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Freya Lorell
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Posted - 2009.10.27 10:19:00 -
[31] - Quote
When I first started my manufacturing bussiness I also attempted to do exact tracking based on FIFO. I stumbled upon some difficulties assigning the correct taxes to sold products. It had to do with timestamps not matching between the journal and the transaction log, if memory servers me correct. Unfortunately I did not have the time back then to get it to work properly, so now I just use an Excel sheet and overvalue my minerals to ensure I'm not selling at a loss.
I'm however still interested in such a tool and will definately want to use it when it is available. |
Wyehr
Shadow Of The Light
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Posted - 2009.10.27 11:33:00 -
[32] - Quote
 Originally by: Prodigal
You have an inventory item which is worth 100M because either it cost you that much to make it or you bought it from someone else.
You now have an asset worth 100M.
When you dispose of the asset (i.e sell it) for 110M which is the current market value (i.e. current market value because someone was willing to pony up 110M for it) your reduce your inventory (asset) by 100M and increase your Gross Sales by 110M.
The Cost of Sales of that transaction was 100M which leaves you with a Net Profit of 10M.
This is essentially what you referred to as "asset appreciation" but you cannot record it as such UNTIL the sale has been made. And the transaction leaves you with net profit not "asset appreciation".
I'm sorry, but this is totally wrong too. Thank you for demonstrating my point. :)
Your asset has no value until after you sell it. Until that point, the best you can do is estimate how much you might be able to sell it for. And your estimate necessarily depends on a bunch of assumptions that may or may not be true. |
Hoodat Bee
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Posted - 2009.10.27 13:19:00 -
[33] - Quote
I'd like to start with the part you got right in all this gobbledy ****.
Originally by: Wyehr
I am supremely unqualified to have any opinions on accounting.
Onward and upward.
Originally by: Wyehr
We do accounting not because it is useful to us, but because it satisfies outside parties. Governments, for example, mandate accounting standards either directly or through tax laws. That clearly does not apply in EVE. Additionally, if we carry debt, or if we desire to acquire debt, our creditors may require accounting statements.
Incorrect. You cannot have any opinion whatsoever about your business without proper accounting. The further management moves from simply having an opinion to actually implementing policy, the more necessary accounting becomes. Unless you think it's possible to find cost savings without knowing your costs.
The rest of your post was so rage inducing-ly stupid that I simply won't be commenting on it, as I value my internal organs and I'd prefer not to have them explode from the angar.
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Mme Pinkerton
Caldari
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Posted - 2009.10.27 13:50:00 -
[34] - Quote
Originally by: SencneS
Imagine you buy something for 100mil and it's value goes up to say 110mil and you don't move it for 3 months. It stays at 110mil for those three months, in which you finally sell it for 110mil. However, each month your profits would report 10mil profit for that month, over say 3 months it would appear you have 30mil Profit. An auditor or an investor would expect that profit to be those three months of Gross Profit ie 30MIL, which in this case it's not, it's just 10mil.
At least in my country (Germany), you would usually continue to write 100m in your balance sheet - even if the market value of said asset has changed to 110m and only book the profit once the market value has been realized.
If - however - the market price of said asset would go down to 90m you would have to book a 10m depreciation, even if the asset is not sold.
So you can expect every asset to sell at least for the value listed in the balance sheet and don't have to fear nasty surpirises on liquidation (however, your balance sheet does not have to reflect short term fluctuations in the value of assets - would have to look up the exact rules on that).
Yes, we Germans are traditionally very conservative about accounting  .
" Credit is the economic judgement on the morality of a man. " |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 13:54:00 -
[35] - Quote
Edited by: SencneS on 27/10/2009 13:55:24
Dzil - Lucky for EBANK I never dealt with EBANK accounting, didn't handle ISK apart from Teller ISK, It wasn't what I brought on to do, so nana naana na. Besides my failure to read "ie Sell said asset" Disposal to me means literally trash the item. Which I even confirmed that is what I was thinking in my reply. If you read this line which I'm sure you just skimmed over "You really shouldn't report it month after month in profits or losses for that matter." So well done on you to graduating from Failure to Read 101.
Which brings me to the next point NAV. It appears or has been a part of "Monthly" reports in EVE that NAV be calculated for the only reason I can think of is "Share value" for people to gauge the value of the share when buying or selling.
