Contents

Unit 1 What Is Financial Accounting? ……………………… 1

Reading One What Is Financial Accounting? ……………………… 3
Reading Two What Are the Four Basic Assumptions That Underlie
the Financial Accounting Structure? …………………10

Unit 2 Why Is Double-entry Used? …………………………15

Reading One Double-entry Bookkeeping System ……………………17
Reading Two The Trial Balance ………………………………………25

Unit 3 How Does Accrual Basis Work? ……………………31

 Reading One Accrual Accounting ……………………………………33
Reading Two What Types of Companies Use Accrual Accounting? …40

Unit 4 What Are Assets? ………………………………………46

Reading One Compare and Contrast: Current and
Non Current Assets ……………………………………48
Reading Two How to List All Asset Accounts on Balance Sheets …… 55

Unit 5 What Are Liabilities? ……………………………………62

Reading One Liability in Financial Accounting ……………………63
Reading Two How to Maintain Liabilities on a Balance Sheet ………71

Unit 6 How Is Shareholder’s Equity Determined? ………77

Reading One Basic Elements of Financial Position:
The Accounting Equation ……………………………79
Reading Two What Items Impact Stockholders’ Equity? ……………90

Contents

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Unit 7 When Is Revenue Recognized? ………………………95

Reading One The Revenue Recognition Principle:
Explanation & Examples ………………………………96
Reading Two Revenue Accounts ………………………………… 104

Unit 8 What Are Recorded as Expenses? ……………… 109

Reading One Expense Recognition: the Matching Principle ……… 110
Reading Two Types of Accounting Expenses …………………… 119

Unit 9 What Are Financial Statements? (1) ……………… 125

Reading One Financial Statement ………………………………… 127
Reading Two The Balance Sheet ………………………………… 135

Unit 10 What Are Financial Statements? (2) ……………… 144

Reading One Income Statement …………………………………… 145
Reading Two Statement of Cash Flows …………………………… 157

Answer keys …………………………………………………… 166

Glossary ……………………………………………………… 204

References ……………………………………………………… 220