Tuesday, February 2, 2010

Should You Teach Debits and Credits?

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I started discussing debits and credits yesterday with my students. I hope to complete the coverage tomorrow.

I know some great teachers who believe that double-entry bookkeeping should not be taught in a financial accounting class. They feel that the focus needs to be solely on understanding the information that is reported. I know other equally great teachers who believe that no person can claim to have taken a basic financial accounting course without some understanding of debits and credits.

When an author sets out to write any textbook, a lot of critical decisions have to be made. For financial accounting, one of the first is: should bookkeeping with its debits, credits, journal entries, and T-accounts be covered? You cannot have it both ways—the topic is either there or it is not. The construction of the rest of the book hinges on how you answer that question.

From my own experience, I believe the use of journal entries (with their ancient system of debits and credits) is an effective way to visualize the impact of a transaction. I readily acknowledge that a person can teach the course successfully without any mention of mechanical record-keeping. However, there are so many times in my own classes where I will say “let’s see if we can figure out what is happening in this case by constructing a journal entry.” And, I find myself saying that most often when the students get stuck trying to understand the event. They don’t need a journal entry to help them understand what accounts change when a receivable is collected. But the exchange of vehicles, for example, or the write off of an uncollectible account appear easier for them “to see” if a journal entry can be set up in debit and credit form.

Publishers often market books as being preparer-based or user-focused. Okay, that is often a type of code for how much time and energy the book spends on the mechanical aspects of accounting. But I think that is the entirely wrong argument. A financial accounting course should be about understanding financial information that is created using US GAAP (or IFRS). If that understanding can be enhanced by some coverage of debits and credits, that is fine by me. I am only interested in aiding my students to understand what the reported numbers mean and how they were derived. For many of them, a few debits and credits can prove helpful.

I can be a perfectly good car owner and not know a thing about how a 6 cylinder engine works. However, I can probably be a better car owner if I do have some knowledge of pistons, plugs, valves, and the other mechanical stuff. An accounting course should not be about debits and credits (I completely agree to that) but they can, I believe, help students understand the effect created by a financial transaction.

What do you think? I'd be interesting in knowing. Jhoyle@richmond.edu

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