Author: Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey

Accounting education has experienced many dramatic changes over the life of this accounting theory text. The publication of the tenth edition represents over thirty years in its evolution. At its inception, much of what was then considered theory was in reality rule memorization. In recent years, the globalization of the economy has impacted the skills necessary to be a successful accountant and caused accounting educators to develop new methods of communicating accounting education.

1 The Development of Accounting Theory 1

The Early History of Accounting 2

Accounting in the United States since 1930 5

The Role of Ethics in Accounting 21

International Accounting Standards 25

Cases 27

FASB ASC Research 29

Room for Debate 30

2 The Pursuit of the Conceptual Framework 31

The Early Theorists 31

Early Authoritative and Semi-Authoritatve Organizational Attempts to Develop the Conceptual Framework of Accounting 34

The FASB’s Conceptual Framework Project 45

Principles-Based versus Rules-Based Accounting Standards 58

International Convergence 63

Cases 73

FASB ASC Research 76

Room for Debate 77

3 International Accounting 78

International Business Accounting Issues 79

The Development of Accounting Systems 79

Preparation of Financial Statements for Foreign Users 81

The International Accounting Standards Committee 82

Revising the IASB’s Constitution 88

The Uses of International Accounting Standards 90

Current Issues 91

The IASB Annual Improvements Project 92

The Use of IASC Standards 93

The IASB-FASB Convergence Project 93

The Impact of International versus U.S. GAAP Accounting Standards 97

Standards Overload 99

Framework for the Preparation and Presentation of Financial Statements 100

Comparison of the IASB’s and FASB’s Conceptual Frameworks 103

IAS No. 1 and IFRS No. 1 107

Cases 109

FASB ASC Research 110

Room for Debate 111

4 Research Methodology and Theories on the Uses of Accounting Information 112

Research Methodology 113

The Outcomes of Providing Accounting Information 115

The Relationship Among Research, Education, and Practice 129

Cases 130

FASB ASC Research 132

Room for Debate 132

5 Income Concepts 134

The Nature of Income 136

Income Recognition 141

Earnings Quality, Earnings Management, and Fraudulent Financial Reporting 154

Cases 159

FASB ASC Research 163

Room for Debate 164

6 Financial Statements I: The Income Statement 166

The Economic Consequences of Financial Reporting 166

Income Statement Elements 167

Statement Format 168

Proposed Format of the Statement of Comprehensive Income 192

The Value of Corporate Earnings 195

International Accounting Standards 199

Cases 203

FASB ASC Research 209

Room for Debate 210

7 Financial Statements II: The Balance Sheet and the Statement of Cash Flows 211

The Balance Sheet 212

Fair Value Measurements Under SFAS No. 157 224

Proposed Format of the Statement of Financial Position 229

Evaluating a Company’s Financial Position 231

The Statement of Cash Flows 235

Financial Analysis of Cash-flow Information 246

International Accounting Standards 247

Cases 249

FASB ASC Research 253

Room for Debate 254

8 Working Capital 255

Development of the Working Capital Concept 255

Current Usage 257

Components of Working Capital 258

Financial Analysis of a Company’s Working Capital Position 270

International Accounting Standards 276

Cases 277

FASB ASC Research 281

Room for Debate 282

9 Long-Term Assets I: Property, Plant, and Equipment 284

Property, Plant, and Equipment 284

Financial Analysis of Property, Plant, and Equipment 289

International Accounting Standards 300

Cases 305

FASB ASC Research 310

Room for Debate 311

10 Long-Term Assets II: Investments and Intangibles 313

Investments in Equity Securities 313

Investments in Debt Securities 322

Impairment of Investments in Unsecuritized Debt 325

Transfers of Financial Assets 326

Intangibles 327

Financial Analysis of Investments and Intangibles 337

International Accounting Standards 337

Cases 343

FASB ASC Research 347

Room for Debate 348

11 Long-Term Liabilities 350

The Definition of Liabilities 351

Recognition and Measurement of Liabilities 352

Debt versus Equity 352

Long-Term Debt Classification 357

Other Liability Measurement Issues 370

Troubled Debt Restructurings 375

Financial Analysis of Long-Term Debt 378

International Accounting Standards 381

Cases 385

FASB ASC Research 390

Room for Debate 392

12 Accounting for Income Taxes 393

Historical Perspective 393

The Income Tax Allocation Issue 395

SFAS No. 109 411

Financial Analysis of Income Taxes 417

International Accounting Standards 420

Cases 423

FASB ASC Research 426

Room for Debate 427

13 Leases 429

Accounting for Leases 430

Financial Analysis of Leases 444

International Accounting Standards 447

Cases 449

FASB ASC Research 453

Room for Debate 454

14 Pensions and Other Postretirement Benefits 456

Historical Perspective 458

Accounting for the Pension Fund 469

The Employee Retirement Income Security Act 470

Other Postretirement Benefits 470

SFAS No. 132 473

SFAS No. 158 473

Financial Analysis of Pension and Other Postretirement Benefits 475

International Accounting Standards 476

Cases 477

FASB ASC Research 479

Room for Debate 481

15 Equity 482

Theories of Equity 483

Definition of Equity 488

Reporting Equity 491

Financial Analysis of Stockholders’ Equity 505

International Accounting Standards 506

Cases 508

FASB ASC Research 513

Room for Debate 514

16 Accounting for Multiple Entities 515

Business Combinations 515

Accounting for Business Combinations 516

Business Combinations II 522

Theories of Consolidation 525

Noncontrolling Interest 526

Drawbacks of Consolidation 529

Special-Purpose Entities 530

Segment Reporting 531

Foreign Currency Translation 536

International Accounting Standards 544

Cases 548

FASB ASC Research 551

Room for Debate 552

17 Financial Reporting Disclosure Requirements and Ethical Responsibilities 554

Recognition and Measurement Criteria 554

Areas Directly Affected by Existing FASB Standards-Supplementary Information 558

Other Means of Financial Reporting 562

Other Useful Information for Investment, Credit, and Similar Decisions 565

Securities and Exchange Commission 567

Ethical Responsibilities 576

International Accounting Standards 583

Cases 584

FASB ASC Research 588

Room for Debate 590

Index 593

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