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In returning to teaching transaction processing, I have been struck by the unnecessary complications created by the variety of way appropriation transactions are recorded depending on the legal structure of the entity.

In proposing a reduction in these complications, I am assuming two points:

Most accountants who are involved in the recording of transactions will be working for companies

Pedagogy must overrule practicality when teaching

The key area of confusion is the accounting for distributions to owners:

In sole traders, the drawings account is closed to capital

In partnerships, each partner’s drawings account is closed to their current account

In companies, the dividends account is closed to retained earnings

While there may be some merit in retaining the terminological distinction between drawings and dividends, I can see no merit in using different closing entries. All entities could close their appropriation accounts to retained earnings; albeit in the case of partnerships, each partner would need a separate retained earnings account.

The texts I am using to teach transaction processing complicate matters by the way they name some accounts. I’m not going to incite a defamation suit by naming the texts.

My pet hates are:

Using the word “revenue” in a liability account or the word “expense” in an asset account

Not clearly indicating the classification in the account name

First, “unearned sales revenue” is a liability account; “sales revenue” is a revenue account. How is a first-year student meant to recognise the difference? Similarly, “prepaid insurance expense” is an asset account while “insurance expense” is an expense account.

This source of confusion can be overcome easily by adopting some simple rules:

Never using the word “revenue” in an account name unless it is a revenue account.

Never using the word “expense” in an account name unless it is an expense account.

“Unearned sales revenue” could be called “deposits received”; “prepaid insurance expense” could be called “prepaid insurance”.

A related gripe which, fortunately, seems to have disappeared from modern texts is using the term “provision” in the name of contra-asset accounts. The term “provision” now seems to be restricted to liability accounts which is the way it should be.

Second, some account names fail to indicate the classification of the account. For example, an account named “supplies” could be either an asset or an expense account. While I can determine which it is from context, a first-year student is likely to struggle to make this determination. This problem can be overcome by including the classification in the account name when there is any ambiguity; this means the account would be named “supplies asset” or “supplies expense”.

Some may argue that the account names which are used in the texts are the account names commonly used in practice. This may well be so. However, when writing texts, pedagogy must always overrule practicality.

I hope some textbook authors, editors and publishers are reading this.

For the first time in many years I am back teaching basic transaction processing. The last time I taught this material was 1991. I am only conducting tutorials in this introductory subject so I have no control over the subject matter covered, the textbook used or the order in which it is taught.

I started conducting the tutorials the same way I had done them 20 years ago; having each student tell me how to record one transaction and writing that transaction on the whiteboard. When I did this 20 years ago, the classrooms were equipped with chalkboards and most rooms had at least 6 square meters of chalkboard. In the intervening time, the university has replaced all its chalkboards with whiteboards and, when doing so, reduced the board size to about 2 square meters. To complicate matters, many of the rooms have fixed lecterns which block about half of the whiteboard from most students’ view.

To overcome the problem with the boards, I have started showing the general journal entries on a computer connected to a data projector. I am using Excel to do this. To streamline the process and to correct my error-prone typing, I have recorded all of the account names on a worksheet hidden from students’ view. I have named the cells on this hidden sheets with abbreviations of the account name. For example, the cell containing “Accounts Receivable” is named “ar”. So, to get “Accounts Receivable” to appear in a cell in the general journal sheet, I enter “=ar” into the cell in which I want the account name to appear.

This method appears to be working well; speeding the recording process which allows me to allocate more time to the conceptual issues which are to be covered in the tutorial.

I am still getting each student to tell me how to record each transaction. This allows me to identify the students who are having difficulty with the subject matter and help them with their difficulties.

I have been using my MacBookAir to display the entries rather than the Windows computer built into the lectern. I find the new touchpad navigation functions in OS X Lion make it easier to use than using a Windows mouse.