Accounting is not just bean counting

A large (approximately 8 feet in height) example of fei (or Rai) stone in the Yapese village of Gachpar
This isn’t the kind of money you can bend down to pick up. Fei stones. Image © Wikipedia, CC BY-SA 3.0, Original file

This is a brief introduction to the nature of money and its relationship with accounting. It’s not comprehensive, but it’s a fun way to introduce accounting to a new audience: ice-breakers, introductory sessions, or school talks. It makes learners think more carefully about money and differently about accounting.


Accounting isn’t just about counting beans— it makes them too. It may be hard to believe, but real money is created with a nifty bit of double-entry bookkeeping. To understand how this works we need a close look at those beans—the money.

Banknotes and coins are money but physicality is not the defining feature of money. This is clear from the “invisible money” that we use every day hiding in our plastic cards, mobile phones and computers.

Invisible money is not a recent phenomenon. The history of civilisation is scattered with examples of economies flourishing without physical money. For example, the Pacific island of Yap, which was largely isolated from the rest of the world until the late nineteenth century, used giant immovable “fei” stones to support a credit economy. John Maynard Keynes described its ideas about currency as “more truly philosophical than those of any other country” [1].

It’s difficult to say how much invisible money exists, not just because it changes all the time, but definitions are hard to pin down—just ask an economist. Or an accountant. Or yourself. Would you include cryptocurrencies [2], long term deposits, short term government bonds? Whatever the definition, banknotes and coins are likely to make up less than 10% of the world’s money supply.

The defining feature of all invisible money is that it exists only as a balance—a record in an accounting system. Whether it’s on a screen or on paper is not what matters—money is, in essence, no more than a mark of a promise.

An example will make this clearer.

Yana wants to buy a car but doesn’t have enough cash. She thinks that a bank might have some, so she asks Big Bank for £1,000.
The bank agrees and Yana signs a loan agreement after which £1,000 magically appears in her current account. She now has £1,000 more cash, and an obligation of £1,000 to the bank. In her accounting records, assets and liabilities both increase by the same amount.

The bank’s accounting records are even more interesting, because this is where the magic happens—well, the conjuring trick— because the bank doesn’t go to its cash cupboard in order to stuff Yana’s pockets with money. It makes an accounting entry. And that’s it—the money appears from nowhere.

Here’s the loan to Yana from the bank’s point of view. Yana’s obligation—the loan—is recoverable by the bank, so it’s valuable. It’s an asset. Big Bank’s asset is Yana’s liability.

The increase of £1,000 in Yana’s current account is in liabilities—it’s the £1,000 that Big Bank has agreed to make available to Yana. Yana’s asset is Big Bank’s liability.

The bank has created cash (and the loan) using double-entry bookkeeping. It really is that simple: Yana owes us, so we owe Yana—boom!—£1,000 is now in the economy that wasn’t there before.

Don’t be fooled into thinking that anybody can do this [2]. It only works because we all believe that the balance on Yana’s current account is cash. Because we believe, Yana can easily transfer that balance to someone else, or go to an ATM to withdraw the balance as physical money.

Being able, at will, to convert invisible money into physical money maintains our belief in the magic, but this, to some extent, is also illusory. The banking system will collapse if everybody simultaneously goes to the banks to convert their current account balances into cash — there’s not enough physical cash in the world for that.

Governments understand that our trust in money and the banking system are important threads that hold the fabric of society together, which is why they do almost anything — as they did in 2007/08 — to keep the banking system functioning.


Resources

The Bank of England has published a series of articles and videos that deal with this topic in a broader context:


Notes and further reading

[1] I recommend Felix Martin’s Money: the unauthorised biography (Bodley Head, London 2013). In fact, Martin’s book is a wonderfully readable treatise on money as an accounting mechanism. 

[2] In the absence of an accounting standard for cryptocurrencies, the existing standards are applied. Cryptocurrencies fail the definiton of cash equivalents under IAS 7 Statement of Cash Flows. Neither are they financial instruments under IFRS 9 Financial Instruments. This leaves them, for the time being, under IAS 38 Intangible Assets. [For a more detailed explanation, see this ACCA Technical Article: Accounting for cryptocurrencies.

[3] Although lots of people did exactly this during the Irish banking crisis of 1970 when the banks closed and people were forced to exchange personal IOUs in the absence of the cash and bank clearing. Again, see Money: the unauthorised biography by Felix Martin for the full story.

