The Order of Teaching Accounting Topics-Why Do Most Textbooks End with the Beginning?

Abstract

This paper discuss the structure of teaching broad introductory courses in accounting and finance. I propose making cash flows the central theme in such a course: take investment appraisal as the starting point, which demonstrates the need for financing, which creates the need to report regarding separate periods (thereby creating the need for non-cash flow elements such as revenues, capitalization, depreciation, and provisions) and subsequently zooming-in on the sources of profit and loss. The sequence of topics in accounting textbooks is investigated, as a proxy for how introductory courses are taught. Results show that the proposed order would be very unusual, because investment appraisal is typically one of the final chapters.

Keywords:

• Cash flows
• introductory accounting
• survey of textbooks

Notes

1. NPV = 0, and either the corresponding discount rate or the corresponding project horizon are determined. IRR and NPV, however, may lead to conflicting prioritisation of projects. See Keef and Roush (2001) for a discussion and review of the literature.

2. The cash flow pattern might also be a natural starting point to talk about phases of projects. Some projects can be structured somewhat like options: projects that can be abandoned after an initial phase if it becomes clear that things will not go well and before the firm must commit itself to making major financial outlays (e.g. Van Putten and MacMillan, 2004). However, the topic of real options typically goes too far for introductory courses.

3. The implementation of capital budgeting techniques in organizations involves, of course, many more issues than can be mentioned here (e.g. Boquist et al., 1998).

4. For example, Drury (2004, p. 323) discusses an example on the replacement of a machine in Chapter 9 on decisions, and this example concerns a decision with a multi-period impact. However, because this chapter precedes the chapter on investment appraisal, it is difficult to explain the fundamental point that differential cash flows are compared. In addition, the time value of these cash flows must be ignored in this example, and a reference is made to the later Chapter 13 on investment analysis.