Friday, I start teaching for the first time at my alma mater, Baruch College. I will be teaching Financial Accounting to non-accounting majors. It will be presented on Zoom to 70 undergraduate students ranging from Freshmen to Seniors and it is a 3:45 PM weekly session for 15 weeks. My quandary is how to keep them engaged, interested and excited.
I personally have no problem with being excited about accounting. It is a great profession; we perform a vital function for businesses, not-for-profit organizations and individuals in many different areas. However, this excitement needs to be transmitted to a bunch of students who are likely more concerned about the grade than the gradations and subtleties of my professional.
Financial accounting is the area that deals with financial statements and reporting the results of operations and the organizations’ financial position and sources of cash flow. The truth of the matter is that financial accounting provides a vital function in the overall economy, business world and for helping report the proper earnings for tax purposes. Accountants provide independent auditing of financial statements to assure lenders and investors that companies seeking credit or capital have: statements that present fairly the results of its operations and the companies’ financial position; the statements are free from material misstatement; and the auditors are independent. How valid would these assurances be if the company made them without any independent oversight?
Actually, financial assurances go back to the first human writing where people working in the fields recorded their daily production under the sight of an overseer so they could be paid. Moses engaged Ithamar to perform an audit, Mark and Matthew make reference to audits in the 1st Century CE and even Chaucer made reference to an auditor in his Canterbury Tales around the same time Venetian businesspeople were developing double-entry bookkeeping, which is the method written about more than 100 years later by Leonardo’s friend Luca Pacioli in 1494 giving him the designation as the father of accounting. Even Benjamin Franklin referred to having some of his accounts “certified” before presenting them for reimbursement. I could go on and on because of the exciting history, but my students would probably be more interested in what accounting knowledge can do for them, tomorrow, than what happened yesterday back to the dawn of civilization.
Accounting is the language of business and finance. Money does get invested, committed or taxed without many having an understanding of the underlying activities. Accounting is the means of expressing these activities and financial statements is how the activities are presented. The statements need to be clear, precise in presentation, make sense, be devoid of ambiguity, conform to an accepted format and be self-checking, i.e., balanced, in a prescribed manner. This takes skill and clarity and a keen understanding of how the underlying transactions flowed.
In its simplest sense, a company sells something that it previously purchased raw materials for and added labor to make it into a finished product to deliver to the customer. Where did the cash come from to make the first purchase, or was that purchase made on credit; and was the company capitalized by an investment of its owner or by contributions by part owners who acquired a share in the company with expectations of an eventual profit when they dispose of those shares and possible dividends until then; or by a lender advancing the money with the expectation of earing an appropriate rate of interest until the loan is paid back? This goes on to renting facilities, hiring employees, making the sale after checking the credit of the customer and then being able to ship the product while invoicing the customer and then waiting for the customer to pay the invoice. At the same time, the vendor of the raw materials invoiced its customer and is waiting for payment from them.
Every step mentioned along with many not mentioned is a transaction that needs to be captured in a record book (much of which is now digital) and needs assurances that the entries are timely and accurate and that summaries of the transactions which are presented in financial statements are provided to the right people, at the right time, in the right order and in the right way to assure the right actions if things do not look like the transactions occurred in the right manner.
That is what financial accounting does, and what my students will learn. They will find out how records are made of the entire business process and how the financial statements come to be from those many little steps and transactions that add up to large numbers.
To put this in perspective, think of all the steps that took place before you purchased a container of milk, including going back to the farmer that purchased their first cow. Without an orderly capturing and recording of every transaction, it would be extremely difficult for anyone along the way to know how much they made and owe and are owed. They will know how much cash they have in the bank, but not much anything else. This is what financial accountants do. Regardless of a person’s position in leadership or management, knowing the language of business, i.e. how to read and understand financial statements, is essential to success.
Just writing this for you is getting me excited and I cannot wait for classes to begin on Friday.
As to my teaching at Baruch, it was never on my bucket list, but it is a thrilling opportunity for me, and I am looking forward to helping shape the minds of the bright Baruch students, many of whom will become future leaders in our country, our businesses and not-for-profits. If the accomplishments of previous graduates are any gauge, there is a lot to look forward to and be proud of.
If you have any tax, business, financial, leadership or management issues you want to discuss please do not hesitate to contact me at [email protected].
Read More of the Partners’ Network Blog