[4] This isn’t any more real than a bank balance. In the UK, all banknotes issued by the Bank of England make this declaration “I promise to pay the bearer on demand the sum of £X”. This dates from a time when the person holding the note could exchange it for gold of the same value. Sadly, you can no longer do this. You can only exchange your banknote for other banknotes of the same face value. That is, you can swap one paper promise for another paper promise.

New to teaching accounting?

This course is for you if you’re new to teaching accounting in higher education, or are perhaps considering a career move to accounting education.

It’s designed to provide friendly support and to help you take the next steps in building your career, improve your teaching and engaege your students. The course is packed with advice, tips, tricks, and resources from a experienced academics and practitioners.

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Toby York and Paul Jennings discuss the Accounting Cafe course New To Teaching Accounting

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From unrequited love to sleeping with the enemy

This Accounting Cafe online seminar on 25 March 2022 explored the future relationship between universities and the professional accounting bodies.

Our guests argued that to protect the future of accounting education a new social partnership is necessary between universities and the professional accounting bodies.

A significant problem is the current accreditation system which constrains accounting academics, risks academic freedoms and suppresses innovations in teaching, learning and assessment.

They claimed that university programmes dominated by professional development learning outcomes deprive students from obtaining essential critical skills better suited to employment opportunities and their future careers.

Their conclusion is that academia and the professional accounting bodies cannot survive without each other, but both must be willing to answer difficult questions and accept constructive criticism.

Their paper, From unrequited love to sleeping with the enemy: COVID-19 and the future relationship between UK universities and professional accounting bodies was published in the Accounting Research Journal in October 2021.

This was interesting session with wide-ranging views from academics, professional accounting bodies and students.

Presentation: Umair Riaz, Mo Al Mahameed and Lara Gee
Discussion

Seminar hosted by:

  • Dr Muhammad Al Mahameed, Assistant Professor in Managerial Economics and Management Accounting at Copenhagen Business School Muhammad and Visiting Assistant Professor at College of Business Administration at the University of Sharjah, having previously been a lecturer in Accounting, Sustainability and Entrepreneurship in the Department of Accounting at Aston University. Before that he worked in investment banking, auditing and accounting firms in the UK and Syria. Muhammad is currently leading the ‘RWAD’ project, which is primarily designed to supply the disadvantaged Entrepreneurs with financial and analytical skills.
  • Lara Gee, Associate Dean Post Graduate Studies for the College of Business and Social Sciences at Aston University, Birmingham. Lara has worked in professional training and higher education for the past 15 years and specialises in taxation, audit and accounting. Previously she has worked in audit for PwC and The Audit Commission.
  • Dr Umair Riaz, Lecturer in Accounting at Aston University.

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Paper: From unrequited love to sleeping with the enemy:
COVID-19 and the future relationship between UK universities and professional accounting bodies

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Innovations in accounting education

Accounting Cafe online seminar on 17 February 2022

This Accounting Cafe seminar was hosted by Susan Smith, an innovative and prize-winning accounting educator and Associate Dean at University of Sussex Business School.

Here are 50 minutes of ideas and practical suggestions to help you to deliver innovative accounting teaching, learning and assessment. This is followed by an informal discussion and experiences from other enthusiastic accounting educators from across the world.

00:00Introduction
02:51Policy and external influences
04:00Accounting curriculum tensions
12:45Homogenisation of the accounting curriculum?
13:29The purpose of innovation
14:41Active learning pedagogies
    — 16:16    — Team based learning
    — 20:53    — Problem based learning
        – 22:24        – Case method
        – 27:55        – Simulations
        – 29:41        – Simulations: gamification
        – 32:08         – Role play
    — 33:29    — Service learning
    — 44:39    — Summary
45:07Pedagogical lens
    — 45:18    — Phenomenon based learning
    — 46:11    — Storytelling
    — 47:52    — Cross cultural learning
49:48Assessment
53:52Discussion

Before introducing changes

Susan ackowledges that innovating can be overwhelming and is certainly effortful, so she advises not to innovate simply for the sake of change. Rather, set out clear reasons for innovating and determine what success looks.

Good reasons to innovate include embedding employability skills, or implementing measures to narrow awarding gaps across ethnicities and social inequalities, to increase student retention, to maintain learning outcomes and/or contribute to the university’s other strategic goals.

An additional complication might be that your modules qualify for professional accreditation and must therefore meet syllabus prescriptions to maximise available exemptions and, at the same time, you want your teaching to be distinctive.

