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Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
10e
Using Financial
Accounting Information
THE ALTERNATIVE TO
DEBITS AND CREDITS
Gary A. Porter
DRAKE UNIVERSITY
Curtis L. Norton
ARIZONA STATE UNIVERSITY
Using Financial Accounting Information: ª 2018, 2015 Cengage Learning¤
The Alternative to Debits and Credits,
10th edition ALL RIGHTS RESERVED. No part of this work covered by the copyright herein
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Printed in Canada
Print Number: 01 Print Year: 2016
To those who really ‘‘count’’
Melissa
Kathy, Amy, Andrew
In memory of
Sophie
Brief Contents
Contents v
Preface xi
CHAPTER 1 Accounting as a Form of Communication 2
CHAPTER 2 Financial Statements and the Annual Report 50

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

He is also a Professor Emeritus at Northern Illinois University in Dekalb, Illinois, where
he has taught since 1976. Dr. Norton received his Ph.D. from Arizona State University
and an M.B.A. from the University of South Dakota. Dr. Norton earned the University
Excellence in Teaching Award at NIU and has published in The Accounting Review, The
Journal of Accounting Education, CPA Journal, and other journals. A member of the
American Accounting Association and Financial Executives International, he also con-
sults and conducts training for private and governmental authorities, banks, utilities, and
others.
xxviii
10e
Using Financial
Accounting Information
THE ALTERNATIVE TO
DEBITS AND CREDITS
Another random document with
no related content on Scribd:
those who rank their merits high in this respect. We have already
seen, that their minds were completely devoured by the worst habits
of the stationary period,—Mysticism and Commentation. They
followed their Greek leaders, for the most part, with abject servility,
and with only that kind of acuteness and independent speculation
which the Commentator’s vocation implies. And in their choice of the
standard subjects of their studies, they fixed upon those works, the
Physical Books of Aristotle, which have never promoted the progress
of science, except in so far as they incited men to refute them; an
effect which they never produced on the Arabians. That the Arabian
astronomers made some advances beyond the Greeks, we have
already stated: the two great instances are, the discovery of the
Motion of the Sun’s Apogee by Albategnius, and the discovery
(recently brought to light) of the existence of the Moon’s Second
Inequality, by Aboul Wefa. But we cannot but observe in how
different a manner they treated these discoveries, from that with
which Hipparchus or Ptolemy would have done. The Variation of the
Moon, in particular, instead of being incorporated into the system by
means of an Epicycle, as Ptolemy had done with the Evection, was
allowed, almost immediately, so far as we can judge, to fall into
neglect and oblivion: so little were the learned Arabians prepared to
take their lessons from observation as well as from books. That in
many subjects they made experiments, may easily be allowed: there
never was a period of the earth’s history, and least of all a period of
commerce 245 and manufactures, luxury and art, medicine and
engineering, in which there were not going on innumerable
processes, which may be termed Experiments; and, in addition to
these, the Arabians adopted the pursuit of alchemy, and the love of
exotic plants and animals. But so far from their being, as has been
maintained, 90 a people whose “experimental intellect” fitted them to
form sciences which the “abstract intellect” of the Greeks failed in
producing, it rather appears, that several of the sciences which the
Greeks had founded, were never even comprehended by the
Arabians. I do not know any evidence that these pupils ever attained
to understand the real principles of Mechanics, Hydrostatics, and
Harmonics, which their masters had established. At any rate, when
these sciences again became progressive, Europe had to start
where Europe had stopped. There is no Arabian name which any
one has thought of interposing between Archimedes the ancient, and
Stevinus and Galileo the moderns.
90 Mahometanism Unveiled, ii. 271.
4. Roger Bacon.—There is one writer of the middle ages, on

