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Learning tax with flowcharts.

THE FLOWCHART IS A VISUAL REPRESENTAtion of a document flow, process, or logical pattern of thought. Because flowcharts are useful in communicating information, tax textbook authors sometimes create illustrations with flowcharts. Authors may depict the series of steps in the enactment of a tax bill or the logic in determining a particular tax treatment, such as the value of a casualty loss or vacation rental deduction, through a flowchart exhibit.


Flowcharts are useful in many different settings, including classrooms and accounting practices. Flowcharting activities in a tax class not only help students understand the course material but also prepare them for their professional lives. Tax advisers use flowcharts to explain rules to their clients when appropriate. Auditors and other systems analysts use them to illustrate and document the processing of information through a system and may pinpoint ways to improve business practices.

The IRS publishes flowcharts to help taxpayers understand complex tax rules. These charts can help bridge the technical gap between tax professionals and their clients, particularly with complex tax rules that may be difficult to follow in the narrative form. (See, e.g., IRS Publication 936, Home Mortgage Interest Deduction (2009). Flowcharts presented in the first few pages can help taxpayers determine whether their home mortgage interest expenses or financing points are deductible.)

Accountants preparing flowcharts to document the sequence of transactions through a system may uncover unnecessary steps in the processing of the transactions, duplication of processes, or lapses in internal control. In "Flowcharts See a Revival as Auditing Tool" (Compliance Week (August 22, 2006)), Christine Dunn reported a revival in the use of flowcharting as a vital tool for accountants in the study and documentation of internal control processes when complying with the Sarbanes-Oxley legislation.

Flowcharting is a skill with many applications in the business environment. The benefits that students derive by creating electronic flowcharts can be gained with little to no cost other than the instructor's start-up time; most programs already have the software available in their spreadsheet applications. This column provides instructors with step-by-step instructions to minimize their start-up time when assigning flowchart construction.

Flowcharts in the Classroom

The use of flowcharting in the classroom helps students learn using multiple senses. Simply put, students who are strong auditory learners appreciate the traditional classroom lecture. On the other hand, illustrations--such as charts, graphs, and diagrams--enhance the classroom environment for the visual learner. And students with tactile preferences for learning may remember the lesson best by making models, puzzles, and time lines. Following up a traditional lecture by requiring students to prepare their own flowcharts stimulates learning using these multiple cognitive styles.

Self-Constructed Student Projects

In "Technical Communication, Art, and Printing Services: What Are the Pedagogical Connections?" (71 Bus. Comm. Q. 216 (June 2008)), Lee Tesdell describes a collaborative project between the art and English departments at Minnesota State University, Mankato. Tesdell advocates communicating technical information through the blending of visual and verbal content. In the project at Minnesota State, college students combine graphic art and technical writing to create materials for professional teaching conferences. This physical activity teaches students skills that will help them function in their future workplaces.

Step-by-Step Instructions for Introducing Flowcharting in the Tax Classroom

1. Present students with a one-page handout reviewing the basic flowcharting symbols: termination, processing, decision block, connector, input/output blocks, and directional arrows (see Exhibit 1 on p. 125). Each student should prepare a simple flowchart in pencil depicting the general process of creating a flowchart. This initial activity is suggested as a warm-up exercise to introduce students to the basic symbols.


2. After students have prepared their first flowchart, the tax instructor should deliver his or her standard lecture on a textbook topic. Following this lecture, students should be asked to prepare a second flowchart (again in pencil) that depicts the rules of the tax treatment as described in the instructor's lecture. An activity such as computing cost recovery deductions works well because there are multiple considerations. Students must take into account the amount of time the asset is used for business, the type of asset, the pattern of purchases, and other options for computing the amount of cost recovery. Students can begin the charting activity alone with a pencil on paper (thinking phase) and then compare their flowcharts in groups of two or three students (sharing phase). Afterward, the tax instructor may choose the best flowchart and, with the students' permission, share it when reviewing the topic of cost recovery in later classes.

3. Subsequent to the paper and pencil activities, the tax instructor may follow up a traditional lecture with the requirement that each student prepare a flowchart using electronic software. The instructor gives students an instructional handout on electronic flowcharting and asks them to draw a flowchart that depicts the process described in the lecture. Computing the tax basis of stock received by stockholders in an exchange governed by Sec. 351 works well. Sec. 351 is important because its provisions play an important role in determining the basis for stock received upon incorporating a business, and incorporation is often the first topic introduced in connection with teaching corporate taxation. A sample solution is presented in Exhibit 2.



Flowcharting is an important tool to use when communicating information in the workplace and the classroom. For the tax practitioner, one of the best uses of the flowchart is to bridge the communication gap with clients. Through visual representation, flowcharts reduce the technical construction and language of tax law to a diagram that clients can more easily understand.