Oh, and be sure to enhance student experience while you’re at it!

Active learning

Active learning provides great opportunities for academics to build expertise in specific teaching areas, but the overarching aim is to engage students productively, and research shows that this can benefit all students (Freeman et al, 2014).

Active learning can be interpretated in different ways and covers a broad range of pedagogies. This article provides a small sample of possibilities.

Team based learning

Students are put into small groups which remain in place for the entirety of the module. Before coming to class, each student undertakes individual preparation and completes an Individual Readiness Assurance Test (IRAT) consisting of short answer or multiple choice questions. They then review their answers to those questions in their groups during which they negotiate and submit agreed answers to the same questions: the Team Readiness Assurance Test (TRAT).

Answers provided in the IRAT and TRAT are reviewed by the teacher and class time is used to fill in knowledge gaps and using exercises to apply and extend learning.

Team based learning is widely used across different insitutions which has been shown to reduce awarding gaps and helps to promote collabortion and engagement. Effective implementation requires careful planning and consideration. It requires a lot of upfront work and to be effective must be implemented throughout the module. Research indicates that team based learning improves students’ academic performance, reduces some achievement gaps, and enriches the learning experience (Cagliesi & Ghanei, 2022).

More information: Team-Based Learning Collaborative (TBLC)

Problem based learning

Problem based learning is an umbrella term used to refer to case method, role play and simulations. It develops critical thinking, problem solving and communication skills. It also supports embedded employability skills.

The problem might be a current news stor or a teacher created problem. To be effective it must engage and motivate students to seek out a deeper understanding of concepts. The problem should require students to make reasoned decisions and to defend them and incorporate the content objectives in such a way as to connect it to previous knowledge.

1. Case method

Cases describe real-world scenarios often centred around a specific problem challenge or dilemma. The case method provides an opportunity for students to consider and apply concepts in a practical context. Faculty members with experience or connections with the profession or industry can write their own cases which may also be submitted for publication, for example, Issues in Accounting Education and Accounting Perspectives.

It may be more effective if embedded throughout the module but can also be adopted on an ad hoc basis.

Capstone assessments allow students to demonstrate attainment of learning outcomes over multiple modules (or even an entire year of study) in a single assessment. A case study can provide an excellent foundation for this type of assessment.

There is a lot of support for teachers looking to adopt the case method. The Case Centre provides resources, training and scholarships for new teachers to case teaching. Published cases also attract royalties.

More information: The Case Centre

The Case Centre: scholarships

Harvard Business Review (webinars)

The Case Journal

2. Simulations

Simulations allows students to practice decision-making in a ‘safe’ environment and requires them to focus on specific learning points.

There aren’t many simulations available for accounting and most of those are “off the shelf”, so may not be suitable. There is a cost consideration too.

A specific type of simulation is games based learning (or gamification):

  • Monopoly has been used to help students prepare for an accounting exam (Bergner & Brooks, 2017)
  • The Colour Accounting Learning System uses a board and activities as the basis for demonstrating accounting concepts
  • AccountinGame is a quiz like board game used in classes (Silva, 2021)
  • LegoSerious Play could be used to create an accounting simulation.

There are also various apps and online simulations.

More information: LegoSerious Play

Colour Accounting

Financial Education for Future Entrepreneurs (FEFE)

3. Role play

Role play is a valuable approach that is not much used. It requires students to take on a role and to consider a scenario or problem from that perspective and to communicate and interact with syudents in other roles.

This is better suited to smaller cohorts. A good illustrative example relates to audit education (Powell et al., 2020).

Service learning

Service learning is also referred to as real world, authentic or experiential learning. Students are given access to a real problem and can provide them with the opportunity to add value.

Finding and managing projects is time intensive and scaleability may be problematic.

Riipen is an international platform that connects companies and students.

More information: Riipen

References

Bergner, J. & Brooks, M. (2017), “The Efficacy of Using Monopoly to Improve Undergraduate Students’ Understanding of the Accounting Cycle”, Advances in Accounting Education: Teaching and Curriculum Innovations (Advances in Accounting Education, Vol. 20), Emerald Publishing Limited, Bingley, pp. 33-50. https://doi.org/10.1108/S1085-462220170000020003

Cagliesi, G. & Ghanei, M. (2022) Team-based learning in economics: Promoting group collaboration, diversity and inclusion, The Journal of Economic Education, 53:1, 11-30, DOI: 10.1080/00220485.2021.2004276. Accessed: 23 March 2022.

