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ACCOUNTING IN SOCIETY
Using Accounting to Satisfy Psychological Needs
MODULE 1-1
PSYCHOLOGICAL NEEDS
Accounting helps decision makers satisfy several psychological needs: • Identify – name and label persons and objects• Categorize – group similar items• Order – place in a logical sequence• Simplify – process and summarize large
amounts of data
Accounting in Society 2
NEED TO IDENTIFY
Accounting in Society 3
Psychological Observation: Humans have a natural tendency to put an identifying label on persons and objects
DOG
Arff!
NEED TO IDENTIFY – Example
What color is this?
Accounting in Society 4
RED
PURPLE
?Our brains don’t like it when we can’t give something a name.
NEED TO IDENTIFY COLOR RED GREEN BLUE
Purple 127 0 127
Fandango 181 51 137
Red-Violet 199 21 133
Cerise 222 49 99
Rose 255 0 127
Cardinal 196 30 58
Rufous 168 28 7
Burgundy 128 0 32
Maroon 128 0 0
Scarlet 255 32 0
Crimson 220 20 60
Vermillion 227 66 51
Red 225 0 0Accounting in Society 5
Some Named Colors Between Red and Blue
NEED TO IDENTIFY – Example
Accounting in Society 6
Hi, my name is …
Sally Rogers
Psychological Observation: We become frustrated when we cannot label.
Now what was my name again?
Sandy RogersNo, Sally Rogers
NEED TO IDENTIFY
Accounting in Society7
In accounting, business items are identified in the financial statements.
CashEquipment
Vehicles
BuildingsSupplies
Inventory
Raw Materials
Tools
NEED TO CLASSIFY
Psychological Observation: Humans have a natural desire to group similar items together.
Accounting in Society 8
NEED TO CLASSIFY – Example
Which of these things belong together?
Accounting in Society 9
Red OrangeYellow
Flowers
Fruit
NEED TO CLASSIFY - Example
MULE SHOE
Accounting in Society 10
MUL ES HOE
MULESHOE
Things don’t make sense unless they are grouped logically:
NEED TO CLASSIFY – Example In Business
Accounting in Society 11
Currency
Money Market Account
30 Day CDs
Raw Materials
Work In Process
Finished Goods
Buildings
Equipment
Checking Account
Land
Vehicles
Furniture
Certain accounts are similar to others and are grouped for simplicity
NEED TO CLASSIFY – Example in Business
Accounting in Society 12
Currency
Money Market Account
30 Day CDs
Raw Materials
Work In Process
Finished Goods
Buildings
EquipmentChecking Account
Land
Vehicles
Furniture
CASH & EQUIVALENTS INVENTORY FIXED ASSETS
NEED FOR ORDER
Accounting in Society 13
Psychological Observation: Humans have a natural desire see items in a certain sequence.
NEED FOR ORDER – Example
Accounting in Society 14
C F A E B G H I J D
A B C D E F G H I J
This makes no sense!
Much better!
NEED FOR ORDER – Example
Accounting in Society 15
COLD WARM COOL HOT TEPID
HOT WARM TEPID COOL COLD
This is out of order!
Much better!
NEED FOR ORDER
In accounting, objects usually appear in order of liquidity – the ability to convert to cash.
Accounting in Society 16
NEED FOR ORDER – Example in Business
ASSETS• Buildings• Inventory• Cash• Obsolete Equipment• Investments• Machinery
Accounting in Society 17
ASSETS• Cash• Investments• Inventory• Machinery• Buildings• Obsolete
Equipment
Not In order of liquidity
Easier to convert to cash
Difficult to convert
to cash
In order of liquidity
NEED FOR SIMPLICITY
Statistics – mathematical summaries of large amounts of data
Accounting in Society 18
Psychological Observation: Humans cannot interpret large amounts of data.
NEED FOR SIMPLICITY – Example
Accounting in Society 19
How did the class do on the examination?
One person made a 76, another made an 87. There was a 95, a 62 , a 91, an 84, a 77
…
The average was an 82.5.
??
?
NEED FOR SIMPLICITY – Example in Business
Accounting in Society 20
It varies, some of our customers pay promptly, others don’t. One of our customers took 55 days to pay off a big sale. We ask smaller customers to pay quickly, usually 30 days, but not all of them do. Does that answer your question?
How long are our customers taking to
pay us?
On average, our customers take 36 days to pay their account.
