Welcome to Accounting for Decision Making. My name's Greg Miller. I'm a professor at the Ross School of Business at the University of Michigan. I teach various accounting courses there. Before I talk to you about this course though, I want to start with an apology. I want to apologize for the name of the course, Accounting for Decision Making. We gave it that name because we were trying to market the course. We wanted to attract people who decided, I want to make better decisions and accounting is a good tool for doing that. Or even people who just thought, I want to make better decisions and they didn't know that accounting was a good tool for doing that. But the name's really redundant. As you're going to learn in the first couple of videos in this course, all accounting is about making decisions. It's about providing information to decision-makers. And so, when we name something Accounting for Decision Making, we're really doubling up on that. We could have just named it Accounting, but of course, this is a chicken and the egg problem. If you haven't taken accounting before, you don't know that the goal of accounting is to provide information to decision-makers. Anyway, enough of the apology. We're going to do a course on accounting. And in fact, this course is based on one of the courses that I teach at the Ross School. It's the introductory financial accounting course that all of our MBA students take pretty much as soon as they show up in the program. Now, if you were to take that course at the university with me, come in to Ann Arbor and spend in the two years with me, you would find that we would cover this material in a very interactive way. Everyday, there would be a case and you'd come in prepared with that case, and you'd take a position and I might challenge your position or your classmates would challenge your position, or other people would give an opinion and you would challenge that. And by working together, we would develop a nuanced understanding of accounting. The crucial thing there is we'd be interacting a bunch. There's times where I stop and lecture, but for the most part, we're trying to interact and pull information out that way and pull learning experiences from that as well. Obviously, I can't do that in an online setting. However, I can capture the essence of the course by thinking about the two most important parts of what goes on in that course. The first one is we're going to cover all the same topics that we would be covering in that introductory MBA course. So at the end of this course, you will have seen all the same things that you would see in an MBA course at a top school. The second thing is much more important and that's the approach that I take in that course. The way that we always want to approach learning here is why. Why does it work this way? Why did accountants make this choice? Why did accountants trade off this way of thinking about it versus that way of thinking about it? That's very different from what you see in most accounting courses where they focus a lot on the how. How do I get the number? How do I calculate this? If you understand the why, the how comes very easily, it just follows from it. But if we only cover the how, then when you run into a new situation, you'll have no idea what you should do to deal with that situation. You'll have to go back and find somebody else to tell you how do I do it now. You also won't be very good at using that information to make decisions. When you understand why information is set up a certain way, you can take that information and you can apply it to whatever decision you're trying to make. Now, let's talk about how the course is structured to make sure that you're getting the opportunity to really learn from it. The first thing is it's a seven week course and I know that seven weeks is long for MOOCs. A lot of people are saying they should be more like three or four weeks now. We thought about breaking this up into two different courses, that's the way that a lot of accounting courses are being done now in the MOOC space. The problem with that is, those courses are breaking it into two courses that talk about the how again. How do I do the first part? How do I do the second part? To really build this understanding of the why, we need to have a full view of accounting and I need seven weeks to do that. So, I'm going to ask you to stick with me and the payoff will be worth it. So, what do we do during those seven weeks? Well, the first two weeks start very broad. In fact, let's talk about week one. In week one, we introduce what's the idea of accounting. Why was it designed the way that it was? Who even came up with accounting? What are the big financial statements? I'll spend a lot of time talking about the balance sheet and the income statement. Why do we have them? What are you supposed to take from them? It's all a very big picture idea trying to get you to understand how we should think about the usefulness of accounting. Near the end of that week, I'll start to introduce some bookkeeping tools which will take us into the second week. Again, we're going to stay broad at that point because we're going to develop a broad understanding of how financial statements work instead of taking any one item and going in depth. What we're going to do during that week is we're going to give you more of the skills of bookkeeping. Bookkeeping is the thing that a lot of people think is actually accounting. We're going to do journal entries, T-accounts, we're going to show you how to aggregate all that together to make a set of financial statements. I'm going to tell you upfront, that part's going to be kind of boring. At some point during the second week, you're going to say, Do I really want to do this? But stick with me. Once we get past that second week, there's going to be a big payoff. In fact, even at the end of the second week, there's a big payoff. By the end of that second week, you will have created several sets of financial statements all by yourself. Having created those sets of financial statements, you'll be able to go out and look at real financial statements that other companies have put out and understand why those financial statements are structured the way they are, what sort of information you should be able to get from each financial statement, et cetera. That's a big payoff from just two weeks of work. Then in week three, we get to get into the cooler stuff. We're going to take individual items and we're going to dig in in detail. So we'll look at things like revenue recognition, accounts receivable, inventories, cost of goods sold. We'll look at long-lived items like factories or how to think about using a truck or machinery. We'll look at how we should think about the depreciation related to that and how that reflects what we've used up during the period. We'll think about intangible items like goodwill or brands. I'll help you understand what it means when people say there's an impairment. We'll learn all about stockholder's equity, deferred revenue, all these terms you've heard people throwing around. You'll understand the balance sheet, the income statement, it will all come together because we're going to take each one of those items and dig in detail and understanding them. For every single one of them, we're going to approach it in the same way. We're going to make sure we understand the economics of what's going on then we're going to talk about the choices accountants make and how to capture those economics. And then after we've done that, I'm going to show you the how of the bookkeeping. By doing that over and over again, you're going to build this real understanding of the why. At the end of the fifth week, you'll have a really good understanding of the balance sheet and the income statement and the details that go with it. Then we're going to step back to the broad for week six. We're going to look at the cash flow statement. We won't have touched it much until then, but now we're going to