolidated Entity 442

Accounting for Intangible Assets 388 Mid-Chapter Summary Problem 444

Chapter 9 Reporting on the Balance Sheet 516

Summary of Current Liabilities 493 Explain the Features of a Corporation 552

Bonds: An Introduction 494 Classes of Stock 555

Understand Other Long-Term Liabilities 513 Cash Dividends 568

Leases 513 Analyzing the Stockholder’s Equity Accounts 569

Types of Leases 513 Dividends on Preferred Stock 570

Do Lessees Prefer Operating Leases or Capital Stock Dividends 571

Computing Investing and Financing Cash Measuring Profitability 766

Perform Vertical Analysis 749 Appendix B:

Prepare Common-Size Financial Statements 752 Appendix C:

Measuring Ability to Pay Current Liabilities 759 Company Index 871

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Plant Assets, Natural Resources, & Intangibles 367

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■ Demonstration Problems for use in class.

■ Instructor’s Solutions Manual: Contains solutions to all end-of-chapter questions, includ-

“It becomes you not to behold them before your body is

says the same philosopher, in another passage.[523]

“When you shall see a terrestrial demon approaching,

exclaims a Zoroastrian oracle (Psel., 40).

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