Getting Off To A Good Start

I held my first Financial Accounting class of the semester today. My classes are 50 minutes long and half of that time must be used up on the first day going through the course outline to make sure everyone knows the mechanical stuff. Consequently, we only got in about 25 minutes of real accounting today.

When I started discussing financial accounting, I opened with the following question: “I was listening to National Public Radio yesterday morning and some expert made the assertion ‘I think 2010 will be a great year for Apple.’ On hearing this, I said to myself ‘now, that is really interesting’ and started to smile.” Why would such an innocuous statement have any effect on me at all?”

Because I had sent out information from the textbook 2-3 weeks ahead, I wasn’t surprised that the first student asserted: “you will start thinking about the possibility of buying some of the ownership shares of Apple so that you can benefit from the company’s upcoming good year?”

That lead to a quick discussion of what is meant by “ownership shares.” Students hear about the stock market everyday on the news and this helps them realize what is happening. They are getting connected to the real world.

After that, I asked why I would possibly want to buy ownership shares and both stock price appreciation and dividends were quickly brought up.

My goal here was to convince the students (whether they were majoring in art history, religion, psychology, or the like) that this material had some benefit to them. I try to avoid: “learn this because it is going to be on the test.” They all realize that they may have to do some investing one day (especially if they plan to retire) so they can see themselves actually having to choose between buying shares of Apple or Google (another company that was being discussed on NPR). They would like to be able to make good decisions.

Then, I went to what I thought was the essential question of the day: “Do you think that I rushed out this morning and spent a lot of my money buying shares of Apple based solely on one sentence that I heard on the radio.”

Again, the students understood that wasn’t going to happen and one responded: “Of course not, you probably went to the company’s web site and got more information.” (In their first group of assignments, I had sent them to Kroger’s website and directed them just to look at the financial information so they could see what was actually there.)

Ah – INFORMATION. That was my goal—to get that topic on the table. But before I delved into that with them, I let them know that accounting deals with monetary information. If I don’t, they will start talking about the number of employees or the size of an iPhone. They quickly figure out that the reported information is stated in dollars.

So, I asked them: what information would I like to know about Apple that can be stated in dollars? I got several good responses:
--How much Apple sold?
--What the inventory cost Apple to get?
--How much cash Apple was able to generate?

What monetary information can be conveyed? What information would be helpful?

We finished off the day talking about why accounting information is not always exact, correct, accurate or the like. Most of these students think accountants are “bean-counters” and I want them to get away from that notion on Day One. No one wants to be a bean-counter. So, I pose this question, “you do something and you get sued for $1 million and you think it is probable that you’ll lose (in a couple of years when the case is settled) between $300,000 and $600,000 but it is reasonably possible that you’ll lose $800,000. In your financial information, you report one number. What is the goal of that reporting?”

This is an example they can understand and they immediately realize they have a problem. Clearly, no one reported number is going to be accurate, correct, or exact. So, what is it going to be? What is the goal of the reporting?

That will be the bridge that I use to get to our second class.

Ownership shares, stock prices, dividends, information, monetary information, the goal for reported numbers. I hope that I have planted the seed that this material is worth the effort it will take to come to understand it.