The Symphony of Accounting and Life

Student blogger: V. Aishwarya Singh

When I signed up for an accounting class in high school, I took accounting as a serious profession that only deals with money and numbers and nothing insightful. But having taken accounting for over two years in high school and starting college with Financial Accounting, I have come to realize the connections between life, accounting concepts and philosophy.

The Going Concern

This concept assumes that a company would be able to operate in the foreseeable future and not have to liquidate its assets during the present period of low sales. I connected this assumption with the truth of our lives that “life goes on” and “time does not stop for anyone.” Although we may be facing losses or challenges at the moment, we shouldn’t be demotivated to give up our hopes. The struggles we face in life are temporary, but life goes on. Just like how the company can still run and fill its obligations, we can all survive during the harsh times and make our lives happier again.

The Matching Principle

What is the matching principle? It is a principle according to which the expenses incurred must match with the revenues earned during the specific period. So what is life? Now, isn’t life just the juxtaposition of good and bad experiences? Well then, just how the expenses and revenues temporarily occur during a fiscal year, we face some delightful and some depressing situations regarding our own choices. However, we should always remember that these situations are highly necessary and create a balance in our life. Similar to how we analyze the income statement to figure out what product earns more revenue and must be increased, and what expense is increasing and should be reduced, we can relatively audit our own short comings during harsh times and strengths during successful times to evaluate a prosperous life.

The Historical Cost and Fair Market Value

The Historical Cost Principle records assets on the balance sheet at their nominal costs, while the fair market value estimates the value of property based on its present worth in the market, which could be inefficient during economy fluctuations. Just like how businesses tend to look for profits by keeping up with the new fair market value, and change the historical cost by selling their products at the right time, we tend to get lured by the new ever-changing wants and fancies and ignore our age-old possessions and assets (families). It is true that change is necessary, and we should constantly change and adapt to the new situations. However, we should always hold on and value what we already possess.

Another view would be to learn to accept new changes and ideas in life and try to have a versatile nature in dealing with new changes like the businesses gaining profits from selling at the new higher fair market value.

The Realized and Unrealized Gains and Losses

This concept pertains to the rule that gains and losses are only realized when the actual transactions occur, not when they are only estimated to result. This idea relates to the importance of facts rather than assumptions. It teaches us to be accurate and pragmatic while stating something or when evaluating something. This would enable better decision-making skills and ensure that we don’t get carried away by uncertain “ifs.” On the other hand, we must also be aware of the unrealized values and not just ignore the silent changes taking place.

The Entity Concept

Entity concept, or the personification of a business as a separate business legal entity, separates the business from its owners. The idea of judgementalism is relevant here. When businesses are kept separate from their decision makers, then why should we attach someone with their past and background while judging their capacities? The entity concept in reference to life, is to give all

individuals an equal opportunity and not discriminate someone based on their previous work.

Net Realizable Value

Nothing comes without a cost. The NRV recognizes the value of assets after a reduction of the estimated costs from its sales. This implies to our life by focusing on the essence of our success minus the struggles we went through in order to earn it. The concept also teaches us that we have to pay a certain price in order to earn a certain prize.

Accounting as a department is very crucial to a business. Accounting not only accounts for the transactions of a business, but also teaches an accountant the way to learn from life. With its honest representation policies, it builds the accountant’s personality to appreciate ethics and find meaning in the balancing of natural occurrences.

About txcpa2b

The Texas Society of Certified Public Accountants (TSCPA) is a nonprofit, voluntary, professional organization representing Texas CPAs. TSCPA has 20 local chapters statewide and has 27,000 members. The Society is committed to serving the public interest with programs that advance the highest standards of ethics and practice within the CPA profession. TXCPA2B is a blog written by Texas students in pursuit of the CPA certificate. The views expressed here are those of the authors and not necessarily held by TSCPA or our members.
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