whom much stress has been laid, and who was certainly a most
remarkable person. Roger Bacon’s works are not only so far beyond
his age in the knowledge which they contain, but so different from
the temper of the times, in his assertion of the supremacy of
experiment, and in his contemplation of the future progress of
knowledge, that it is difficult to conceive how such a character could
then exist. That he received much of his knowledge from Arabic
writers, there can be no doubt; for they were in his time the
repositories of all traditionary knowledge. But that he derived from
them his disposition to shake off the authority of Aristotle, to maintain
the importance of experiment, and to look upon knowledge as in its
infancy, I cannot believe, because I have not myself hit upon, nor
seen quoted by others, any passages in which Arabian writers
express such a disposition. On the other hand, we do find in
European writers, in the authors of Greece and Rome, the solid
sense, the bold and hopeful spirit, which suggest such tendencies.
We have already seen that Aristotle asserts, as distinctly as words
can express, that all knowledge must depend on observation, and
that science must be collected from facts by induction. We have
seen, too, that the Roman writers, and Seneca in particular, speak
with an enthusiastic confidence of the progress which science must
make in the course of ages. When Roger Bacon holds similar
language in the thirteenth century, the resemblance is probably
rather a sympathy of character, than a matter of direct derivation; but
I know of nothing 246 which proves even so much as this sympathy
in the case of Arabian philosophers.
A good deal has been said of late of the coincidences between his
views, and those of his great namesake in later times, Francis
Bacon. 91 The resemblances consist mainly in such points as I have
just noticed; and we cannot but acknowledge, that many of the
expressions of the Franciscan Friar remind us of the large thoughts
and lofty phrases of the Philosophical Chancellor. How far the one
can be considered as having anticipated the method of the other, we
shall examine more advantageously, when we come to consider
what the character and effect of Francis Bacon’s works really are. 92
91 Hallam’s Middle Ages, iii. 549. Forster’s Mahom. U. ii. 313.
92 In the Philosophy of the Inductive Sciences, I have given an

account at considerable length of Roger Bacon’s mode of treating
Arts and Sciences; and have also compared more fully his
philosophy with that of Francis Bacon; and I have given a view of
the bearing of this latter upon the progress of Science in modern
times. See Phil. Ind. Sc. book xii. chaps. 7 and 11. See also the
Appendix to this volume.
5. Architecture of the Middle Ages.—But though we are thus

compelled to disallow several of the claims which have been put
forwards in support of the scientific character of the middle ages,
there are two points in which we may, I conceive, really trace the
progress of scientific ideas among them; and which, therefore, may
be considered as the prelude to the period of discovery. I mean their
practical architecture, and their architectural treatises.
In a previous chapter of this book, we have endeavored to explain

how the indistinctness of ideas, which attended the decline of the
Roman empire, appears in the forms of their architecture;—in the
disregard, which the decorative construction exhibits, of the
necessary mechanical conditions of support. The original scheme of
Greek ornamental architecture had been horizontal masses resting
on vertical columns: when the arch was introduced by the Romans, it
was concealed, or kept in a state of subordination: and the lateral
support which it required was supplied latently, marked by some
artifice. But the struggle between the mechanical and the decorative
construction 93 ended in the complete disorganization of the classical
style. The 247 inconsistencies and extravagances of which we have
noticed the occurrence, were results and indications of the fall of
good architecture. The elements of the ancient system had lost all
principle of connection and regard to rule. Building became not only
a mere art, but an art exercised by masters without skill, and without
feeling for real beauty.
93 See Mr. Willis’s admirable Remarks on the Architecture of the
Middle Ages, chap. ii.
Since the publication of my first edition, Mr. Willis has shown
that much of the “mason-craft” of the middle ages consisted in the
geometrical methods by which the artists wrought out of the
blocks the complex forms of their decorative system.
To the general indistinctness of speculative notions on
mechanical subjects prevalent in the middle ages, there may have
been some exceptions, and especially so long as there were
readers of Archimedes. Boëthius had translated the mechanical
works of Archimedes into Latin, as we learn from the enumeration
of his works by his friend Cassiodorus (Variar. lib i. cap. 45),
“Mechanicum etiam Archimedem latialem siculis reddidisti.” But
Mechanicus was used in those times rather for one skilled in the
art of constructing wonderful machines than in the speculative
theory of them. The letter from which the quotation is taken is sent
by King Theodoric to Boëthius, to urge him to send the king a
water-clock.
When, after this deep decline, architecture rose again, as it did in

