The intent of this paper is to suggest a method for assisting Accounting faculty when making the transition from Financial to Managerial Accounting, more specifically when introducing the concepts of cost behavior and cost-volume-profit analysis for the first time. In the teaching of most Accounting courses, instructors focus of getting students to understand that the calculation of net income or operating income or any income related amount is a top down calculation. By this I mean we teach our students that to determine the profitability of a business (to prepare an Income Statement), we start at the top with revenues. Working our way down the income statement, we next subtract expenses. In our earliest financial accounting classes we stress the basic concept of determining profitability is to subtract total expenses from total revenues and in all succeeding financial accounting courses, while we may add some additional intricacies, we continue to follow that approach: Revenues minus Expenses = Income.
This article is from the Accounting Instructors’ Report, an electronic journal that provides teaching tips and insights to those who teach accounting and other business courses.
Thomas J. Grant, CMA, Kutztown University
Read Building the Income Statement from the Bottom Up: Explaining to Students the Purpose of Cost-Volume-Profit Analysis.