Open AccessAn Experiment Of Student Understanding Of Accruals Versus Cash Flows
Author(s) -
Jose Miranda-Lopez,
Linda M. Nichols
Publication year - 2007
Publication title -
journal of college teaching and learning/journal of college teaching and learning
Language(s) - English
Resource type - Journals
eISSN - 2157-894X
pISSN - 1544-0389
DOI - 10.19030/tlc.v4i4.1616
Subject(s) - accrual , depreciation (economics) , cash flow , accounting , earnings , cash flow statement , economics , cash flow forecasting , operating cash flow , business , order (exchange) , actuarial science , finance , microeconomics , profit (economics) , financial capital , capital formation
The concepts of both accrual accounting and cash basis accounting need to be thoroughly understood by accounting graduates as they enter the workplace. In making decisions, both managers and investors often may need to make adjustments from one basis to the other. But do students really understand these concepts? This study uses an experimental approach to determine if students in both the U.S. and Mexico understand the association between accrual and cash flow numbers in the area of depreciation. The results reveal that the majority of student participants in both countries do not understand the relationship between depreciation and cash flows. This suggests that the way depreciation is taught in intermediate accounting may need to be approached differently in order for students to understand the nature of depreciation and its effect on earnings and cash flows.