the twelfth and succeeding centuries, in the exquisitely beautiful and
skilful forms of the Gothic style, what was the nature of the change
which had taken place, so far as it bears upon the progress of
science? It was this:—the idea of true mechanical relations in an
edifice had been revived in men’s minds, as far as was requisite for
the purposes of art and beauty: and this, though a very different
thing from the possession of the idea as an element of speculative
science, was the proper preparation for that acquisition. The notion
of support and stability again became conspicuous in the decorative
construction, and universal in the forms of building. The eye which,
looking for beauty in definite and significant relations of parts, is
never satisfied except the weights appear to be duly supported, 94
was again gratified. Architecture threw off its barbarous characters: a
new decorative construction was matured, not thwarting and
controlling, but assisting and harmonizing with the mechanical
construction. All the ornamental parts were made to enter into the
apparent construction. Every member, almost every moulding,
became a sustainer of weight; and by the multiplicity of props
assisting each other, and the consequent subdivision of weight, the
eye was satisfied of the stability of the structure, notwithstanding the
curiously-slender forms of the separate parts. The arch and the
vault, no longer trammelled by an incompatible system of decoration,
but favoured by more tractable forms, were only limited by the skill of
the builders. Everything showed that, practically at least, men
possessed and applied, with steadiness and pleasure, the idea of
mechanical pressure and support.
94 Willis, pp. 15–21. I have throughout this description of the
formation of the Gothic style availed myself of Mr. Willis’s well-
chosen expressions.
The possession of this idea, as a principle of art, led, in the course

of time, to its speculative development as the foundation of a
science; 248 and thus Architecture prepared the way for Mechanics.
But this advance required several centuries. The interval between
the admirable cathedrals of Salisbury, Amiens, Cologne, and the
mechanical treatises of Stevinus, is not less than three hundred
years. During this time, men were advancing towards science; but in
the mean time, and perhaps from the very beginning of the time, art
had begun to decline. The buildings of the fifteenth century, erected
when the principles of mechanical support were just on the verge of
being enunciated in general terms, exhibit those principles with a far
less impressive simplicity and elegance than those of the thirteenth.
We may hereafter inquire whether we find any other examples to
countenance the belief, that the formation of Science is commonly
accompanied by the decline of Art.
The leading principle of the style of the Gothic edifices was, not
merely that the weights were supported, but that they were seen to
be so; and that not only the mechanical relations of the larger
masses, but of the smaller members also, were displayed. Hence we
cannot admit, as an origin or anticipation of the Gothic, a style in
which this principle is not manifested. I do not see, in any of the
representations of the early Arabic buildings, that distribution of
weights to supports, and that mechanical consistency of parts, which
would elevate them above the character of barbarous architecture.
Their masses are broken into innumerable members, without
subordination or meaning, in a manner suggested apparently by
caprice and the love of the marvellous. “In the construction of their
mosques, it was a favorite artifice of the Arabs to sustain immense
and ponderous masses of stone by the support of pillars so slender,
that the incumbent weight seemed, as it were, suspended in the air
by an invisible hand.” 95 This pleasure in the contemplation of
apparent impossibilities is a very general disposition among
mankind; but it appears to belong to the infancy, rather than the
maturity of intellect. On the other hand, the pleasure in the
contemplation of what is clear, the craving for a thorough insight into
the reasons of things, which marks the European mind, is the temper
which leads to science.
95 Mahometanism Unveiled, ii. 255.
6. Treatises on Architecture.—No one who has attended to the

architecture which prevailed in England, France, and Germany, from
the twelfth to the fifteenth century, so far as to comprehend its
beauty, harmony, consistency, and uniformity, even in the minutest
parts and most obscure relations, can look upon it otherwise than as
a 249 remarkably connected and definite artificial system. Nor can we
doubt that it was exercised by a class of artists who formed
themselves by laborious study and practice, and by communication
with each other. There must have been bodies of masters and of
scholars, discipline, traditions, precepts of art. How these associated
artists diffused themselves over Europe, and whether history
enables us to trace them in a distinct form, I shall not here discuss.
But the existence of a course of instruction, and of a body of rules of
practice, is proved beyond dispute by the great series of European
cathedrals and churches, so nearly identical in their general
arrangements, and in their particular details. The question then
occurs, have these rules and this system of instruction anywhere
been committed to writing? Can we, by such evidence, trace the
progress of the scientific idea, of which we see the working in these
buildings?
We are not to be surprised, if, during the most flourishing and

vigorous period of the art of the middle ages, we find none of its
precepts in books. Art has, in all ages and countries, been taught
and transmitted by practice and verbal tradition, not by writing. It is
only in our own times, that the thought occurs as familiar, of
committing to books all that we wish to preserve and convey. And,
even in our own times, most of the Arts are learned far more by
practice, and by intercourse with practitioners, than by reading. Such
is the case, not only with Manufactures and Handicrafts, but with the
Fine Arts, with Engineering, and even yet, with that art, Building, of
which we are now speaking.
We are not, therefore, to wonder, if we have no treatises on