In case no one realized this, what Hexxx is trying to do is create some sort of Automated Audit/Reporting system to allow people to run Cash Flow, Profit, NAV reports on any company that is in the system. NAV reporting must be a part of that, as MD have grown accustom to seeing it in reports. We all know MD/EVE Accounting differs from real life accounting, this is just one of them.
I now believe asset value SHOULD be included in a standard report. Looking back on what people class as "Great reporting" NAV and Share Value has been a part of every monthly report. So before anyone else gets on their high horse with a one credit in basic accounting, make sure you think about what it is in EVE players look for.
If held inventory appreciates that directly effects NAV, so it has to be somewhere, otherwise NAV will be off on the balance sheet.
My choice to have it's own line makes the most sense as it could be up or down. The impact the inventory has on the NAV can't be ignored, and if that means adding some "new EVE only" line in the balance sheet then it should be there.
My suggestion is pretty simple solution, Before NAV, have a "Asset Appreciation/Depreciation" Line item.
Amarr for Life |
Hexxx
Minmatar
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Posted - 2009.10.27 14:34:00 -
[36] - Quote
Just to drive a point home that may have been lost...
My intention is to develop an automated (or at the least, 90% automated) auditing tool. I also want to create something which gives the person being audited some measure of control on what actually is audited. If the person being audited wants to mask the location of sales...they have no way to do that.
Increasing the comfort a business owner has with their auditors, and increasing the effectiveness of the auditor by reducing the barriers to a high quality audit is my ultimate goal.
All of this is largely derived from technology I'm working on for my Insurance project which by necessity deals with managing multiple EVE Accounts under a single login. Expanding this base of technology to cover some simple audit functions and adding automated accounting functionality is my goal.
There is alot of technical work that remains but I did want to get some discussions around best practices for accounting in EVE.
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Varo Jan
Minmatar
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Posted - 2009.10.27 14:40:00 -
[37] - Quote
Originally by: SencneS
In case no one realized this, what Hexxx is trying to do is create some sort of Automated Audit/Reporting system to allow people to run Cash Flow, Profit, NAV reports on any company that is in the system.
His opening post deals with stock valuation only. That&s a far cry from developing a true accounting system capable of generating cash flow P&L and balance sheet statements. Yes, there isn&t a single application that currently is capable of doing that. Yes, it makes sense to develop an accounting package for EO.
However, Hexxx is not an accountant, and clearly lacks an understanding of what a balance sheet is, for example. Now that need not be an issue providing he sticks to his skillset - coding - and takes a qualified accountant on to specify the system.
Quote:
NAV reporting must be a part of that, as MD have grown accustom to seeing it in reports.
Net asset value is simply one side of the balance sheet. However, the term is often used in MD to denote a more or less arbitrary company valuation. I say arbitrary because there is no standard here for reporting NAV.
Quote:
We all know MD/EVE Accounting differs from real life accounting, this is just one of them.
 Please... don&t go there. Acounting is accounting is accounting. It follows some basic, simple and conservative rules. What passes for accounting here is often an abortion of misunderstood principles inaccurately applied.
Two simple examples. I&ve lost count of the number of people here who confuse cost markup with profit margin. And there are those who don&t understand the difference between cash and profit.
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Razalea
Caldari
CompleXion Industries
CompleXion Alliance
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Posted - 2009.10.27 14:46:00 -
[38] - Quote
Instead of using FIFO for minerals and basic components, since there is no difference between one unit of trit and another, it would be better to use a weighted average instead of a straight average or FIFO to value the trit that you have in stock for cost in manufacturing. I believe the same principle is used for goods in the real world where they get mixed with older supplies during the course of business, such as oil and natural gas, where the freshly imported fuel gets mixed in the tank with old fuel. Just like stacking the minerals in your hangar, unless you actually keep every single stack separate, in which case yer crazy, imho. FIFO would work best for manufactured items, such as the actual ships.
Let's use an example: shuttles use trit and trit only. Real nice and simple. I'd buy 1M units of trit from the market at 2.9 isk apiece, which gives me a nice stack worth 2.9M isk. Later on, after building 200 shuttles, or using up 0.5M trit (assuming perfect ME on the BPO), I have 1.45M isk of trit left, so i go buy another 1M units, but now the price has dropped to 2.85 isk p/u. Now, the straight average is merely (2.9 + 2.85)/2 = 2.875 isk p/u.
