Solution Manual For Fundamentals Of
Financial Accounting, 8th Edition
2025|2026 By Fred Phillips, Robert Libby,
Verified Chapters 1-13, Complete Newest
Version
,Table Of Content i i
1. Chapter 1: businessdecisions and financial
accounting
2. Chapter 2: the balance sheet
3. Chapter 3: the income statement
4. Chapter 4: adjustments, financial statements, and financial results
5. Chapter 5: fraud, internal control, and cash
6. Chapter 6: merchandisingoperationsand the multi-stepincome
statement
7. Chapter 7: inventory and costof goods sold
8. Chapter 8: receivables, bad debt expense, andinterest revenue
9. Chapter 9: long-lived tangible andintangible assets
10. Chapter10: liabilities
11. Chapter11: shareholders' equity
12.Chapter 12: statement of cash flows
13.Chapter13: measuring and evaluating financial performance
,Chapter1
Business decisions and financial accounting
Answers to questions
1. Accounting is a system of analyzing, recording, and summarizing the results of a
Business‘sactivities and then reportingthem to decision makers.
2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it
is easy to establish. Another advantage is that income from a sole proprietorship is
taxed only once in the hands of the individual proprietor (income from a
corporation is taxed in the corporation and then again in the hands of the
individual proprietor). Adisadvantage of operating as a sole proprietorship,
rather than a corporation, is that the individual proprietor can be held
responsible for the debts of the business.
3. Financial accounting focuses on preparing and using the financialstatements that
are made available to owners and external users such as customers, creditors, and
potential investorswho are interested in reading them. Managerial accounting
focuses on other accounting reports that are not released to the general public,
but instead are prepared and used by employees, supervisors,and managers
who run the company.
4. Financial reports are used byboth internal and external groups and individuals.
The internal groups are comprised of the various managers of the
business. The external groups include investors, creditors, governmental
agencies, other interested parties, and the public at large.
5. The business itself, not the individual shareholders who own thebusiness, is viewed
as owning the assets and owing the liabilities on its balance sheet. A
business‘s balance sheet includes the assets, liabilities, and
shareholders‘ equity of only that business and not the personal assets, liabilities,
and equity of the shareholders. The financial statements
of a company show the results of the business activities of onlythat
company.
6. (a) operating – these activities are directly related to earning profits.
Theyinclude buying supplies, making products, serving customers,
cleaning the premises, advertising, renting a building, repairing
equipment,and obtaininginsurance coverage.
, (b) Investing – these activities involve buying and selling productive resources
with long lives (such as buildings, land, equipment, and tools), purchasing
investments, and lending toothers.
(c) Financing – any borrowing from banks, repaying bank loans,
receiving contributions from shareholders, or paying dividends to
shareholders are considered financing activities.
7. The heading of each of the four primaryfinancial statements should include the following:
(a) Name of the business
(b) Name ofthe statement
(c) Date of the statement, or the period of time
8. (a) thepurpose of the balance sheet is to report the financial position (assets,
liabilities and
Shareholders‘ equity) of a business at a point in time.
(b) Thepurpose of the income statement is to present information about the
revenues, expenses, and net income of a business for a specified period of
time.
(c) The statement of retained earnings reports the waythat net income and the
distribution of dividends affected thefinancialposition of the company during
the period.
(d) The purpose of the statement of cash flows is to summarize how a business‘s
operating, investing, and financing activities caused its cash balance to change
over a particular period of time.
9. The income statement, statement of retained earnings, and statement of cashflows would
be dated
―fortheyear endeddecember31,2020,‖becausetheyreporttheinflowsand outflows of
resources during a period of time. In contrast, the balance sheet would bedated―at
december 31,2020,‖becauseiitrepresentsitheassets,iliabilitiesiandshareholders‘ equity
at a specificdate.
10. Net income is the excess of total revenues over total expenses. A net loss occurs if
total expenses exceedtotalrevenues.
11. The accounting equation for the balancesheet is: assets = liabilities + shareholders‘
equity. Assets are the economic resources controlled by the company.Liabilities
are amounts owed by the business. Shareholders‘ equity is the owners‘ claims to
the business. It includes amounts contributed tothe business(byinvestors
through purchasing the company‘s shares) and the amounts earned and
accumulated through profitablebusiness operations.
