I often teach MBA students who have had (traditional) courses in accounting before taking a somewhat more advanced course in an MBA program. I can tell from my many interactions with tudents that their basic thought coming into the course is, Oooooh Yeeeeaaagghh, I've had accounting before so this course will be an easy A! It turns out that this thought seems to be what prevents them from earning a relatively easy A in a much more thought-provoking course in accounting than they are used to. In fact, I've had a number of students who were actually furious: "You aren't teaching accounting they way I learned it before!" There's a very good reason for this; let me explain.
Many who have taken traditional accounting courses are led to believe that learning how to do accounting—that is, learning accounting methods—is the same thing as understanding accounting. This is, unfortunately, not true. In accounting and related disciplines there are concepts, principles, and methods. Concepts are things that can be defined. Principles are fundamental relationships between concepts. Methods are ways of applying concepts and principles to the relevant domain of the concepts and principles (e.g., accounting methods are ways of applying accounting concepts and accounting principles to economic events). The relationship among concepts, principles, and methods suggests that an understanding of methods alone is far from adequate; concepts and principles must be understood before the methods can even be developed. The courses I teach in financial accounting tend to be designed to focus on accounting concepts and principles for precisely this reason.
Learning “how to do accounting” means learning how accounting methods are applied to economic events. Given the limited time available in any course, this means learning how to apply accounting methods to a relatively small set of economic events. The educational theory presumably underlying such traditional courses is that students will learn accounting concepts and accounting principles by inference while studying accounting methods. Unfortunately, experience in the U.S. has shown that neither future accountants nor managers generally understand accounting concepts and principles adequately; they need "real world experience" with accounting to understand it. Moreover, given the current development of computerized accounting systems, it is generally unnecessary for managers to understand much in the way of accounting mechanics at all: Substantially all accounting mechanics are automated via software in any modern computerized accounting system, and such software is written by IS programmers based directly on accounting concepts and principles. (Many readers will no doubt disagree with this statement, but I can clearly show that accounting mechanics/methods flow directly from more basic concepts and principles. Trust me on this for the time being.)
What does it mean to say that accountants or managers do not understand basic accounting concepts and principles? The question is best answered indirectly through an example. Ask any accountant the following question:
Most accountants will simply answer the question by saying the acquired pen should be recorded at the amount paid for it. When asked why the exchange should be recorded in this way, most accountants answer that it is a simple application of the historical cost principle. It turns out that neither answer is correct: The proper accounting measurement of the pen depends on certain economic characteristics of the exchange and of the buyer and seller, and the “historical cost principle” actually does not suggest the pen be measured at $100 for accounting purposes. So, the accountant (or manager) knows how to record the exchange given that the measurement is correct, but actually does not know how to determine the proper measurement. This is but one simple example of how understanding accounting mechanics—so-called, “debits and credits”—does not provide accountants or managers with an adequate understanding of accounting concepts and principles, which is in fact a necessary prerequisite for understanding accounting methods in general.
If my company pays $100 cash for an ordinary pen that can easily be purchased for $1 at any office supply shop in the area, how should my company record the exchange?
Most accountants will simply answer the question by saying the acquired pen should be recorded at the amount paid for it. When asked why the exchange should be recorded in this way, most accountants answer that it is a simple application of the historical cost principle. It turns out that neither answer is correct: The proper accounting measurement of the pen depends on certain economic characteristics of the exchange and of the buyer and seller, and the “historical cost principle” actually does not suggest the pen be measured at $100 for accounting purposes. So, the accountant (or manager) knows how to record the exchange given that the measurement is correct, but actually does not know how to determine the proper measurement. This is but one simple example of how understanding accounting mechanics—so-called, “debits and credits”—does not provide accountants or managers with an adequate understanding of accounting concepts and principles, which is in fact a necessary prerequisite for understanding accounting methods in general.
I realize the argument is somewhat skeletal, but I will fill in the details later!
MMc
São Paulo
São Paulo
