Analyzing Transactions and the Statement of Changes in Financial Position: A Model.

Abstract

Transaction can be analyzed within the framework of the balance sheet in order to decide whether or not their effects should be shown on the Statement of Changes in Financial Position. Transactions can also be analyzed within this same framework in order to decide whether the transactions result in a source of funds or a use of funds. Students of accounting are frequently confused by the concept of changes in financial position and the construction of the Statement of changes in Financial Position. Much of this confusion can be eliminated by the use of the model of the balance sheet which can serve as a useful tool in analyzing changes which occur between two balance sheet dates. The model has been found useful in instructing students in how to analyze transactions to determine whether or not the transactions affect working capital and whether or not the effect of the transactions should be reported on the Statement of Changes in Financial Position. Testing of this instructional approach emphasized that students learned more through how examples of transactions affected the model and changes in financial position than they learned by way of an explanation of how the model itself worked.