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Hisashi Kawai

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Desired Evolution of the Introductory Bookkeeping Education

Hisashi Kawai
Professor, Faculty of Commerce, Chuo University
Area of Specialization: Accounting Information Systems

From book-centric accounting to computer-based accounting

Accounting practices have evolved from books maneuvers to computer-based accounting. The word bookkeeping originally means procedures to record corporate activities in a set of account books, literally. Account books such as journal and general ledgers, mutually related, derive financial statements. In such a sense, bookkeeping is itself a system of books. After shifting to computer-based accounting, most record-keeping processes in account books after the transaction entry are omitted. In addition, under an advanced IT environment, in transaction processing of core activities (purchase, production, sale), even the journalizing that is indispensable for preparing financial statements are not processed through an accounting division, but rather by using computers. How should the introductory bookkeeping education in the university respond to such evolution of accounting practice?

Function of bookkeeping to include value chain

In the literature entitled Competitive Advantage: Creating and Sustaining Superior Performance in 1985, Michael E. Porter proposed a concept called the value chain. In the concept, core activities of corporations are regarded as chained activities to add values and costs in the flow of each business operation from purchase to sale. The value chain, in those days, attracted much attention as a concept to bring about business innovations such as cross-functional utilization of information, business processes re-engineering (BPR), customer oriented management under the premise of an advanced IT practice.

Even without Porter pointing it out, however, accounting has dealt with the value chain for quite some time. For example, the accounting in the manufacturing industry records a process of transfer of manufacturing cost (the consumption value of resources spent in production) to finished goods in bookkeeping, and finally clarifies the profit (margin) as the balance between such cost and sales amount. The chart of accounts linkage in an introductory text for industrial bookkeeping shows the overview of the value chain of a corporation under the linkage between accounts on the premise of a double-entry system of accounting. The bookkeeping already has a function to include in its structure consecutive operations from the purchase of raw materials to the sale of finished goods as the system of the value chain. While the function of bookkeeping to include the value chain is guaranteed by double-entry and structure of the accounts linkage which are inherent in the system of books, in computer-based accounting, both are established in the internal structure of a database substituting the system of books.

Problems of current introductory bookkeeping education

It is common that introductory bookkeeping education starts with the explanation of a cycle of bookkeeping procedures to prepare financial statements, and ends with the explanation of a series of accounting treatments of basic commercial transactions. By focusing on the association between main books and subsidiary books actively in such introductory education, the intention to cultivate the basic understanding of bookkeeping structure itself centering on the system of books can be attained.

As for the trend, however, there are some problems. Here are just two examples. First, for example, as represented by 3-accounts method to grasp the cost of sales at the closing stage and/or preparation of a working sheet, the methods that are hardly adopted in computer-based accounting, that is, practical business, are at the center of the explanation or the goals. Second, the explanation on which the department in the company is the source of activity of the information recorded in various account books, or information flows and functions are considered as less important. For example, while the relation between customers ledger (subsidiary ledger) and A/R ledger account (controlling accounts) are explained from the viewpoint of account books, there are few references about the sales management function in the sales department and the funds management function in the accounting department with regard to the A/R information.

Those problems come from my question on the current implicit positioning of current introductory bookkeeping education that it is only a first step to the later advanced education in the entire bookkeeping education of which the goal is to train the individuals with the professional expertise necessary to prepare the financial statements. I do not deny the necessity of cultivating advanced abilities for preparing financial statements in the whole bookkeeping education. The problems above can be rationalized only for individuals who have mastered advanced accounting disciplines such as financial accounting, management accounting and auditing. I am concerned that, for students studying accounting disciplines and students who do not major in accounting disciplines or a person engaged in the accounting in a practical business, those problems may invite misunderstandings and confusion.

Contemporary viewpoint of introductory bookkeeping education

In the evolution of the practical business under an advanced IT environment, bookkeeping is not merely for the accounting profession any more. In many scenes of business, the detailed account information reflecting the value chain activity of corporations comprehensively can be provided. In order to achieve the evolution from Introductory Education of the whole bookkeeping to Base Education of the accounting and management, the original completeness should be pursued. Here, I want to suggest the following viewpoints particularly to be reflected in the education of a cycle of bookkeeping procedures.

  • In education for both industry and commercial accounting, we should correlate concrete transactions corresponding to business processes from purchase to sale to the transactions in bookkeeping.
  • We should correlate various account books made in traditional book-centric accounting to the division in charge in the business organization.
  • We should teach the relationship between the business processes and the various account books and increase the awareness of the importance of internal control.
  • In a management function consisting of planning, executing, and controlling the situation, we should teach the role of accounting information grasped and prepared in a series of bookkeeping.
  • We should coordinate the education for computer-based accounting, make much of accounting treatment adopted under computer-based accounting and remove the methods that are not adopted in a practical business.

In order not to draw derisive laughter from the people who learned bookkeeping at universities 20-30 years ago and are active on the front lines of management saying "bookkeeping education at the university has not changed at all since the old days," I want to apply self-discipline while asking what the true practical education is.

Hisashi Kawai
Professor, Faculty of Commerce, Chuo University
Area of Specialization: Accounting Information Systems
Professor Kawai was born in Tokyo in June, 1958.
He graduated from Chuo University Senior High School in March, 1977, and graduated from the Department of Accounting, Faculty of Commerce, Chuo University in March, 1981. After completing the first half of Doctoral Course of the Graduate School of Commerce, Chuo University in March, 1983, he worked as an Assistant Professor at Iwaki Junior College and an Assistant Professor at Takachiho University. He has served on the Faculty of Commerce, Chuo University since April 1996 and assumed the current position.
He is currently Executive Director of the Japanese Association of Management Accounting, Counselor of Chuo University, Secretary General of C-Com.21 (Chuo University Faculty of Commerce Alumnus Society), and Head of the Bicycle Team of Chuo University Physical Education League.
His major recent books and articles include the following.
[Books]
Guide to Computerized Accounting System [Computer Kaikei System Nyumon] (co-authored with Yasuhiro Sakurai, Hiroshi Narita and Satoshi Horiuchi, Soseisha, July, 2010), The Evolution of the Information Strategy and Cost Management [Johoka Senryaku no Shinka to Cost Management] (compiled by Shuji Mizoguchi, Zeimukeiri Kyokai, February, 2008)
[Thesis]
"The Relationship between the Technical Functionality of AIS and Financial Performances - from a View Point of Management Control in the Organization [Kaikei Joho System No Gijutsuteki Kinousei To Zaimugyouseki Tono Kankei - Soshiki Ni Okeru Management Control No Shiten Kara]" (co-authors, Business Research, Chuo University Institute of Business Research, March, 2010), "The Causal Mode of Factors Affecting the Availability of Accounting Information [Kaikei Joho No Katsuyousei Ni Eikyo Wo Oyobosu Shoyoin No Inga Model - Kaikei Joho System No Soshiki Tekigosei To Joho Gijutsu Suijun No Shiten Kara]" (The Journal of Commerce, The Society of Business and Commerce in Chuo University, March, 2009)