An example of how traditional accounting taught this subject material using theory

EXAMPLE 1

The Cash Conversion Cycle 

for a small manufacturing business trading in a cash only environment, consists of the following elements for each stage:

  • Initial Cash Investment into the business by the owner
  • The acquisition of Raw Materials to make the good with
  • The Production Process to create the Finished Goods
  • The sale of the Finished goods and subsequent receipt of the Cash

 

Compare this descriptive methodology as a learning study tool to the Visual aids shown below.

Advantages of Visual Learning

           

The video on the left shows how the basic cash flow of a cash manufacturing process works. 
The Video on the right shows the same model but now depicts what the accounting entries are and where these appear in the reports.

                                         

Other points to note are:

  • This model is for the Balance Sheet report and depicts the elements within the SOFP report.
  • The income statement (SOCI report) items are shown in the Vanity Funnel Model,
  • The model forms part of the next model.
  • Debit items are depicted in blue, while Credit items are shown in red.
  • Risk factors can be seen here espeically those pertaining to the RULES OF FINANCIAL SURVIVAL !

AI creating a model...

Of course a picture can tell a thousand words…

So I put AI to the test to see if it could improve on the 

                                                                                                                     

But does the picture tell the story that you need to hear or can learn from?

Some people have resorted to AI to help them create new images.

THESE HOWEVER, DO NOT ALWAYS WORK !

If I now ask you to identify where the business risks may lay for this AI generated business model you will maybe find it more difficult to see in this model.

As a business leader, I need to see exactly where these elements lay within the financial statements, as well as how do I know where to improve my process to create more value, while I mitigate the risks from this drawing.

As a finance student, I want to identify which accounts are involved in the process and how I should record this model in the accounting reports.

Another AI attempt to create such models

AI - The Process
Step 1 - Invest the Capital
Step 2 - Acquire Resources
Step 3 - Adding Value
Step 4 - Sell the Finished Product
The Profit Calculation

Although AI has generated a better process in this example shown here, there are a few fundamental flaws in the calculations it has made.

Most notable of these are the fact that it has got the profit WRONG !!

The model however, still does not show where the risks lay or where the accounting records show these transactions.