Architecture belonging to the great period of the Gothic masters;—or
if it appears to have required some other incitement and some other
help, besides their own possession of their practical skill, to lead
them to shape into a literary form the precepts of the art which they
knew so well how to exercise:—or if, when they did write on such
subjects, they seem, instead of delivering their own sound practical
principles, to satisfy themselves with pursuing some of the frivolous
notions and speculations which were then current in the world of
letters.
Such appears to be the case. The earliest treatises on
Architecture come before us under the form which the
commentatorial spirit of the middle ages inspired. They are
Translations of Vitruvius, with Annotations. In some of these,
particularly that of Cesare Cesariano, published at Como, in 1521,
we see, in a very curious manner, how the habit of assuming that, in
every department of literature, the ancients 250 must needs be their
masters, led these writers to subordinate the members of their own
architecture to the precepts of the Roman author. We have Gothic
shafts, mouldings, and arrangements, given as parallelisms to
others, which profess to represent the Roman style, but which are, in
fact, examples of that mixed manner which is called the style of the
Cinque cento by the Italians, of the Renaissance by the French, and
which is commonly included in our Elizabethan. But in the early
architectural works, besides the superstitions and mistaken erudition
which thus choked the growth of real architectural doctrines, another
of the peculiar elements of the middle ages comes into view;—its
mysticism. The dimensions and positions of the various parts of
edifices and of their members, are determined by drawing triangles,
squares, circles, and other figures, in such a manner as to bound
them; and to these geometrical figures were assigned many
abstruse significations. The plan and the front of the Cathedral at
Milan are thus represented in Cesariano’s work, bounded and
subdivided by various equilateral triangles; and it is easy to see, in
the earnestness with which he points out these relations, the
evidence of a fanciful and mystical turn of thought. 96
96 The plan which he has given, fol. 14, he has entitled
“Ichnographia Fundamenti sacræ Ædis baricephalæ, Germanico
more, à Trigono ac Pariquadrato perstructa, uti etiam ea quæ
nunc Milani videtur.”
The work of Cesariano was translated into German by Gualter
Rivius, and published at Nuremberg, in 1548, under the title of
Vitruvius Teutsch, with copies of the Italian diagrams. A few years
ago, in an article in the Wiener Jahrbücher (Oct.–Dec., 1821), the
reviewer maintained, on the authority of the diagrams in Rivius’s
book, that Gothic architecture had its origin in Germany and not in
England.
We thus find erudition and mysticism take the place of much of

that development of the architectural principles of the middle ages
which would be so interesting to us. Still, however, these works are
by no means without their value. Indeed many of the arts appear to
flourish not at all the worse, for being treated in a manner somewhat
mystical; and it may easily be, that the relations of geometrical
figures, for which fantastical reasons are given, may really involve
principles of beauty or stability. But independently of this, we find, in
the best works of the architects of all ages (including engineers),
evidence that the true idea of mechanical pressure exists among
them more distinctly than among men in general, although it may not
be developed in a scientific form. This is true up to our own time, and
the arts which such persons cultivate could not be successfully 251
exercised if it were not so. Hence the writings of architects and
engineers during the middle ages do really form a prelude to the
works on scientific mechanics. Vitruvius, in his Architecture, and
Julius Frontinus, who, under Vespasian, wrote On Aqueducts, of
which he was superintendent, have transmitted to us the principal
part of what we know respecting the practical mechanics and
hydraulics of the Romans. In modern times the series is resumed.
The early writers on architecture are also writers on engineering, and
often on hydrostatics: for example, Leonardo da Vinci wrote on the
equilibrium of water. And thus we are led up to Stevinus of Bruges,
who was engineer to Prince Maurice of Nassau, and inspector of the
dykes in Holland; and in whose work, on the processes of his art, is
contained the first clear modern statement of the scientific principles
of hydrostatics.
Having thus explained both the obstacles and the prospects which
the middle ages offered to the progress of science, I now proceed to
the history of the progress, when that progress was once again
resumed. ~Additional material in the 3rd edition.~
B O O K V.
HISTORY
OF
FORMAL ASTRONOMY
AFTER THE STATIONARY PERIOD.
. . . Cyclopum educta caminis
Mœnia conspicio, atque adverso fornice portas.
. . . . .
His demum exactis, perfecto munere Divæ,
Devenere locos lætos et amœna vireta
Fortunatorum nemorum sedesque beatas.
Largior hic campos æther et lumine vestit
Purpureo: solemque suum, sua sidera norunt.
Virgil, Æn. vi. 630.
They leave at length the nether gloom, and stand

