Could Accounting be the most important class you ever take?
“I learned a lot [in school] but most valuable was Accounting. There is nothing more important. People ask me what they need to know before getting into business and I tell them, ‘You have to understand accounting.’ It’s the language. It is like being in a forging country and not knowing the language if you don’t understand accounting.”— Warren Buffett
When asked “What to study?” others have responded in the same way—learn accounting! Why? Accounting provides a basic scorecard that enables an understanding the economic health and atrophy of all types of organizations. This information is critical in every type of organization. Captains of industry, investors, and government officials make decisions, in a large part, on accounting information. If a leader does not understand the accounting data, their decisions will be impaired. This class will help you understand the language of business—accounting.
Why should I learn accounting? Won’t robots be taking over this Job?
Your education plans should include a strategy to make sure your human capital is difficult to replicate. Career plans should incorporate the expected growth of AI, robots, and programming that will replace many jobs. Many remedial tasks of accounting and journal entries have already been automated however, remedial accounting tasks were never the key value of understanding accounting. Yes, impressive programs provide standard accounting systems (e.g., QuickBooks) but these programs cannot tell you what is going right or wrong in your business or how to bury your competitors six feet in the ground. Robots are a long way from informing strategy or management—these programs organize data. In the future they might help with interpreting data, but insight (providing insight to operations and strategy) is so complex humans are unlikely to be replaced. Bill Gates, founder of Microsoft and proponent of AI advances, provided similar insight to AI and accounting noting:
“…businesses can buy inexpensive programs to handle bookkeeping, but they are starved for advice. ‘CPAs are the perfect candidates to meet these companies’ needs. They know their clients, financials inside out. They’re trusted. They understand how to offer cost-effective solutions to problems. You add technology skills to these skills, and you’ve got a winning combination.’”—Bill Gates
In this class I will help you build tools for understanding accounting information that will improve your problem-solving abilities on future teams.
What will you learn?
While understanding accounting is critical for business leaders, forming corporate strategy to make accounting look better is a bad idea. Business miss opportunities and are bested by competitors by worshiping the accounting information. Instead, accounting is most helpful to leaders by informing the best questions to ask the organization—not in providing answers. As Warren Buffett notes, “In the long run managements stressing accounting appearance over economic substance usually achieve little of either.”
The goal of this class is to first build functional accounting skills and then develop insight as to the right questions to ask. In this class we will learn:
- How to read a financial statement without your brain turning off,
- Become fluent in the vocabulary of accounting,
- Understand the function of each financial statement,
- How economic events are measured with accounting,
- Interpret financial statement footnotes to find answers to questions,
- How to find solutions and insights to accounting in a group, and
- To ask the right questions after reviewing a financial statement.
A bit about Teaching Style
“Did you ever hear of a kid playing accountant – even if they wanted to be one?”
For many students taking this class is a requirement and expect this to be the first and last accounting class they ever take. As a result, I focus class content on relevant vocational problems where accounting can inform decisions. In addition, I spend a great deal of time delivering content with familiar pop culture settings to make the material memorable and approachable. Accounting is known to cure insomnia—my goal is to keep your mind in the game and make the topic approachable.
- Pre-Class Videos: Foundational knowledge is presented via video playlists and the textbook that should be consumed before class. My explanation of content covered in the book along with examples is found on my YouTube channel—Breaking Bad Accounting. The videos cover the core content of the class and are packaged into 10 min long clips that should be convenient to watch. Moreover, if you think you understand a topic sufficiently you can 2.0x my speed on YouTube to save time.
- In Class Time: In class, we will work on activities and tasks related to the content covered in the videos. The goal of this time is to have activities and discussions that reinforce what is learned in the book and in the class videos. We also will review the weekly quiz questions due before class.
It should be noted that I do not endorse any of the industries, businesses, or behaviors represented in the examples I use to illustrate accounting principles. These unique examples are my attempt at emulating the teaching style demonstrated in the 1980’s movie Stand and Deliver—the true story about how a math teacher was able to get several at risk kids to engage with math and ace the AP calculus exam. I believe you will understand and retain the concepts of accounting with this approach.
Materials Needed for the Class
You will need the class books, a financial calculator, and a device to watch the YouTube videos and access Blackboard. It is highly recommended that students read the material before watching the videos and meeting with the class to keep up with the discussion and to do well on quizzes.
