I recently finished my first accounting song and created this lyric video for it. I hope you all enjoy it.
Unlike sunk costs, opportunity costs are relevant when making decisions. They are the potential benefits that are given up when one alternative is selected over another. I recently researched the argument of home renting vs. buying and there are several opportunity costs that nearly everyone ignores. This bleeds into most of our life and the daily choices me make. Only when we are aware and recognize these opportunity costs, we make wise decisions.
A sunk cost is a past cost that cannot be recovered. When we take these costs into consideration when making decisions, the future outcome will be biased. This ultimately can be costly and result in making bad decisions. We call this the “sunk cost bias” or “sunk-cost fallacy”, also known as foolishness.
IF YOU MAKE A WRONG DECISION, DON’T STICK WITH IT!
Sunk cost bias can be used to explain a variety of choices ranging from troubled relationships to financial speculation that can lead to irrational decisions. What’s worst is that the majority of us don’t even know we do it. Here are a few examples:
“You can discover more about a person in an hour of play than in a year of conversation.” –Plato
“The opposite of play is not work, it is depression.” –Brian Sutton-Smith
Science has revealed that play is essential to growth and success. As one who constantly wants to learn and create, it is often hard for me to do something simply for the joy of doing rather than as a means to an end. But science has taught us that play leads to brain plasticity, creativity, and adaptability, all elements that add meat to our progress. Stuart Brown, founder of the National Institute for Play, also notes that play has the power to significantly improve everything from personal health to relationships to education to organizations’ ability to innovate.
In his book Essentialism, Greg Mckeown mentions three specific ways in which play can make us more engaged, germinating new ideas or seeing old ideas in a new light.
For me growing up, college was recommended but not strongly encouraged. My parents never graduated and we lived a great life. I had no intentions on getting a degree and felt pretty confident that it would not hinder my ability to make money. That is the reason we go to college right, to stack the odds in our favor of making more money?
One of the first business books I read was Robert Kiyosaki’s book Rich Dad Poor Dad. Who needed college after reading that book? It strongly recommends NOT wasting time and money on a college education but rather acquiring assets such as real estate. So that’s what I did. In the book, Robert also suggests gaining basic understanding of business topics such as accounting and finance, so I decided to take an accounting class at my local college.
It seems most appropriate to initiate my book reviews with a landmark piece that has stood the test of time. Luca Pacioli, as it seems, was in the right place at the right time. While he isn’t credited for inventing the rules of double-entry accounting, he is still considered the Father of accounting. His writing on the subject was the first to be printed and contains much of the base of modern accounting and bookkeeping.
The book that raised him to fame was called Summa de arithmetica, geometria. Proportioni et proportionalita (Venice 1494). In it is a section called Particularis de computis et scripturis (Details of computation and recording). I have no desire to read the book in its entirety, however, the small section that introduced the world to Venetian bookkeeping is a noteworthy read and is what Pacioli is best known for. In it he explains the way to record transactions, also known as journal entries, stating that each entry requires a debit and a credit. Added together, these journal entries are combined into a trail balance ledger, which if done correctly, the debit and credit balances should always balance. This, he states, verifies that the entries were entered correctly.
The purpose of Rock Star Accounting is to educate and entertain. I love learning, exploring, and creating, none of which ever reach a stage of completion. Although accounting is at the forefront, this site is geared towards business in general, especially entrepreneurship. Good things to come and I can't wait!