12. The equation for the income statement is revenues – expenses = net income.
Revenues are increases in a company‘s resources, arising primarily from its
operating activities. Expenses are decreases in a company‘s resources,
Financial Accounting, 8th Edition
2025|2026 By Fred Phillips, Robert Libby,
Verified Chapters 1-13, Complete Newest
Version
,Table Of Content i i
1. Chapter 1: businessdecisions and financial
accounting
2. Chapter 2: the balance sheet
3. Chapter 3: the income statement
4. Chapter 4: adjustments, financial statements, and financial results
5. Chapter 5: fraud, internal control, and cash
6. Chapter 6: merchandisingoperationsand the multi-stepincome
statement
7. Chapter 7: inventory and costof goods sold
8. Chapter 8: receivables, bad debt expense, andinterest revenue
9. Chapter 9: long-lived tangible andintangible assets
10. Chapter10: liabilities
11. Chapter11: shareholders' equity
12.Chapter 12: statement of cash flows
13.Chapter13: measuring and evaluating financial performance
,Chapter1
Business decisions and financial accounting
Answers to questions
1. Accounting is a system of analyzing, recording, and summarizing the results of a
Business‘sactivities and then reportingthem to decision makers.
2. An advantage of operating as a sole proprietorship, rather than a corporation, is that it
is easy to establish. Another advantage is that income from a sole proprietorship is
taxed only once in the hands of the individual proprietor (income from a
corporation is taxed in the corporation and then again in the hands of the
individual proprietor). Adisadvantage of operating as a sole proprietorship,
rather than a corporation, is that the individual proprietor can be held
responsible for the debts of the business.
3. Financial accounting focuses on preparing and using the financialstatements that
are made available to owners and external users such as customers, creditors, and
potential investorswho are interested in reading them. Managerial accounting
focuses on other accounting reports that are not released to the general public,
but instead are prepared and used by employees, supervisors,and managers
who run the company.
4. Financial reports are used byboth internal and external groups and individuals.
The internal groups are comprised of the various managers of the
business. The external groups include investors, creditors, governmental
agencies, other interested parties, and the public at large.
5. The business itself, not the individual shareholders who own thebusiness, is viewed
as owning the assets and owing the liabilities on its balance sheet. A
business‘s balance sheet includes the assets, liabilities, and
shareholders‘ equity of only that business and not the personal assets, liabilities,
and equity of the shareholders. The financial statements
of a company show the results of the business activities of onlythat
company.
6. (a) operating – these activities are directly related to earning profits.
Theyinclude buying supplies, making products, serving customers,
cleaning the premises, advertising, renting a building, repairing
equipment,and obtaininginsurance coverage.
, (b) Investing – these activities involve buying and selling productive resources
with long lives (such as buildings, land, equipment, and tools), purchasing
investments, and lending toothers.
(c) Financing – any borrowing from banks, repaying bank loans,
receiving contributions from shareholders, or paying dividends to
shareholders are considered financing activities.
7. The heading of each of the four primaryfinancial statements should include the following:
(a) Name of the business
(b) Name ofthe statement
(c) Date of the statement, or the period of time
8. (a) thepurpose of the balance sheet is to report the financial position (assets,
liabilities and
Shareholders‘ equity) of a business at a point in time.
(b) Thepurpose of the income statement is to present information about the
revenues, expenses, and net income of a business for a specified period of
time.
(c) The statement of retained earnings reports the waythat net income and the
distribution of dividends affected thefinancialposition of the company during
the period.
(d) The purpose of the statement of cash flows is to summarize how a business‘s
operating, investing, and financing activities caused its cash balance to change
over a particular period of time.
9. The income statement, statement of retained earnings, and statement of cashflows would
be dated
―fortheyear endeddecember31,2020,‖becausetheyreporttheinflowsand outflows of
resources during a period of time. In contrast, the balance sheet would bedated―at
december 31,2020,‖becauseiitrepresentsitheassets,iliabilitiesiandshareholders‘ equity
at a specificdate.
10. Net income is the excess of total revenues over total expenses. A net loss occurs if
total expenses exceedtotalrevenues.
11. The accounting equation for the balancesheet is: assets = liabilities + shareholders‘
equity. Assets are the economic resources controlled by the company.Liabilities
are amounts owed by the business. Shareholders‘ equity is the owners‘ claims to
the business. It includes amounts contributed tothe business(byinvestors
through purchasing the company‘s shares) and the amounts earned and
accumulated through profitablebusiness operations.
12. The equation for the income statement is revenues – expenses = net income.
Revenues are increases in a company‘s resources, arising primarily from its
operating activities. Expenses are decreases in a company‘s resources,