spend an entire week on the cash flow statement. I'm going to be honest with you, the cash flow statement is an area where most people struggle. You're going to find that a cash flow statement doesn't actually do what you thought it did, but it's really helpful once you understand what it does do. That might be confusing but when you spend the week, you'll be able to do it. You just put the time in and will understand the cash flow statement at the end as well. By the end of week six, we now understand the three major statements and the details on all of them. Now, we can combine all of that to create ratios. Ratios are the tools that people use to help them make decisions and develop understanding about a company. Now, in a lot of courses, what they'll do is they'll give you a list of ratios other people have created but because we focused on the why, we're not going to do that. We're going to teach you how to develop your own ratio based on your understanding of accounting and the question that you're trying to answer. That's week seven, and then there's one more thing in week seven. That's a comprehensive final exam. Why do we have a comprehensive final exam? Well, if you read the literature on learning theory, you would find that having that final time to go back, think about all the material together, reflect on it and tie it together, really solidifies your learning. It will allow you to retain that material and use it for years to come. You don't have to go read that literature yourself, you can trust me on it. Now, that's the seven weeks. The final exams got me started talking about another part which are the mechanics of how we're going to go through week by week on this. Every module is going to have a similar setup. When you start a module, you're going to see a list of learning objectives. Those learning objectives have been developed based on Bloom's Taxonomy. That, again, comes from this learning literature and what it does is talk about different levels of learning. I could repeat something to you, you could understand it, you could synthesize it, et cetera. These learning objectives have been drawn from that to help you get an understanding of what it is you should be able to do at the end of each week. After those learning objectives, you're going to see some write-ups. They're brief, it'll take you three to five minutes to read the write-up for each week. That just kind of lays out what we're going to do for the week. It gives you some sense of how many videos you're going to see, what kind of topics we're going to cover, why they're structured the way they are. You could do the course without ever looking at the learning objectives or those write-ups, but they're there for people who find that a little more structure is going to help them learn more. Now we're moving on to the guts of what we're really doing in the course. That's the videos. I've got a whole bunch of videos in here. I've broken it down ideally into videos that are 8-10 minutes and no longer, breaking the topics down into pieces so you can watch a video and understand that piece. If you need to go back to it later, it's easy to find that one video that you need to refresh on a specific topic. There are a few topics where I just felt like we couldn't do it in 8-10 minutes. I'll apologize for that up front, but they were ideas where at 10 minutes, we wouldn't have fully formed the idea, and so a few of them get to 15 minutes. If that really doesn't work for you, just go ahead and take a pause around minute eight or nine on your own, take a little break, and then start it back up as if it's two different videos. After you've done a couple of videos, you're going to find that there's some practice questions to work on. I've got those in every module for every topic. It's really important that you do the practice questions. I'm not going to grade you on them. If you're trying to get a certificate for the course, you don't have to complete the practice questions to get the certificate, but they're a big part of the learning. Remember how I said if you met me in Ann Arbor and we took this course, we'd interact? These practice questions are a way for us to interact. When you answer a practice question, whether you get it right or wrong, you're going to get feedback on why that answer was right, or if it was wrong, the typical mistakes that people have made, not just the error in a calculation, but rather the mistake in the thought process that led them to come to that conclusion. So that's a way for us to interact just as if I asked you in class and then you made a mistake, and I could help you see that mistake. The other reason you really want to do those: I've learned that there are certain things in accounting that no matter how many times I say it, the students have to do it themselves, most of them will make mistakes, and after they make the mistake and get the correction, they finally understand it. I've made sure that I've worked all of those sort of items into the practice questions, so you'll have that chance for that sort of interaction. One other way I get interaction, I've put discussion prompts in every module. Those are big-picture questions that will ask you to give an opinion about something. Your colleagues taking it around the same time as you can take a look at those discussion prompts as well. They can comment on your thought process, you can comment on their thought process, and this is a lot like the discussion we get in the classroom. If you really engage in that, not just in putting your own views out but in critiquing other people's views and working out ideas with them, it will enhance everybody's learning. Those are all the things we're going to do for learning, and then there's that last piece. That's the test. Now I already told you there's one big comprehensive test, but at the end of each module there's a test as well. Those test questions will be similar to the practice questions. In fact, I've made them easier than the practice questions. That's for us to check and make sure that you really understand the material. If you don't do well on the test the first time, you can go back and review some things, or you can try taking it again. Maybe you just didn't quite get it right. You can take it twice a day. If you fail it the second time, you can take it the next day. That gives you enough time to review the material again before you go back and take it. There's this concept called mastery of learning. It allows you to do something over and over until you really understand it. It's another one of these things we take from this learning literature, and I'm trying to apply that here. So you can retake this test as many times as you need to, understanding that you may need to go back and review material so that you can build that mastery level. You can move on then to other modules and continue to build mastery level. I know this is a lot of work, it's seven weeks where you are going to put in four, six, maybe 10 hours a week. But when you get all done with it, it will be worth it because at that point, you will have built for yourself the ability to really understand introductory accounting and use it as a tool. I'm certain of this. If you truly engage, you can learn accounting from this. The reason I'm certain is I've already tested this with people. I've taken people who have never taken accounting before, had them go through this without any interaction with me. They only use the videos and the questions that are on there, the practice questions, the test, etc. I see that they can pass the test on here. Then when they're all done with the course, I've spoken with them and I've taken them beyond those tests and ask them questions like what I would ask in my MBA class, probing to see how much do they really understand. And I can see that they're not just calculating numbers, they're actually getting the why. It's worth it to make this investment. All right, enough talking, let's get on with the learning.