The problem is that this doesn't account for the fact that you have twice as much trit at 2.85 than you do at 2.9. Using a weighted average would look like this: ((2.9*500,000)+(2.85*1,000,00))/(500,000+1,000,000) = 2.867 isk p/u, which more accurately reflects the value of your minerals at that point in time. Mark to market imo isn't an actual cost operation, it's a reflection of the opportunity cost of selling the minerals on the market compared to using the minerals to build a ship.
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Claire Voyant
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Posted - 2009.10.27 15:23:00 -
[39] - Quote
Just to be clear, when I suggested "mark to market" I meant just the material cost. I did not mean to value the inventory of finished goods at their market price.
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Dismantler
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Posted - 2009.10.27 15:29:00 -
[40] - Quote
Originally by: Hexxx
Just to drive a point home that may have been lost...
My intention is to develop an automated (or at the least, 90% automated) auditing tool. ...
Manufacturing tool can also benefit from this.
Back at my manufacturing days, I had to keep a log of the cost for every item/batch of items I've manufactured, so I never sell them at loss.
Because of this, soemtimes I had a lot of inventory laying around, because I was refusing to sell at loss, but at the end I think that I've made a lot more isk, then if I were using average or current material prices.
Best regards,
Dismantler |
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Hexxx
Minmatar
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Posted - 2009.10.27 15:30:00 -
[41] - Quote
Originally by: Varo Jan
His opening post deals with stock valuation only.
You may have missed the part where I track stock valuation for the purpose of assigning cost to finished products and in doing so...calculate profit at the time of sale for that finished product. This was in my OP. The valuation of materials was a side bonus to people who engage in trading.
Originally by: Varo Jan
That&s a far cry from developing a true accounting system capable of generating cash flow P&L and balance sheet statements. Yes, there isn&t a single application that currently is capable of doing that. Yes, it makes sense to develop an accounting package for EO.
However, Hexxx is not an accountant, and clearly lacks an understanding of what a balance sheet is, for example. Now that need not be an issue providing he sticks to his skillset - coding - and takes a qualified accountant on to specify the system.
I am not an accountant, but I don't think I'm as off-base as you imply. I can read a balance sheet, tell you what the general terms mean. You can play "stump hexxx with obscure accounting terms" and you'll win...I don't aim to produce an exhaustive replica of the real world. I'm aiming for something:
1) Useful, and by implication, accurate
2) Understandable to owners, investors, and auditors (in EVE)
Originally by: Varo Jan
Quote:
NAV reporting must be a part of that, as MD have grown accustom to seeing it in reports.
Net asset value is simply one side of the balance sheet. However, the term is often used in MD to denote a more or less arbitrary company valuation. I say arbitrary because there is no standard here for reporting NAV.
Quote:
We all know MD/EVE Accounting differs from real life accounting, this is just one of them.
Please... don&t go there. Acounting is accounting is accounting. It follows some basic, simple and conservative rules. What passes for accounting here is often an abortion of misunderstood principles inaccurately applied.
Two simple examples. I&ve lost count of the number of people here who confuse cost markup with profit margin. And there are those who don&t understand the difference between cash and profit.
I don't think it's so arbitrary when it comes to company valuation...there is a simplified form of fair value accounting at work in producing a NAV report.
Anyway, you've got the criticism thing down...how about working on a solution with the rest of us? I'm not saying what I laid out is the best way, or the way it should be...I'm more than happy to tweak and change things so that the final product produces value for everyone in MD.
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Varo Jan
Minmatar
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Posted - 2009.10.27 16:21:00 -
[42] - Quote
Quote:
I am not an accountant, but I don't think I'm as off-base as you imply. I can read a balance sheet
You may have missed my earlier post:
Originally by: Varo Jan
Originally by: Hexxx
I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.
No, no! You can&t use one valuation method for one side of the balance sheet and another for the other side! 
Not if your intention is to provide a "mature" accounting tool, one in accordance with even the simplest accounting standards.
Quote:
You can play "stump hexxx with obscure accounting terms" and you'll win...I don't aim to produce an exhaustive replica of the real world. I'm aiming for something:
1) Useful, and by implication, accurate
2) Understandable to owners, investors, and auditors (in EVE)
There is no need for obscure accounting terms here. Eve accounting is a very simple subset of normal accounting. The difficulties lie with the API gaps.
