A Day in the Life: Learning Accounting Through Darden’s Case Study Method

MGM Grand case is the case that we use in the
first year accounting course to introduce students
to the topic of accounts receivable, issues around
companies trying to collect payment from their
customers and how to account for that and
the financial statements. And the company has
estimated the extent to which it doesn’t
think it’s going to collect some payment
from some of its customers. And we’re asking the students
to evaluate those estimates. And it’s a really
nice way for them to start to be
exposed to the notion that there’s judgment
and estimates in the financial statements,
rather than things being really cut and dried and
exact, according to a rule. MONICA JASTY: I’m
originally from New York and went to college in Manhattan
and was working in Manhattan for about five years for a
data and analytics company when I visited Darden as
a prospective student. I sat in on a class,
and that’s when I really realized that Darden was where
I wanted to pursue my MBA. I thought the class was very
engaging and interesting, and that was a
finance class where material can be a little bit
more technical in nature. But the class is
very interesting and I really enjoyed it. What I’m hoping to get
from today’s learning team is kind of a better
understanding of the material that we’ll be covering
in class tomorrow. And we’ll be
reviewing MGM Mirage, which is one of the world’s
largest gaming companies. JEFF ALLEN: They
do a great job here of matching up with people who
have different backgrounds. So that really works to
enrich the conversations. We’ve got folks
come from all over. I’ve got sort of a
finance background, so any of the cases that are
accounting or finance oriented, hopefully I’m bringing some
good perspective there. KATIE O’NEILL: I don’t come from
an incredibly quantitatively heavy background,
so learning team’s been really helpful for
me, particularly when building something like
a spreadsheet model. I can’t always get from
point A to point E on my own. But I can bring what I’ve
done to learning team and we can get
there along the way. MONICA JASTY: My
learning team has helped me better understand how
to set up some of the journal entries and T
accounts with respect to allowances and collections
for accounts receivables. But I’m still looking
to class to kind of get a bit more practice with that
and also reconcile information from the balance sheet
and income statement and how it all fits in together. LUANN LYNCH: How many of
you have been to a casino? Oh, my gosh. JOHN REYES: The
day before, we had talked about how to
estimate bad debt expense and why we’re doing it
on a matching principle. And today what we
were talking about is how to use the figures
of accounts receivable and estimate a bad
debt expense that we get in a financial
statement and then back into the information
that we would have put in there from
the day before, the actual things that actually
go on behind the scenes– writeoffs, recovery,
collections. LUANN LYNCH: Let’s take a look
at the financial statements for MGM. Monica, can you help us
understand what numbers are relevant to us here? MONICA JASTY: Sure. So here, towards the
bottom of the exhibit we’ll have the casino
accounts receivables, so what they expect. I think knowing there’s
a chance that I’ll be cold-called in
class really motivates me to prepare well for class. I’ll be in class with the same
60 students for four terms. So I want to stay engaged,
participate, and really learn. While it can be
intimidating at times, I think that it’s a very
important aspect to the case method and Darden
overall, and really helps prepare us
for the real world. LUANN LYNCH: So I’m confused. A negative expense– am I
the only one that’s confused? Lee, are you confused? AUDIENCE: I was before
CPA explained it [INAUDIBLE]. I oftentimes find
it’s the student that doesn’t have the background
in accounting that asks the most powerful
questions in the classroom. And if I can find that student
and get that question out of that student, that generally
starts a very powerful conversation in the classroom. I’ll look for students to
respond to that question. I’ll look for their enthusiasm
in responding to that question that they signal with
a raise of their hand. I’ll go to someone who wants
to help out with that question. And that oftentimes results in
a conversation in the classroom where you can just see the
learning build and build and build. And then the more
people we can involve in that particular conversation
about that particular issue, the greater the
learning becomes. KATHRYN ELDER: So I am way out
of my comfort zone on this one. But is there– like, what if
they feel their debt partway through the year? LUANN LYNCH: Henry? HENRY SKELSEY, JR. That would
just– you’re just selling them for cash, so it would decrease
your accounts receivable, and basically, you’re
selling accounts receivable. KATHRYN ELDER: One of
the things that I really take advantage of is being
able to ask other individuals. In the class how
things are done. So we had someone in the class
who had actually done auditing, had audited a casino. So to be able to
hear what he had to say about markers–
another individual who had worked in retail and could
talk about accounts receivable. So I’ve learned
the technical side, but also to be able to hear
other people’s experience was all new for me. LUANN LYNCH: She’s saying,
can we just sell some of these that we don’t want
