Study Tip 14: Think About Why It Makes Sense

October 24, 2009 | Posted by Steve (cpastories)

Accounting, as is the case with other highly developed, important, and sophisticated subjects, has a system through which it developed and continues to develop. There are committees of very intelligent and/or motivated people who have dedicated their lives to the subject, and they love the system that the subject serves so much that they “just want it to work”. It does not matter whether the body of knowledge is developed by the AICPA, FASB, PCAOB, or Congress (The House or Senate), … you can rest assured that, politics aside, there is logic and intention to the body of knowledge that we study and is tested on the CPA exam. If there is logic or some sensible reason to the subject matter, then thinking about the reasons for the establishment should help understanding and recall. Hence, this tip: Think about why what you are studying makes sense.

Starting with the most basic: Why do we have a Debit & a credit for a transaction? Why are the bank’s Debits and Credits the opposite of a regular company’s Debits and Credits?

Assuming you are a CPA and your client sued you how would you defend yourself? (<– you can assume whatever reason.)

Assuming you are a client, why wouldn’t you want your CPA/auditor to release your information to anybody who wanted that information? What conditions would you find acceptable for the CPA/auditor to release the information.

What do you think a responsible government should do to handle a company that materially misrepresents information and in the process induces you to buy stock you would otherwise not buy?

If you were a judge, how would you rule if somebody innocently bought a stolen item? Why?

Why should a person who files for bankruptcy be allowed to keep medically necessary equipment?

If you were a merchant, what kind of things would you want for your business? Why is inventory turnover important? Why would DSO important? What other metrics would you want to keep track of? Why?

If you make alimony payments, would you want to pay taxes on the money you are giving away? Would it be fair to make the payor pay taxes? Would it makes sense if persons (people) who paid each other alimony live in the same household?

If you sold your home for how much taxes on the gain would you want to pay? On average, what do you think people make (in terms of gain) when they sell their home/house? What is the reasoning behind not taxing some of the gain when individuals sell their home?

If you were hired as an IT consultant to implement an ERP for a client you had not worked with before, what are the steps you would take to make the implementation a success?

As you can see, “a man on the street” will have an opinion or a reasonable response to most of the questions. That tells you that even though there are specifics and some things that need to be followed exactly as written because they are Law or Standards, the ideas or explanations behind them are common sense, only if we take time to look at them as such. Common sense and thinking do not substitute studying, they complement it.

Thanks for reading, and I hope you found that helpful. Your comments are welcome.