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In my financial accounting class yesterday, we introduced accounts receivable. We walked through bad debts, the allowance for doubtful accounts, recording the estimation, and the like. It went extremely well; the class seemed to catch on to the concepts. They had what I call “head nodding disease;” for everything we talked about, they nodded their heads in agreement and understanding. That always scares me to death.
I think the learning process often breaks down at certain critical times. If you want to improve a student’s performance, you have to identify and attack those points. Right after class is one of the most critical.
Students frequently complain that they knew the material until they took the test and, then, almost by magic, their understanding vanished. I refer to that (even to them) as “jello knowledge.” Jello knowledge looks solid but if you try to build on it, the level of understanding proves to be squishy and unstable.
Even under the best of circumstances, students leave most classes with nothing more than jello knowledge. Things looked clear and simple to them in class so they assume they have a solid understanding. Yesterday, my students really seemed to believe they knew how to account for accounts receivable. Unfortunately, that is often just an illusion. In reality, during most classes, they kind of see how everything fits together. They know enough to be guided by a teacher through the topic but they don’t know enough to do it themselves. That is a big difference.
They have to learn enough to be able to do it themselves.
I tell my students that the most important period in their learning is the few hours immediately after class. They walk away with jello knowledge. If nothing further happens, even that understanding will quickly become less stable. However, if they take proper action, that jello can become rock solid understanding.
I push them to go back through their notes immediately after class and organize everything. They are looking for holes where their understanding is weak. I also suggest that they try to come up with 5-10 questions to summarize what we did in class. Despite its reputation, accounting is often more verbal than numerical and I want them to understand that verbal side: Why is an allowance for doubtful accounts necessary? Is bad debt expense recognized when the sale is made or when the uncollectible account is discovered? What balances are affected when an account is judged to be uncollectible? Creating verbal answers to basic questions is a great way to gain solid understanding.
Finally, I often send my students a problem immediately after class with the admonition: “work this one immediately. Don’t wait; do it right NOW. If you can get my answers, then you probably have today’s class under control. If you cannot, then you have some work left to be done to get your knowledge solidified.”
(I often get the response: "well, I thought I knew this until I tried that email problem you sent.)
So, about 30 minutes after class yesterday, I sent the following problem out by email. What I want is for them to take the time, before the jello knowledge gets squishy, to use this problem to truly gain a solid understanding of what we covered.
Email to my students:
(1) - Let’s assume you produce financial statements at the end of 2009 and report Sales of $600,000, bad debt expense of $24,000, accounts receivable of $400,000, and the allowance for doubtful accounts of $28,000 (a credit balance).
In 2010, you make credit sales of $800,000. You make cash collections of $500,000. You discover that accounts of $31,000 actually prove to be uncollectible.
You are getting ready to make financial statements at the end of 2010. You estimate that 4 percent of credit sales will prove uncollectible. On your balance sheet, what is the allowance for doubtful accounts?
Okay, if you really followed and understood what we covered today in class, then I think you should be able to get this answer. It is: the allowance for doubtful accounts will be reported as $29,000. If you cannot get that with a reasonable amount of effort, come see me.
(2) – Do problem (1) again. Leave everything exactly the same except assume that you estimate that 7 percent of the ending receivables will prove to be bad. On the 2010 financial statements, what is reported as bad debt expense?
We did not get this second approach finished in class today but if you read the book carefully, you can figure it out. If you do, the bad debt expense will be $49,830. If you cannot get this, wait until after class on Monday and try again. If it still doesn’t work, see me.