Quote:
Anyway, you've got the criticism thing down...how about working on a solution with the rest of us?
Tsk, tsk! Tetchy when criticised? Again, you may have missed my earlier posts - plural.
You&re not going to get a solution in an MD thread. You&ll get a lot of uninformed opinions and some informed which will contradict each other (eg the merits of FIFO vs LIFO, average and standard costing).
I&ve already suggested a solution: recruit a qualified accountant to spec the system for you. Then have the system peer reviewed by other qualified accountants here.
You could also avoid reinventing the wheel by adapting an open source accounting package. Have a look at Source Forge, for example.
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 16:22:00 -
[43] - Quote
I sorted Hexxx out, to the shock and horror some of you are experiancing when reading "I sorted Hexxx out" 
Unlike the apparent lack of understanding goals and objectives of this thread, with every other poster heavy in criticizing. I enjoy a rather unique perspective of holding enough knowledge to be dangerous and enough stupids to see a non-ground in perspective of accounting.
Everyone needs to think outside their little accounting classes because EVE is not the same as Real life.
A Raven is a Raven is a Raven made up of exactly the same materials in "similar" quantity and when reprocessed results in the same number of minerals being produced because of the reprocessing. The item never expires or gets old or damaged and holding on to either the minerals or the Raven doesn't change or reduce the cost it took to acquire the Raven or the Minerals.
This pretty much negates a good part of real life accounting consideration and brings it down to a really simple math. Cost in and Value out
I realized why the big hangup most have mentioned about asset valuation on the balance sheet. It's cost viewed as a item rather then a cost.
Dumbed down version, if I purchase 100mil of something, and sell 50mil worth of something, I still have 50mil worth of something to sell. Regardless of how much that 50mil worth of something or how much it's sold for, I have 50mil worth of cost to sell, so it should be accounted for as 50mil and nothing else.
Where the hangup was, that 50mil of something could be worth 100mil or could be worth 5mil on the market. While a NAV would show either 50mil gain or 45mil loss because that asset is only worth 100mil or 5mil. However the balance sheet is pure, so it must say, I have 50mil of something to sell. At the time of sale of that 50mil for whatever price, the balance sheet is then back to zero.
Like Hexxx, I believe asset value is important enough for overall corporation health. Trying to include that on the Balance sheet was trying to simplify it enough for normal people without the slightest understanding of accounting practices, to at least understand the corp is worth more then it was last month.
Now that all of that is out of the way, can we get to what else would make a good automated report LOL
Amarr for Life |
Hexxx
Minmatar
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Posted - 2009.10.27 16:40:00 -
[44] - Quote
Originally by: Varo Jan
Quote:
Anyway, you've got the criticism thing down...how about working on a solution with the rest of us?
Tsk, tsk! Tetchy when criticised? Again, you may have missed my earlier posts - plural.
You&re not going to get a solution in an MD thread. You&ll get a lot of uninformed opinions and some informed which will contradict each other (eg the merits of FIFO vs LIFO, average and standard costing).
I&ve already suggested a solution: recruit a qualified accountant to spec the system for you. Then have the system peer reviewed by other qualified accountants here.
You could also avoid reinventing the wheel by adapting an open source accounting package. Have a look at Source Forge, for example.
Contact me on MSN then and we can bump heads about how to get this to work. I'm wrestling with the design of how to get this to function appropriately.
dave.carter at gmail dot com
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Phoebe Halliwel
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Posted - 2009.10.27 16:44:00 -
[45] - Quote
Originally by: SencneS
Everyone needs to think outside their little accounting classes because EVE is not the same as Real life.
Dumbed down version, if I purchase 100mil of something, and sell 50mil worth of something, I still have 50mil worth of something to sell. Regardless of how much that 50mil worth of something or how much it's sold for, I have 50mil worth of cost to sell, so it should be accounted for as 50mil and nothing else.
Where the hangup was, that 50mil of something could be worth 100mil or could be worth 5mil on the market. While a NAV would show either 50mil gain or 45mil loss because that asset is only worth 100mil or 5mil. However the balance sheet is pure, so it must say, I have 50mil of something to sell. At the time of sale of that 50mil for whatever price, the balance sheet is then back to zero.
