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Working capital is a widely used but often misunderstood term. To teach it well, the term needs careful scrutiny. The problem starts, as it usually does, with language. “Working” isn’t helpful—we don’t have non-working capital, but working capital suggests that it works and the rest of capital doesn’t. “Capital” is ambiguous and slippery—if you hear… Continue reading Working capital is widely misunderstood
The battle to remove "prepayments" from accounting vocabulary is probably not winnable, but we can help our students by being clear about how we describe them.
Goodwill represents those ‘unidentified flying assets’ that can't be individually identified. Goodwill is one of those slippery concepts that accounting students can find confusing. Accounting for goodwill brings the student in front of a number of difficult questions and misconceptions in accounting, such as the nature of an asset and the different accounting treatment of… Continue reading Goodwill explained in three words
With gratitude to Paul Jennings for this clever idea. Some students find it difficult to appreciate that assets are rights, not things in and of themselves. I used to tell students that in the old days we put motor vehicles on balance sheets but they kept falling off. It didn't get many laughs. My friend… Continue reading Assets are rights