If you are as old as me, the chapter title might having you humming the Boyz II Men song ‘End of the Road’ at this point in time. As I write this, it is all that is playing through my head 😊 (and if you have no idea what I’m talking about – it was a chart topping hit in 1992 – here is the official music video on YouTube)
You might be thinking – we are very end of the book! Is this the end of all I need to know about accounting?
Some of you will be continuing on in your accounting journey – and the implications of accounting for business and society in the next textbook – Accounting, Business and Society. For others, this is a temporary rest point while you embark on studies in other areas.
Over the course of this textbook, we’ve covered much ground. Starting with how accounting has developed from ancient times and the role accounting information plays in helping businesses and managers be accountable to their shareholders. We also considered Indigenous business perspectives and I encourage you to consider how to improve your understanding of Indigenous perspectives in your future studies and future work or volunteer roles. There is much that we can gain from having a better understanding of the oldest continuing civilisation in the world.
To be able to analyse accounting information in our roles within business and other organisations, we need to have some basic understanding of the fundamentals around recording transactions. However, we didn’t talk about debits and credits – a notation system for recording our accounting transactions. For those continuing in their accounting study journey, you’ll be learning how to overlay the notions of debits and credits over our current understanding of transactions as affecting our assets, liabilities and owners equity (remember our accounting equation?).
For those venturing into the operational aspects of business – an understanding of the systems of internal controls wherever you work or volunteer is going to be important. Protecting the assets and equity of shareholders is critical and we can partially do that through systems of internal controls – by understanding our business environment, identifying risks to achieving business objectives and implementing internal controls to try and mitigate those risks. We also need to ensure that we are gathering data about these transactions and events in our information systems so that we can monitor our risks and internal control activities. Without strong internal controls, there is no assurance that the data we collect in our information systems will be accurate, and that means when we aggregate our data in our financial statements – the information presented to shareholders may not be correct! This could result in sub-optimal decision making. For larger companies – audits of the financial statements are undertaken to ensure that the financial statements (the income statement, balance sheet, statement of changes in owners equity and cash flow statement) are correct.
We also learned that there are many users of these financial statements and annual reports, from the investors/shareholders that they were designed for, to regulators, suppliers, lenders and customers – even the general community may find useful information within annual reports for decision making. From the investment perspective, we learned about different forms of financial statement analysis – looking at trends over time and various ratios to identify any potential issues or help forecast future performance.
After understanding the fundamentals of recording, summarising and then presenting financial information – we turned inwards to look at decision making made by management and those working within a business. As part of executing the three responsibilities of management (planning, control and evaluation) we covered a range of ways in which accounting information helps support those management functions. Break even and cost volume profit analysis can help businesses starting out – figuring out what it is going to take to become a viable and successful business. Budgets use standard prices and costs to help the business plan over a slightly longer horizon – looking forward a months, quarters or years to try and forecast how the business will perform. Once we’ve been in business and engaged in transactions, we can use the recorded accounting transactions to help us evaluate our performance. This is called variance analysis and is an instance in which we integrated our management and financial accounting to provide accountability. Did we earn as much revenue as we expected? How much we did we spend on materials and labour? Was this more than our budget? And importantly – whose responsibility are these fluctuations and how can we investigate them?
We then wrapped up our management decision making focus with sticky short term decisions – should we accept a special order from a customer? Is it cheaper to make or buy a product or component? How do we know when to drop a poorly performing product or part of the business? And how do we make all of these decisions when we only have limited resources to deal with? We learned that we need to identify which costs are relevant, which are avoidable or unavoidable and how opportunity costs can come into play in these decisions.
In all of these topics – we needed to have an understanding of the fundamental relationship within accounting – that our assets equal our liabilities plus our equity. Even if you may never go on to BE an accountant (and of course, I encourage you all to further pursue your accounting studies – whether that be in a major, or a sub major or even just a single elective) – knowing HOW accountants and accounting information systems pull together the reports you will use in decision makings in your business experiences is important. It helps you to become a better decision maker, to know when you question your accountant(s) and to ask the right questions to help you get the information you need to make the best decisions at that point in time. The knowledge and skills we’ve learned can also impact your personal life – whether that be creating a budget to help you save for something large (a car, holiday or deposit on your dream apartment or house), analysing your spending against your budget to see where all your pay is going, or deciding whether your side hustle weekend business could scale up to be a real full time role for you. As I’ve said to my students in class many times – a budget is my saviour and I’ve been budgeting my cash inflows and outflows in Excel for over twenty years now! When my husband lost his job, within 15 minutes, I’d figured out how many months we could survive on our savings (seven months), identified avoidable costs (we cut back on our mobile phone plans, eating out, buying new clothes and shoes etc) and could forecast our cash position over the next twelve months. My excel spreadsheet allowed us to ask “what if” he stayed at home and looked after our 3yo full time, or went to part-time work, or could we afford to send him back to university for a Masters program to help him get a new job.
For those considering a career in accounting – remember that there are many types of accountants in every industry imaginable working in every way imaginable. Full time, part time, freelance – from an office or dialling in remotely. You could be the accountant for the stage production Hamilto, start your own fintech enterprise or use your accounting information to take your love of burgers to TikTok stardom, a successful food truck and brand deals with Masterfoods and KFC! These are not just dreams, but real life examples of the careers my former students are out there living.
So while we come to the end of the this textbook and our journey into introductory accounting – know that accounting will always be here for you. The skills and knowledge you’ve learned will always be there – no matter what career paths you take or your personal situation – just waiting for integration into your decision making ❤️