Duch, B. J., Groh, S. E, & Allen, D. E. (Eds.). (2001). The power of problem-based learning. Sterling, VA: Stylus

Freeman S, Eddy SL, McDonough M, Smith MK, Okoroafor N, Jordt H, Wenderoth MP. (2014) Active learning increases student performance in science, engineering, and mathematics, Proc Natl Acad Sci USA, DOI: 10.1073/pnas.1319030111. Accessed: 23 March 2022.

Powell, L., Lambert, D., McGuigan, N., Prasad, A., & Lin, J. (2020) Fostering creativity in audit through co-created role-play, Accounting Education, 29:6, 605-639, DOI: 10.1080/09639284.2020.1838929

Sangster, A., Stoner, G. & Flood, B. (2020) Insights into accounting education in a COVID-19 world, Accounting Education, 29:5, 431-562, DOI: 10.1080/09639284.2020.1808487

Silva, R., Rodrigues, R. & Leal, C. (2021) Games based learning in accounting education – which dimensions are the most relevant?, Accounting Education, 30:2, 159-187, DOI: 10.1080/09639284.2021.1891107

Suwardy, T., Pan, G. & Seow, P-S. (2013) Using Digital Storytelling to Engage Student Learning, Accounting Education, 22:2, 109-124, DOI: 10.1080/09639284.2012.748505

Taylor, M., Marrone, M., Tayar, M. & Mueller, B. (2018) Digital storytelling and visual metaphor in lectures: a study of student engagement, Accounting Education, 27:6, 552-569, DOI: 10.1080/09639284.2017.1361848

Wahid ElKelish, W. & Ahmed, R. (2021) Advancing accounting education using LEGO® Serious Play simulation technique, Accounting Education, DOI: 10.1080/09639284.2021.1905011.


Susan is Associate Dean at University of Sussex Business School, she holds a PhD in Accounting and is a Principal Fellow of Advance HE, and an elected member of the ICAEW.

In 2021 Susan won the Learning Together Award at the University Education Awards for her work with a staff-student partnership.


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Embedding a single company case in an IFRS course

Alice Shepherd is an Associate Professor of Accounting and Finance at Leeds University Business School, Senior Fellow of the Higher Education Academy, and an award winning teacher with specialised knowledge of online and distance learning.

Alice Shepherd talks to Accounting Cafe

Course context

The cohort is approximately 200 students and the module is delivered to second year (Level 5) undergraduate students over two semesters. It is compulsory for all BSc Accounting and Finance and BSc Banking and Finance students. Non-specialist students study a different module.

Embedded case study

A single company case study is embedded into the course, so that when a technical topic is covered (e.g. leases, provisions, group accounts) the students can see how it is recognised and disclosed in a real set of IFRS listed company financial statements.

This is particularly important as scaffolded preparation for students’ final year projects as many choose an applied financial analysis project.

Wm Morrison Supermarkets Ltd (Morrisons) is an appropriate choice for our students because:

  • It is local to Leeds and one that students know and are likely to be customers.
  • It’s a listed company so provides full annual report disclosures.
  • Its business model is relatively straightforward.
  • Its reporting year end is January, so the release of the most recent annual report coincides with my preparation for the module over the summer.
  • For several years before the pandemic, the finance team was kind enough at the end of the first semester to give a guest lecture and answer students’ questions.

One or two weeks before each seminar, a set of questions is released on the virtual learning environment which students are expected to answer in advance of the class. These require students to find and sometimes reflect on information provided in the annual report.

The first exercise is a “hide and seek” quiz with about 30 questions designed to help students become familiar with the report and the business as a whole.

Since I took over as module leader in 2019/20, the course initally moved to full online delivery which consisted of pre-recorded videos, quizzes and activities, and online live seminars fortnightly.

In 2021/22 we moved to hybrid delivery: pre-recorded videos, periodic live online lecture/clinic sessions, quizzes and activities, live fortnightly face to face seminars but with a partial online cohort taught in separate online seminars.

I have retained the case as an element tying the module material together and have continued to update the seminar questions to reflect the most recent annual report and current business news about the company. Our ratio analysis topic is also based on Morrisons’ financial statements.

I only teach some of the seminar classes. Others are taught by an experienced colleague. I created brief teaching notes indicating areas to explore within the class discussion on the Morrisons questions to provide students with a consistent approach.

