5 Accounting Skills that Transfer from the Classroom to the Boardroom

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Contrary to popular belief, students do not have to have an undergraduate business degree or have previous accounting knowledge to get an MBA. In fact, in LSU’s Flores MBA Program, students are taught that as managers, they don’t have to be masters in accounting, but they do have to know some general accounting best practices.

Within the two accounting courses required in the Flores MBA Program, students learn things like accounting principles, financial decision-making, and responsibility accounting. Recently, we sat down with Flores MBA Accounting Instructor Chris Denstel, who identified five financial skills students learn in our program that will transfer to the boardroom.

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1. Financial Performance
In Financial Accounting, students look at a profit and loss statement, which is actually a multi-step statement where each area clues you in to different performance qualities. You can look at a company’s performance from last month, last quarter, or last year to see how the company is trending, but just looking at a company’s bottom line does not suffice. For example, the section on income from operations tells you how a company performed, but there are other things outside of the scope of normal operations that are placed at different parts of the statement. There can actually be catastrophic circumstances that made the company look bad even though it was operating effectively.

2. Financial Position
Also in Financial Accounting, students evaluate a company’s financial position, focusing on the balance sheet. The balance sheet tells you how strong or how weak a company is just by looking at the big picture. A company’s assets are on one side of the sheet, and you have to look to see if the assets are in debt or equity. The more assets in equity, the stronger the company. However, you can dig deeper into current assets or current liabilities and get a clearer picture of the overall financial position. Just like with a profit and loss statement, you should dig down into certain sections of the balance sheet to see what’s really going on in a company. If a company has tons of assets, but not a lot of them are current, then the company might be in trouble. You have to have a healthy current assets vs. current liabilities just to make sure you’re paying your basic bills.

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3. Interpretation of the Financial Statements
Finally, students in Financial Accounting take a look at all the financial statements together. With this information, if you are an investor looking at the big picture, you can pretty much decide whether you want to invest in a company or not. This is also helpful if you are an entrepreneur and want to see where your business is headed based on what ideas you have for growth. Is it the right time from a financial standpoint to grow your company? Or maybe you need to scale back what you are doing and streamline? By looking at the big picture, you are matching up performance trend (profit and loss statement),  which eventually will raise or sink your financial position, and how everything links together.

4. Financial Decision-Making
Students learn this skill in our Cost Management class. First, we define all the different types of costs associated with a company. Examples include:

break-even point– How many units of a certain product, based on the cost and the way you set up your business, do you need to sell just to break even? Each additional unit you sell will contribute to your bottom line profit.

margin of safety– The cushion between what you sell and your break-even point.

After defining all the costs, we start to look at the decision-making process. We discuss unique and odd decisions: Do you eliminate an unprofitable segment or keep it? Do you need to buy a new piece of equipment? We break all these decisions down to a basic level, weighing the pros and cons and crunch numbers until we come up with a solution based on identifying the cost, which we’ve already defined. We look at several types of decisions throughout the first two-thirds of the cost management course.

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5. Responsibility Accounting
Also in Cost Management, students learn about responsibility accounting, which is basically making a customized budget for every supervisor and manager in a company’s departments. Sometimes, a small component of a worker’s performance evaluation is linked to a person’s performance vs. a budget, but this budget has to coincide with that person’s responsibilities. Each manager should have a custom-designed budget based on the decision power that a person has within a company. So, you need to be able to identify costs and understand that what’s on your performance evaluation, from a budget standpoint, coincides with your responsibilities. For example, say you don’t have the decision power on whether or not to purchase insurance for the business, but your department gets assigned some of those costs. When it comes to your performance evaluation, those costs need to be removed because you’re not responsible for insurance.

For more information on LSU’s Flores MBA Program, visit mba.lsu.edu or call 225-578-8867.

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