Communicator
Teaching Students to Conceptualize Rather than Memorize

INSIDE

Message From the Chair

Why Accounting May Not Survive in the Future

John Ribezzo Receives Lifetime Achievement in Accounting Education Award

Two-Year Sessions at the Annual Meeting

Janet Cassagio Selected as Educator of the Year

Megatrends in Financial Accounting


Why We Need Student Accounting Clubs at the Two-Year Colleges

List of Officers and Regional Representatives

McGraw-Hill/Irwin: Accounting Software Teaching Tips

Prentice Hall Accounting Connection

by:
Cindy D. Edmonds
The University of Alabama at Birmingham

Thomas P. Edmonds
The University of Alabama at Birmingham

Elizabeth Mulig
Louisiana State University in Shreveport

How serious is the need for change in accounting education? To answer this question we look to the results of a recent study sponsored by the Institute of Management Accountants, the American Institute of Certified Public Accountants, the American Accounting Association, and the Big 5 professional services firms. The authors of that study concluded that “the time for change ‘just to be better’ is past. We must now transform our educational programs merely to survive.” One further conclusion reached by the authors is that “our rule-based, memorization, test-for-content … educational model … does not prepare students for the ambiguous business world they will encounter upon graduation.”1 There are many things that instructors can do to promote meaningful understanding over rote memorization and thereby better prepare their students for the real world. As one example, this paper advocates the use of an “events classification scheme” that encourages students to conceptualize rather than memorize.

An Events Classification Scheme
One highly effective way to teach students to conceptualize is to show them how to classify transactions into four categories. All double-entry business transactions can be classified as (1) asset source, (2) asset use, (3) asset exchange, or (4) claims exchange. A definition of each category and some example transactions are discussed below. While the list of examples is not exhaustive, it should be sufficient to demonstrate the all-inclusive nature of the categories. The definitions are based on the accounting equation, Assets=Claims, where claims includes liabilities plus equity.

  • Asset Source Transactions result in an increase in an asset account and an increase in a claims account. Examples include acquiring cash from owners, borrowing money from a bank, earning cash revenue or revenue on account, and purchasing inventory, supplies, or other assets on account.
  • Asset Use Transactions result in a decrease in an asset account and a decrease in a claims account. Examples include paying cash dividends to owners, paying off debt, recognizing depreciation expense, paying cash expenses, and writing down assets to market value.
  • Asset Exchange Transactions result in a decrease in one asset account and an increase in another asset account. Examples include the cash purchase of inventory, supplies, or other assets, the collection of accounts receivable, and trading physical assets such as a truck for a car.
  • Claims Exchange Transactions result in a decrease in one claims account and an increase in another claims account. Examples include the recognition of accrued expenses such as salaries and interest, the recognition of unearned revenue, and stock dividends.

The Long-Term Learning Goal
The classification scheme should be emphasized on a consistent basis throughout the entire course. Every time a transaction is introduced, ask the class to identify it as an asset source, use, exchange, or a claims exchange event. Instead of memorizing, students will develop the ability to classify and to think. Ultimately, students will be able to comprehend the effects of events that are totally unfamiliar to them.

Motivating Students with Exam Questions
Is it going to be on the test? If it is not, you can rest assured that the vast majority of your students will ignore it. To ensure that your students are motivated to learn the classification scheme, put it on your tests. Five example test questions are shown below.

1. Earning revenue on account would be classified as what kind of transaction?

a. asset source
b. asset use
c. claims exchange
d. claims decrease

2. STU Company experienced an accounting event that affected its financial statements as indicated below:

Question 2

Question 2

Question 2

This event can be classified as:

a. an asset source transaction
b. an asset use transaction
c. an asset exchange transaction
d. a claims exchange transaction

3. ABC Company experienced an accounting event that is recorded in the following T-accounts: Salaries Expense Salaries Payable 5,000 5,000 This event can be classified as:

a. an asset source transaction
b. an asset use transaction
c. an asset exchange transaction
d. a claims exchange transaction

4. A company using the perpetual inventory method paid $200 cash to have goods delivered from one of its suppliers. The payment of $200 for transportation-in is considered: a. an asset source transaction b. an asset use transaction c. an asset exchange transaction d. a claims exchange transaction

5. Which of the following is a claims exchange transaction?

a. the purchase of treasury stock
b. issue of preferred stock for cash
c. the recognition of a declared cash dividend
d. all of the above

These questions demonstrate the universal application of the events classification scheme. Similar questions could be developed for virtually any financial accounting topic that relates to how business events affect the accounting equation. Accordingly, the classification scheme represents a way of thinking that should be stressed throughout the introductory accounting course and beyond. It is a part of an overall teaching strategy that encourages students to conceptualize rather than memorize.

Additional test questions and further information about the “events classification scheme” can be obtained by contacting Tom Edmonds at tedmonds@uab.edu or (205) 967-2344.

1 W. Steve Albrecht and Robert J. Sack, Accounting Education: Charting the Course through a Perilous Future, Accounting Education Series, Volume No. 16, American Accounting Association, August 2000.


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This page was updated December 1, 2000, by the American Accounting Association