Here are some of areas that are explored:

Taxation

You will see from the consolidated income statement on p.86 of the annual report 2020/21 that the tax expense was £69m in 2021, after exceptional items. This was against profit before tax of £165m, giving an effective tax rate of (69/165) = 42% (the UK corporate income tax rate in that year was 19%). In the notes you will find a reconciliation to show the main reasons for this difference.

  • Of the £69m tax expense, how much was current tax and how much was deferred tax?
  • What are the main reasons for the difference between the corporation tax rate of 19% and the effective tax rate of 42%?  

Leases

Morrisons implemented IFRS 16 for the first time in their 2019/20 financial statements, so 2020/21 was the second implementation of the standard.  Have a look at the general information section on leases on p.92 of the annual report, note 6.1 on p.117, note 6.4 on p.119-120 and the financial statements and answer the following questions. 

  • What is Morrisons’ approach to deciding on the lease term that is appropriate to use?
  • Did Morrisons use the exemptions allowed under IFRS 16?
  • What was the cash outflow for leases in 2020/21?
  • Are the majority of Morrisons’ lease obligations short or long term?

Topicality

Morrisons was particularly high profile in 2021/22 because of their activities during the pandemic, and subsequently as the subject of a private equity-backed takeover battle. This has led to class discussions about some highly commercial aspects such as why private equity firms are interested in buying the company, linking this to coverage in the Financial Times, exploring what differentiates it from other supermarket chains etc.

Of course, now that Morrisons has been taken over and is going private, I will no longer be able to use this company as the case study, but I will retain the idea for 2022/23 and choose a different company.

Assessment

Within the constraints of professional accreditation requirements, there has been some assessment of the Morrisons content as part of a larger exam question. However, students are encouraged to use Morrisons examples throughout their narrative question answers.

Student feedback

The students do find these activities challenging — but they enjoy seeing what they can find out, and the activities allow the students to link financial accounting with their commercial awareness and get ‘under the bonnet’ of the business.

Student feedback has discussed how the application helps them to understand what financial accounting might be like in a workplace context.  

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Phenomenon-based learning

Accounting Cafe online seminar on 19 November 2021

Liz Marsland, Queensland University of Technology (45 mins)

Liz Marsland is a trailblazer in phenomenon-based learning. She unpacks the methods, the challenges and the benefits to students and teachers in using this multi-disciplinary approach that has wide application across subject areas and throughout educational levels.

Elizabeth Marsland, CPA SHEA from Queensland University of Technology is a renowned TEDx speaker on phenomenon-based learning. She is passionate about innovation in accounting education.


Liz’s presentation (PPTX)

Zoom recording (45 mins)

Jenni Rose, Alliance Manchester Business School (44 mins)

Jenni Rose shares her experiences of teaching accounting through the lens of climate change. She challenges students to think about how accounting should be changed for the future and how climate change accounting works with formative and summative assessment.

Jennifer Rose, FCA BFP PGCert SFHea CMBE, senior lecturer in accounting, is the 2020 recipient of Teacher of the Year in the University of Manchester Distinguished Achievement Awards.


Jenni’s presentation (PPTX)

Zoom recording (44 mins)

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Recording (45 mins): Liz Marsland — Phenomenon-based learning

Recording (44 mins): Jenni Rose — Teaching accounting through the lens of climate change

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What’s the ‘gateway drug’ for finance?

Accounting Cafe online seminar on 28 October 2021

Michael Gilmore, The Seven Dollar Millionaire

Michael Gilmore believes that we need a gateway drug to get people hooked on finance.

“The most generous estimates reckon 2/3 of the planet can’t answer some basic questions on finance, but plenty of that 1/3 have guessed their way to those answers with a bit of basic numeracy—the survey is multiple choice, so the planet is doing only slightly better than random!

I would say that 1% or less knows how to take control of their finances to the extent that they can be ‘financially free’, which would be a more meaningful goal than calculating the difference between real and nominal returns.

It can’t be anything we’ve already tried, like fear or greed, because those obviously don’t work. If they did, we wouldn’t be having this discussion.

I have two ideas, one less controversial than the other. Universal education is one. Kindness is the other. I would love to hear what you think about those – and if you have any others.”