Before the portals of a better land:
To happier plains they come, and fairer groves,
The seats of those whom heaven, benignant, loves;
A brighter day, a bluer ether, spreads
Its lucid depths above their favored heads;
And, purged from mists that veil our earthly skies,
Shine suns and stars unseen by mortal eyes.
INTRODUCTION.
Of Formal and Physical Astronomy.
W E have thus rapidly traced the causes of the almost complete

blank which the history of physical science offers, from the
decline of the Roman empire, for a thousand years. Along with the
breaking up of the ancient forms of society, were broken up the
ancient energy of thinking, the clearness of idea, and steadiness of
intellectual action. This mental declension produced a servile
admiration for the genius of the better periods, and thus, the spirit of
Commentation: Christianity established the claim of truth to govern
the world; and this principle, misinterpreted and combined with the
ignorance and servility of the times, gave rise to the Dogmatic
System: and the love of speculation, finding no secure and permitted
path on solid ground, went off into the regions of Mysticism.
The causes which produced the inertness and blindness of the

stationary period of human knowledge, began at last to yield to the
influence of the principles which tended to progression. The
indistinctness of thought, which was the original feature in the
decline of sound knowledge, was in a measure remedied by the
steady cultivation of Pure Mathematics and Astronomy, and by the
progress of inventions in the Arts, which call out and fix the
distinctness of our conceptions of the relations of natural
phenomena. As men’s minds became clear, they became less
servile: the perception of the nature of truth drew men away from
controversies about mere opinion; when they saw distinctly the
relations of things, they ceased to give their whole attention to what
had been said concerning them; and thus, as science rose into view,
the spirit of commentation lost its way. And when men came to feel
what it was to think for themselves on subjects of science, they soon
rebelled against the right of others to impose opinions upon them.
When they threw off their blind admiration for the ancients, they were
disposed to cast away also their passive obedience to the ancient
system of doctrines. When they were no longer inspired by the spirit
of commentation, they were no longer submissive to the dogmatism
of the schools. When they began to feel that they could 256 discover
truths, they felt also a persuasion of a right and a growing will so to
do.
Thus the revived clearness of ideas, which made its appearance

at the revival of letters, brought on a struggle with the authority,
intellectual and civil, of the established schools of philosophy. This
clearness of idea showed itself, in the first instance, in Astronomy,
and was embodied in the system of Copernicus; but the contest did
not come to a crisis till a century later, in the time of Galileo and
other disciples of the new doctrine. It is our present business to trace
the principles of this series of events in the history of philosophy.
I do not profess to write a history of Astronomy, any further than is

necessary in order to exhibit the principles on which the progression
of science proceeds; and, therefore, I neglect subordinate persons
and occurrences, in order to bring into view the leading features of
great changes. Now in the introduction of the Copernican system
into general acceptation, two leading views operated upon men’s
minds; the consideration of the system as exhibiting the apparent
motions of the universe, and the consideration of this system with
reference to its causes;—the formal and the physical aspect of the
Theory;—the relations of Space and Time, and the relations of Force
and Matter. These two divisions of the subject were at first not clearly
separated; the second was long mixed, in a manner very dim and
obscure, with the first, without appearing as a distinct subject of
attention; but at last it was extricated and treated in a manner
suitable to its nature. The views of Copernicus rested mainly on the
formal condition of the universe, the relations of space and time; but
Kepler, Galileo, and others, were led, by controversies and other
causes, to give a gradually increasing attention to the physical
relations of the heavenly bodies; an impulse was given to the study
of Mechanics (the Doctrine of Motion), which became very soon an
important and extensive science; and in no long period, the
discoveries of Kepler, suggested by a vague but intense belief in the
physical connection of the parts of the universe, led to the decisive
and sublime generalizations of Newton.
The distinction of formal and physical Astronomy thus becomes