Class Textbooks: We use the same textbook used for the CFA Program Curriculum including:
- Robinson, Thomas R., Elaine Henry, and Michael A. Broihahn. International Financial Statement Analysis. Fourth edition. Hoboken, New Jersey: Wiley, 2020. Print. ISBN: 1-119-62814-8
- Robinson, Thomas R., Elaine Henry, and Michael A. Broihahn. International Financial Statement Analysis Workbook. Fourth edition. Hoboken, New Jersey: Wiley, 2020. Print. ISBN: 1-119-62812-1
- The following book is only recommended (not required). We will spend one class talking about a few chapters from this book. There will be zero exam questions on the topic of this book. Christensen, Clayton M., and Michael E. Raynor. The Innovator’s Solution. Harvard Business Press, 2003
Book Acquisition Options: Please read the different options for acquiring your accounting textbook carefully.
- Free Book: A digital copy of the books (free!) is available through the GWU library. Using this free book allows students to save $300-400 not having to purchase a more expensive textbook—you are welcome! You can find it by going to the GWU Library web page (https://library.gwu.edu/) search for “International Financial Statement Analysis” and sign into the library webpage.
- Hard Cover Textbook: If you would like to have a more standard physical version of the textbook you can order hard copies. The hard copies are also much more affordable (you are welcome) than standard textbooks because of the volume of students ordering and selling the used book online. If you are looking into purchasing older editions of the book, see the footnote below.
Calculator: Please buy the “Texas Instruments BAII Plus” which is a financial calculator with preset functions that we use in the class. Is it possible to do the work without it? Yes, but the effort is much more costly than the $12 calculator.
- Do not send me an email asking if your alternative calculator will be ok. You Need this specific calculator.
- No, a “BAII Plus” app on your phone will not work for the class as you are not all allowed to use phones on quizzes or exams. However, it will be useful for professional situations.
YouTube Video Lectures This is the YouTube Channel for the class — Breaking Bad Accounting. Each core concept is covered in a series of short videos on the channel. Watching the videos is not a substitute for reading the book and trying out the problems in the back of the chapter.
- Welcome to Financial Accounting
- Financial Statement Analysis: An Introduction
- Financial Reporting Mechanics
- Financial Reporting Standards
- Understanding Income Statements
- Understanding Balance Sheets
- Understanding Cash Flow Statements
- Inventories and Long‐Lived Assets
- Non‐Current (Long‐Term) Liabilities
- Building Cash Flow Statements
- Financial Reporting Quality
- Evaluating Quality of Financial Reports
 A young student asked Warren Buffett’s advice on what to study in school. What was Warren Buffett’s advice? Learn accounting! “Accounting is the language of business and there’s nothing like getting it early and getting it into your system.” What was Buffett’s advice to those looking to go into investing? “You have to understand Accounting.”
 “I just wanted to be a businessman, and to me, the best way to understand business was to be an accountant.”Aubrey McClendon. “Accounting was the course that helped me more than anything” Julian Robertson “You have to know accounting. It’s the language of practical business life. It was a very useful thing to deliver to civilization. I’ve heard it came to civilization through Venice which of course was once the great commercial power in the Mediterranean. However, double entry bookkeeping was a hell of an invention.” Charlie Munger
 Journal of Accoutancy. 1997, Bill Gates’ Win-Win Scenario for CPAs. Microsoft sees business systems consulting in small firms’ future. Richard Koreto. May 1, 1997 https://www.journalofaccountancy.com/issues/1997/may/gates.html
 The learning objectives for the class are targeted towards the learning outcome statements of the Chartered Financial Analyst (CFA) Level 1 exam. Approximately 20% of the total content in the CFA level 1 exam will be reviewed in our class. This approach enables the course to stay up to date on the most critical financial accounting material to learn. No prior experience is necessary to take this course.
 The publisher also put this exact same content under a different title called CFA Institute Level I Financial Reporting and Analysis. The book has the same content and words (same book) as the combined two books above. The publisher wanted to make money from the CFA program and from being used in a class like this, so the book has two different titles but is the same book. The combined two textbooks (text and workbook) are equivalent to a single copy of the CFA Institute Level I Financial Reporting and Analysis book (which has both questions and answers in one book). The publisher decided to split out the questions in the back of the chapter of the CFA Institute Level I Financial Reporting and Analysis book (that included solutions) so that they could include it in a workbook (likely to charge students like you more for it). If you chose this option, make sure you are purchasing the “Level 1” book, not the “Level 2” book, and the book not the “Study Guide”. The new curriculum can be found at the CFA Institute and is free when you register for the CFA Level 1 exam.
 Older versions of this book are almost identical (except when accounting rules change), and they are likely less expensive. The third edition of International Financial Statement Analysis (and workbook) from the same authors is also available and it not too much different from our text. The words in each version of the book don’t change much, just the page numbers. From my observation, books published in 2010 are practically the same as the most current book. The 2009 and prior versions of the book are written in a tortured way that is not as helpful (I don’t recommend getting a textbook over 10 years old).