Trends

On The Structure of First-Year Accounting

By Belverd E. Needles, Jr.

Many schools wrestle with the structure of their first-year accounting courses. What is the proper balance between financial accounting and managerial accounting? Should you use one book or two books? What are the trends in usage? These are questions that have been around for at least twenty-five years. In my experience, there is no right or wrong approach. My school has used all of the following approaches successfully at different times.

Basically, there are three approaches to the structure of the first-year accounting course:

· Principles of accounting structure, which is approximately 2/3s financial accounting topics and 1/3 managerial accounting topics.

· Split books structure, which uses separate books for financial and managerial accounting topics

· Financial and managerial accounting structure, which uses a single volume that is 1/2 financial accounting topics and 1/2 managerial accounting topics I will examine each approach.

Principles of Accounting (POA) Structure

The POA structure has the longest history, which extends back to the 1920’s, and is based on the sole proprietorship approach. At one point, this structure had almost 100 percent of the market, and despite declines over the past two decades, it still has a sizable share of the total first-year accounting market of about 40 percent. The approach is conceptually easy to understand because the owner’s equity of a sole proprietorship is simpler than that of a corporation. This approach is most appropriate for the small businesses that are usually used as examples. The POA structure patiently builds up from transactions through the accounting cycle to the financial statements, taking up more complex organizations such as partnerships and corporations while progressing through the book. Among the financial accounting chapters are systems-related topics such as special-journals and internal control. The managerial accounting chapters cover key topics and often combine several topics that would receive separate chapters in a managerial accounting text. Depending on their point of view, some instructors view the advantages of this approach as disadvantages. For instance, some instructors want to cover corporations from the beginning of the course because it is the dominant form of business in our society. Others want more focus of financial statements earlier in the book. Still others want more managerial coverage.

Split Books Structure

The split books structure uses a separate book, one on financial accounting and one on managerial accounting, for each semester of the first-year accounting course. Having first appeared in the 1960s, this approach has gained market share over the years and now makes up about 50 percent of the market. There are several advantages to this approach. First, it gives equal weight to financial and managerial accounting topics. Second, it allows faculty to choose a different text for each course. This is especially important when a school has faculty members that specialize in one or the other topic. Third, it uses the corporate form of organization from the beginning. Fourth, there is usually more emphasis on financial statements, the output of accounting, and less on the procedural and systems details. While these are convincing advantages that support the split books structure, there are some significant disadvantages. One is that many faculty members find it difficult to cover financial accounting in one term. A second is that these books may be very different in their pedagogical approach and terminology. A third is that the corporate form of organization is conceptually more difficult for beginning students, especially in the first few chapters. Finally, it is costly for students to buy two books.

Financial and Managerial Accounting (F/M) Structure

An approach that arose in the late 1980s and which is becoming more popular is the financial and managerial accounting structure. This approach, which covers equal portions of financial accounting and managerial accounting topics in a single volume, currently has only about 10-15 percent of the market but is growing in market share. This approach uses a corporate approach in the financial accounting chapters similarly to the split approach. In addition to the advantages of the split approach, it has others. First, with 28 chapters—14 each for financial and managerial accounting—it is a manageable size for both semesters. When two books are used, the number of chapters usually total 30-34 chapters, which are impossible to cover in one year. Second, there is a consistent pedagogical approach across both financial and managerial accounting. Third, and importantly from the students’ point of view, the cost is much less. This approach allows students to purchase a textbook package that offers basically two books for the price of one. The disadvantages of this approach are that some instructors may not consider either the financial or the managerial sections to be comprehensive enough or others may want to have more flexibility on choosing separate books for the two courses.

Conclusion

So which approach is best? Which approach will serve students’ interests best—the more patient sole-proprietorship approach of POA or the more balanced approach of F/M? Each approach has its merits and detractions. Ultimately, the structure of first-year accounting should be based on the needs of a school’s students. From a cost standpoint, the single book approach will be attractive to students. This fact leads me to conclude that the single book approach—whether POA or F/M will continue to be an important part of the market.