Professor Elam

Monday Oct 7 2013

While accountants are routinely characterized as unthinking unfeeling robots on television while lawyers of course are modern Lone Rangers, this is hardly the truth. Recording transactions requires a logical thought process. 

I recently wrote  a piece on creating a ladder of success towards certification. In that article I suggested beginning down stream of the CPA exam and beginning an a simpler plane. Then as the student masters those exams, he or she can proceed with improved confidence to the next levelo. 

On suggested entry level is Certified Book Keeper. This is a great nuts and blots exam focusing on payroll, adjusting and closing entries. And after grading a recent intermediate  exam I am more convinced than ever I am on the right track. Some of the professors turned up their noses at the book keeper designation. Well, before you can be an accountant you have to learn how to keep a set of books. 

Consider this question from a recent exam. 

First quarter credit sales totaled $700,000. The state sales tax is 4% and the local sales tax rate is 2%. Prepare the journal entry for teh transaction. 

Now, this is a transaction that anyone in business running their own convenience store, door to door  burritto business, or say a fencing company would understand. The answers I got from the class however were all over the place. 

Now let's think through the transaction. The question clearly states that these are credit sales. Yet several of the answers actually suggested a credit to cash. We are receiving making the sale, not spending any cash. 

The other common error was simply failing to record the sale itself. Sure the sales tax as computed, but often not entered correctly. And frankly, forgetting to enter the $700,000 sale amount would surely put one's book keeping status on hold if not sending teh book keeper  out the door of the entreprise. 

One must think through the transaction. The store has recorded $700 K in sales, so record them. The store has a liabiltiy to collect tax and then pay it, so record the liability. And so the answer is

A/R Sales         742,000

    Sales                    700,000

    Sales Tx Payable    42,000    

Yes it is just that simple, which is why there are cash registers and clerks who understand the transactions to enter them. 

Entry level jobs are often over looked in their importance to teach basic skills. Here is a great example of learning transactions at the entry level of a store. Entry level jobs teach entry level skills upon which we move to the next higher level.