to deal with anymore. Right? And what do we know about
when we sell an asset? You sell an asset–
what do we do, Katie? KATHRYN ELDER: You
sell it and get cash. LUANN LYNCH: Yeah. We sell the asset
and we get cash. So we take the
asset off the books. We increase our cash, and what
do we do for the difference? KATHRYN ELDER: We have to
either report a gain or a loss. LUANN LYNCH: Yep, report a gain
or a loss for the difference. And so that’s Henry’s
example, $100 of receivable, you sell for $90. So your cash goes up by $90,
receivables down by $100, and you report a loss for $10. So here we are,
trying to hypothesize what might be causing this. As a user of the
financial statements, do we care why this
is [INAUDIBLE]? Jennifer? AUDIENCE: I would say we care,
because if it is the cookie jar reason, we’d absolutely
care because that’s cooking the books. And they’re trying to
pump up their net income and therefore pump up
their earnings per share. I mean, analysts
are watching that, so I think you would
definitely care. LUANN LYNCH: Kenny? AUDIENCE: We talk
about this cookie jar reserve very negatively. But in reality, they’re
very transparent about it. And so are the banks,
for that matter. I think we’re a little
too negative on them. I would hope that
casinos and banks would have higher allowance
when the economy is bad. And I’d rather overestimate
than underestimates. And I think that’s what we’re
seeing here in 2001-2002 and what we saw with
the banks in 2008-2010. But analysts see
this and they know. So it’s not like they’re
trying to fool anybody. CHIP BOND: I understand
your logic, but to extend, if they were to overestimate
as a matter of practice, than what you could do is
get into a situation where if you’re going to have a
great year, bump yourself up, you could write off– you could
overestimate what you’re not going to be able collect on,
write yourself down to a lower tax rate, perchance, And then
if you’re going to have a bad year, OK, now– KENNETH GILLETTE:
Coming into Darden, I had no accounting
background whatsoever. I was more coming from
a policy standpoint. So I think I’m always learning
so much from my classmates who are coming from an accounting
background who have CPAs. So today, I took away
a lot of information about this cookie jar
concept, that sometimes firms can inflate or overestimate a
certain amount of money that’s going to be uncollectible
to distort their books one way or the other. So there’s a really
interesting discussion that happened between
overestimating or underestimating
and whether that can be done with the
best of intentions of the worst of intentions. So it was great to hear the
back and forth between that Tony and Kenny today in class. AUDIENCE: The CFA on my
team told us, though, that this is one of the
areas that commonly comes off as a negotiation point between
auditors and companies. LUANN LYNCH: At
the end of class, if we’ve had a class where
many students contribute to the conversation, we’ve
had one or two or three students that have been willing
to get out there, put it on the line, and
struggle publicly in front of 65 of their
peers by sharing their most intimate intellectual
thinking and putting it on the line for other
people to criticize it and to help build it up, if
we’ve had a class like that and we can work together
to understand the content and come to closure where
everybody’s understanding of the content is
enhanced, then I go home at the end of the day thinking
that we’ve really done our job. MONICA JASTY: So
today’s class helped me confirm that the approach
we used in learning team for calculating sales
on account, writeoffs, collections, and accounts
receivable was accurate. And towards the end of class,
we looked at the bigger picture, which really helped
put all of the numbers into perspective for me. And then we also
considered questions that would be important
for an investor to ask the CEO or CFO of a
company about the business, really to get more
detail and insight into the numbers reported within
the company’s annual report. HENRY SKELSEY, JR. When I
came in here accounting was one of the first– I think
it was our third class on the first day. And I came in
expecting the worst. You know, it’s accounting. It’s dry. I had a tendency to sleep
through my drier classes in high school and college. And Luann came in and
just blew us away. And there wasn’t a moment
where I wasn’t just fully engrossed and fully engaged. And that’s held true now
for– we’re in term 3. And there hasn’t been
an accounting class that I haven’t been
excited to go to. I think that’s kind
of unbelievable, when you have people– and
I know it’s not just me. I mean, it’s everybody
in my session that just gets up
every day and is ready to discuss be it finance,
be it accounting, be it econ, and they’re excited to be there. And that permeates
the whole discussion. And it really fundamentally
changes the classroom dynamic when you have everyone
there who’s 100% engaged, they really want to be
there, and they really want to contribute. MONICA JASTY: So here
at Darden we discuss about 500 cases in two years. And I think that gives
students a lot of opportunity to understand core aspects of
business from different lenses and really see how different
parts of an organization fit together. And I think this allows
students to also, post-Darden, join any
organization or profession and be a leader. LUANN LYNCH: All right. We’re done. We’ll start with
inventory tomorrow. Good work. [APPLAUSE]

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