necessary, in order to treat clearly of the discussions which the
propounding of the Copernican theory occasioned. But it may be
observed that, besides this great change, Astronomy made very
great advances in the same path which we have already been
tracing, namely, the determination of the quantities and laws of the
celestial motions, in so far as they were exhibited by the ancient
theories, or 257 might be represented by obvious modifications of
those theories. I speak of new Inequalities, new Phenomena, such
as Copernicus, Galileo, and Tycho Brahe discovered. As, however,
these were very soon referred to the Copernican rather than the
Ptolemaic hypothesis, they may be considered as developments
rather of the new than of the old Theory; and I shall, therefore, treat
of them, agreeably to the plan of the former part, as the sequel of the
Copernican Induction.
CHAPTER I.
Prelude to the Inductive Epoch of Copernicus.
T HE Doctrine of Copernicus, that the Sun is the true centre of the

celestial motions, depends primarily upon the consideration that
such a supposition explains very simply and completely all the
obvious appearances of the heavens. In order to see that it does
this, nothing more is requisite than a distinct conception of the nature
of Relative Motion, and a knowledge of the principal Astronomical
Phenomena. There was, therefore, no reason why such a doctrine
might not be discovered, that is, suggested as a theory plausible at
first sight, long before the time of Copernicus; or rather, it was
impossible that this guess, among others, should not be propounded
as a solution of the appearances of the heavens. We are not,
therefore, to be surprised if we find, in the earliest times of
Astronomy, and at various succeeding periods, such a system
spoken of by astronomers, and maintained by some as true, though
rejected by the majority, and by the principal writers.
When we look back at such a difference of opinion, having in our

minds, as we unavoidably have, the clear and irresistible
considerations by which the Copernican Doctrine is established for
us, it is difficult for us not to attribute superior sagacity and candor to
those who held that side of the question, and to imagine those who
clung to the Ptolemaic Hypothesis to have been blind and
prejudiced; incapable of seeing the beauty of simplicity and
symmetry, or indisposed to resign established errors, and to accept
novel and comprehensive truths. Yet in judging thus, we are probably
ourselves influenced by prejudices arising from the knowledge and
received opinions of our own times. For is it, in reality, clear that,
before the time of Copernicus, the 258 Heliocentric Theory (that
which places the centre of the celestial motions in the Sun) had a
claim to assent so decidedly superior to the Geocentric Theory,
which places the Earth in the centre? What is the basis of the
heliocentric theory?—That the relative motions are the same, on that
and on the other supposition. So far, therefore, the two hypotheses
are exactly on the same footing. But, it is urged, on the heliocentric
side we have the advantage of simplicity:—true; but we have, on the
other side, the testimony of our senses; that is, the geocentric
doctrine (which asserts that the Earth rests and the heavenly bodies
move) is the obvious and spontaneous interpretation of the
appearances. Both these arguments, simplicity on the one side, and
obviousness on the other, are vague, and we may venture to say,
both indecisive. We cannot establish any strong preponderance of
probability in favor of the former doctrine, without going much further
into the arguments of the question.
Nor, when we speak of the superior simplicity of the Copernican

theory, must we forget, that though this theory has undoubtedly, in
this respect, a great advantage over the Ptolemaic, yet that the
Copernican system itself is very complex, when it undertakes to
account, as the Ptolemaic did, for the Inequalities of the Motions of
the sun, moon, and planets; and, that in the hands of Copernicus, it
retained a large share of the eccentrics and epicycles of its
predecessor, and, in some parts, with increased machinery. The
heliocentric theory, without these appendages, would not approach
the Ptolemaic, in the accurate explanation of facts; and as those who
had placed the sun in the centre had never, till the time of
Copernicus, shown how the inequalities were to be explained on that
supposition, we may assert that after the promulgation of the theory

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4. Roger Bacon.—There is one writer of the middle ages, on

92 In the Philosophy of the Inductive Sciences, I have given an

5. Architecture of the Middle Ages.—But though we are thus

In a previous chapter of this book, we have endeavored to explain

When, after this deep decline, architecture rose again, as it did in

The possession of this idea, as a principle of art, led, in the course

6. Treatises on Architecture.—No one who has attended to the

We are not to be surprised, if, during the most flourishing and

We are not, therefore, to wonder, if we have no treatises on

We thus find erudition and mysticism take the place of much of

They leave at length the nether gloom, and stand

Of Formal and Physical Astronomy.

W E have thus rapidly traced the causes of the almost complete

The causes which produced the inertness and blindness of the

Thus the revived clearness of ideas, which made its appearance

I do not profess to write a history of Astronomy, any further than is

The distinction of formal and physical Astronomy thus becomes