Discussion, questions and dialogue


Michael Gilmore wrote the book “Happy Ever After” for his daughter, and “The Thousand Dollar Journal” for Singapore-based migrant workers, both under the pen-name The Seven Dollar Millionaire, which is designed to convey how small habits can compound to huge sums. He also writes the Easy Money column for UK magazine The Idler.

By day he is a fund manager, having worked in finance for almost 25 years. He has been passionate about financial education ever since joining the industry and realising how simple, powerful – but untaught – the basic principles are.

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Recording of Michael’s presentation on Zoom

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Teaching liabilities

Paul Jennings gives some useful tips and sequences for teaching liabilities.

Image by cocoparisienne from Pixabay

The elements of financial statements are the building blocks of financial statements.  If your students understand what the elements are then they will understand the basis for reporting events in financial statements. Those elements – assets, liabilities, equity, income and expenses – are key to understanding financial reporting.

Assets are a good place to start and Accounting Cafe has some tips for teaching assets. On the other side of the balance sheet are liabilities. If assets are the resources of an entity, then liabilities are its obligations: liabilities are claims against the entity which will be settled from its resources. 

This post is just about liabilities, so for the moment we are not dealing with the tricky question of whether equity is an obligation. That will be in a later post. 

Here are some suggestions for teaching the nature of liabilities.

Duality

You can use the underlying duality of accounting to illustrate what a liability is and how it is represented in a set of accounts. When we take out a loan from a bank we see two changes in our financial position. We have cash that we did not have before and we also have an obligation to repay the bank. In accounting we identify separately the two results of this contract: the liability (the obligation to repay the loan) and the asset (the cash that we can spend).

My loss is your gain

At a conceptual level, my liability is your asset. If I have an obligation to you, then you have rights you can enforce against me. My promise to repay you the money that you lent me is mirrored by your right to collect that money from me. Notice here that I have an obligation to repay you, not just an intention, and you have a right rather than just a hope. 

Of course things aren’t quite so symmetrical once we get to the reality of different entities recognising and measuring assets and liabilities at different values but the idea is valid as a starting point.  There are always two parties to a transaction – buyer and seller – otherwise there is no transaction. So it can help to think of assets and liabilities as mirror images of each other. 

The definitions in the conceptual framework support this.1

Asset
a present economic resource controlled by the entity as a result of past events

Liability
a present obligation of the entity to transfer an economic resource as a result of past events

Some liabilities are financial, others aren’t

I introduce the idea of liabilities in class by talking about cash and loans, because that is an obvious place to start and because everyone understands the basic idea behind borrowing and repaying money. But not all liabilities are financial.  Every liability that’s recognised in our financial statements will have a number next to it – but the numbers are just a way of keeping score.

As well as obligations to pay cash to someone (described as loans, payables, etc) we also have obligations to do things, for example to provide goods or services to our customers. For many sales, the agreement to transact, the payment from the customer to us and the transfer of goods from us to the customer all happen at the same time. But if there is a delay between when we enter the contract and when we do the work, then there is an outstanding promise and that is represented by a liability in our financial statements. Such liabilities are often described as performance obligations (because we have the obligation to perform – to give our customer what we have agreed). 

For example, an airline (let’s call them Icarus Airways) sells tickets to customers in advance of the date of travel. From the point where the customer has paid, and has the right to take the flight (the customer’s asset), the airline will recognise an obligation to transport the customer (the airline’s liability). The liability might be described as ‘unused flight coupons’2 or something similar in the financial statements.

Then, on the day of travel, Icarus Airways flies the customer from, say, Crete to Sicily, and in doing so discharges its obligation.

Liabilities and other elements

This example also nicely illustrates income (in this case sales revenue) which is explored in more detail in the post about the nature of income. Actually I come back to this example when teaching revenue because it drives home the point that, in the language of the Conceptual Framework, income is recognised as the liability reduces. In fact performance obligations like this are sometimes labelled ‘deferred revenue’3 in the statement of financial position because they will result in revenue in a future accounting period. 

Also, Icarus Airways has almost certainly leased its planes rather than buying them outright. Which allows us to neatly bring this back to duality: the contract which we might call a ‘plane lease’ refers to the plane (the asset) and the lease (the liability to make payments in return for using the plane). 

Understanding liabilities is key to understanding financial statements so it is worth getting your students to work with the definitions and develop a conceptual understanding of the elements of financial statements.

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[1] Conceptual Framework paras 4.3 and 4.26.

[2] This is the term used by Lufthsana.

[3] This is the term used by International Airlines Group.

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