Warning: Pure accounting gibberish
Today i had an eye opening experience during my Accounting Theory (AT) class. To me AT feels like a combi of history, literature and philosophy of accounting. I'm still rather confused over the course, so whatever i say may be totally off.
Prof JJ tried to get us to SEE how the economic/financial exchanges (transactions- the inputs) gets 'transformed' into behind financial statements (the output) via accounting standards (e.g. GAAP). Without understanding this transformation, all attempts at understanding the output (the FS) is rather pointless.
He also tried to free us from our "accounting diapers" days when we learnt that Assets = Liab + Equities. Whereby the reality is simply an entity gives up something, in exchange for something. Thus a Debit entry is equivalant to Credit entry. Note, its not EQUAL, but
equivalant. Haha. Only a fool would exchage for something that is EXACTLY the same.
Futhermore, i also get to see that our financial statements are prepared primarily for the owners of capital, be it debt or equity. And a primary emphasis has been placed on equity owners. Thus we always have Net Profit as the last line on our Income Statement. What more, Net profit is seen as a EXPENSE to the entity. Has the prof committed heresy in accounting? However upon further thinking, it does seem like net profit is simply like a form of undistributed future payment to the equity owners in exchage for the services of his capital. In this sense, isn't net profit somewhat like interest expense. And if interest expense is an EXPENSE, then isn't net profit an EXPENSE to the entity too?
The prof even managed to link up Heisenberg's Uncertainty Principle with accounting. The uncertainty priciple states that we can either measure the momentum or position of particle, but never both with 100% precision. Prof suggested that we can see the Income statement as momentum and b/s as position. We can't measure both with 100% precision.
Moreover, the reason we can 'close off'' the income statement to balance sheet at the end of the accounting period is that we added artificial feature to the concept. Net income is actually Net income per year, we multiply Net income/year with 1 year to "make" net income part of retained earnings....very interesting concept, but i never thought of it that way.
I was saddened when i hear a girl commented that Prof GAN (my accouting 101 prof) powerpoint slides was incomprehensible, thus she COULDN'T do well in financial accounting. What nonsense! The professor's slides is meant to facilitate his in class teachings, not meant as a mugging guide. University students should know better than to rely only on 'prof's slides. But to supplement it with textbook and other resources readings, in class discussion and discussion with friends. It is OUR responsibility to be educated. Our profs are there to facilitate our learnings, not to spoonfeed us.
Seriously, GROW UP.