In the classroom, during the process of drafting their own charts, students must identify tax authorities, recognize and prioritize decision steps, and communicate an overall picture of the logical sequence in determining a specific tax treatment. Developing an ability to flowchart helps the student learn the tax rules and provides a technical skill to be used in the professional workplace.

In general, student reactions to flowcharting assignments have been extremely positive. As reported at the American Accounting Association's Effective Learning Forum (Cereola and Riordan, "Teachers and Students Succeed in Tax Class with Flowcharts," paper presented at the AAA Annual Meeting, Chicago (August 2007)), the majority of students in two undergraduate federal income tax classes strongly agreed that the activity of creating a flowchart--whether prepared by the authors of their text, the instructor, other students, or themselves--helped them understand the material in the course.

Instructions for producing flowcharts are provided on p. 125. The instructions are based on the assumption that the creator has no experience with either flowcharting or Excel programming. The teaching notes are presented in two sections, the first for manual flowcharting and the second for flowcharting in Excel. The instructions can be used separately or in sequence, depending on whether the instructor plans to have students prepare charts only in pencil or to follow up with software programming. These instructions have been used successfully with both students and faculty learning to draw charts for the first time.


Annette Nellen is a professor in the Department of Accounting and Finance at San Jose State University in San Jose, CA. She is a former member of the AICPA Tax Division's Tax Executive Committee and a current member of the AICPA Tax Division's Individual Income Tax Technical Resource Panel. Sandra Cereola is an assistant professor of accounting and Diane Riordan is a professor of accounting at James Madison University in Harrisonburg, VA. For more information about this column, contact Prof. Cereola at or Prof. Riordan at

Flowcharting Instructions

The following outline provides some basic guidelines that students (and instructors) should follow when preparing flowcharts.

1. Learn or review the symbols needed to create a flowchart. Most tax processes can be illustrated with just a few symbols: terminal (oval), connector (circle), input/output (parallelogram), process (rectangle), decision (diamond), and process flow (arrow) symbols.

2. List each step in the process that requires making a key decision and decide whether the step requires a question to be answered or a process to be completed. Use the decision symbol or process symbol, respectively. Identify any system inputs and outputs using the appropriate symbol. Depict only the major steps in logical order. Try not to clutter the flowchart with information that is not essential to the process.

3. Design the flowchart so that it reads top to bottom and left to right. Use on-page and off-page connectors to depict the flow of the process and eliminate the need for crossed arrows.

4. Determine that the flowchart has a clear beginning and ending.

5. Review the chart for assurance that decision steps do not leave the reader without an alternative.

6. Clearly label all symbols.

7. Use directional arrows to show the process of the flow. Do not assume that the reader will know the flow direction.

8. Verify the flowchart's accuracy and logic by having individuals familiar with the process review the chart.

When drafting a flowchart, it is useful to prepare a manual draft before modeling the process with software. Instructors may wish to review student flowcharts before they are programmed electronically.

Drafting a Flowchart Using Excel

Readying the Program

Most Excel setups will already have the toolbars needed for drawing flowcharts. Click the Insert tab at the top of the Excel page; below this should be an Illustrations group containing a Shapes drop-down menu that includes flowchart symbols. If this toolbar is missing, add it by right clicking on the menu bar and selecting the Customize Quick Access Toolbar. From the "Choose commands from" drop-down menu, select Insert and then Illustrations. This procedure will add the necessary icons to create a flowchart.

Inserting a Symbol

To insert a symbol, select the Insert tab and from the Illustrations group select the Shapes menu. A Flowchart group contains the basic symbols needed to create a flowchart. To insert a symbol, click on the appropriate symbol. Using the mouse, move the cursor (once the symbol is selected, the cursor will appear as a + sign) to the desired position on the spreadsheet; holding the left mouse button down, drag the symbol to the desired size. To add additional shapes, repeat the process and then arrange the symbols in the appropriate order (remember to use the rules for creating flowcharts as described above).

Adding Text to Symbols

To add text into the symbols, right-click the symbol; a format box and a drop-down menu will appear. Select Edit Text from the dropdown menu. To end the edit, click anywhere on the sheet outside the symbol. To format the symbol, use the format box to change font size, spacing, etc., and the drop-down menu to format the look of the symbol, change the color scheme, etc.

Connecting the Symbols

To add a connecting symbol, in the Shapes menu use the Lines group to select the directional arrow needed. Once selected, drag the cursor over the first symbol (which will now be surrounded by red connection dots), click on the desired connection dot holding the left mouse button down, drag the cursor to the second symbol, and release the mouse button. This will result in an arrow being drawn between the selected symbols.

Editor: Annette Nellen, J.D., CPA

Authors: Sandra J. Cereola, Ph.D., CPA

Diane A. Riordan, Ph.D., CPA, CMA
COPYRIGHT 2011 American Institute of CPA's
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2011 Gale, Cengage Learning. All rights reserved.

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Author:Cereola, Sandra J.; Riordan, Diane A.
Publication:The Tax Adviser
Date:Feb 1, 2011
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