PREPAYALS--A FLOW SIMULATION.
A physical flow analogy might be of considerable benefit in aiding the student in reasoning through the adjusting process of expenses topic in principles instruction. The purpose of this paper is to present such an analogy. When a business entity disburses money for any relatively short lived item to be used in the operation of the business it may elect to classify this disbursement as an asset or as an expense. The choice at this time may be compared to storage tanks intended for items awaiting final disposition. Point A represents a closed valve that is opened only at adjustment time. The direction of flow when A is opened may be assumed from the underlying purpose of the adjusting process, that is, to charge the Profit and Loss Summary with the amounts used in the current period that pass through the expense storage tank and to leave in asset storage the amounts not yet used that will benefit future accounting periods. An equilibrium position will be achieved when the amounts in the respective tanks correspond to this underlying purpose. Point B represents a closed valve that will open at closing time and only after the equilibrium position has been attained.
- DOI
- 10.2308/tar-7106876
- Volume
- 39 (1)
- Pages
- 172-173
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref