Hi, everyone! I would like to write about what I see differently after studying for the CPA Exam. To get a better understanding of the different accounting principles, I try to see how they relate to the things around me. There are two important ones that I think are useful in everyday life.
The time value of money is the most important concept that I’ve learned from studying accounting.
I see things very differently when I consider this concept. If a bill has an early payment discount, I always make sure to take advantage of it. I also keep my checking account balance to a minimum with any extra money in my savings account. The moment I began to really take this seriously was when Roger Phillip gave an example of early payment discounts in the form of an equivalent interest calculation. You probably know what 1/10 net 30 means. If you pay for the goods in 10 days, you can take a 1% discount on the payment. A discount of 1% for paying 20 days early equates to an annual interest rate of approximately 18%. It becomes clear that using the early payment discount is quite valuable in this situation. The deposit bank interest in our current economy is approximately 0.03%. Just something to keep in mind!
Another thing I’ve become more aware of due to my studies is inventory management and reordering points.
The Reorder point is calculated as follows: (average daily units x the lead time in days) + your safety stock = your reorder point. I apply this concept to my household inventory and I’ve been able to set up online subscriptions with discounts for common items. These are things we use everyday like my kid’s diapers, bath tissue, kitchen paper towels, and toothpastes. By figuring out what our average usage is, I can have them automatically delivered. This saves a lot of time, some money, and is one less thing to think about while chasing around two young kids.
These concepts are nothing unordinary, but many people may not think about them in their everyday life. Applying these techniques is fairly easy and it can be advantageous. I’m excited about seeing what other concepts can be applied to my common activities as I continue to study for the CPA Exam!