Like Hexxx, I believe asset value is important enough for overall corporation health.
It's not a dumbed down version; it's just dumb and demonstrates your lack of understanding of basic accounting.
3 or 4 different people have explained to you simply that profits are only realised at the point of sale on statutory reports, which the P&L/Balance sheet are. These are governed by global accounting standards. You and Hexx appear to be taking this as a criticism of your point of view, it's not, it's basic accounting. No matter how many times it's explained to you, you apparently aren't going to get it.
If you want to produce share reports that show unrealised profits in stock; fine. Create a separate branch of reports. But don't try to forcibly change/bastardise statutory reporting, as it will invite criticism. Management accounting reports for internal or shareholder use can be created without reference to statutory reports, provided you rationalise and highlight where they are different, and why. You may be quite correct and Eve may require a rather unique set of stock reports. Fair enough, get on with it.
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Prodigal
Caldari
New Genesis Project
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Posted - 2009.10.27 16:45:00 -
[46] - Quote
Originally by: Wyehr
Originally by: Prodigal
You have an inventory item which is worth 100M because either it cost you that much to make it or you bought it from someone else.
You now have an asset worth 100M.
When you dispose of the asset (i.e sell it) for 110M which is the current market value (i.e. current market value because someone was willing to pony up 110M for it) your reduce your inventory (asset) by 100M and increase your Gross Sales by 110M.
The Cost of Sales of that transaction was 100M which leaves you with a Net Profit of 10M.
This is essentially what you referred to as "asset appreciation" but you cannot record it as such UNTIL the sale has been made. And the transaction leaves you with net profit not "asset appreciation".
I'm sorry, but this is totally wrong too. Thank you for demonstrating my point. :)
Your asset has no value until after you sell it. Until that point, the best you can do is estimate how much you might be able to sell it for. And your estimate necessarily depends on a bunch of assumptions that may or may not be true.
OMG - I will just leave it at that.
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Hexxx
Minmatar
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Posted - 2009.10.27 16:49:00 -
[47] - Quote
Originally by: Phoebe Halliwel
Originally by: SencneS
Everyone needs to think outside their little accounting classes because EVE is not the same as Real life.
Dumbed down version, if I purchase 100mil of something, and sell 50mil worth of something, I still have 50mil worth of something to sell. Regardless of how much that 50mil worth of something or how much it's sold for, I have 50mil worth of cost to sell, so it should be accounted for as 50mil and nothing else.
Where the hangup was, that 50mil of something could be worth 100mil or could be worth 5mil on the market. While a NAV would show either 50mil gain or 45mil loss because that asset is only worth 100mil or 5mil. However the balance sheet is pure, so it must say, I have 50mil of something to sell. At the time of sale of that 50mil for whatever price, the balance sheet is then back to zero.
Like Hexxx, I believe asset value is important enough for overall corporation health.
It's not a dumbed down version; it's just dumb and demonstrates your lack of understanding of basic accounting.
3 or 4 different people have explained to you simply that profits are only realised at the point of sale on statutory reports, which the P&L/Balance sheet are. These are governed by global accounting standards. You and Hexx appear to be taking this as a criticism of your point of view, it's not, it's basic accounting. No matter how many times it's explained to you, you apparently aren't going to get it.
If you want to produce share reports that show unrealised profits in stock; fine. Create a separate branch of reports. But don't try to forcibly change/bastardise statutory reporting, as it will invite criticism. Management accounting reports for internal or shareholder use can be created without reference to statutory reports, provided you rationalise and highlight where they are different, and why. You may be quite correct and Eve may require a rather unique set of stock reports. Fair enough, get on with it.
Phoebe,
I want to create an Income Statement based on FICO, not including fair value of materials (unrealized gains). Now, originally I wanted to include fair value valuations of materials on the balance sheet but this too I realize is incorrect.
Now, MD likes it's NAV reports...I'm not sure how to address that just yet but I do know that I don't want to entirely bastardized years and years of basic accounting principles.
Just wanted to clear that up. I earned some of the criticism but not all of it. I tried to correct where I felt the criticism was warranted.
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Phoebe Halliwel
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Posted - 2009.10.27 16:58:00 -
[48] - Quote
Originally by: Hexxx
Phoebe,
I want to create an Income Statement based on FICO, not including fair value of materials (unrealized gains). Now, originally I wanted to include fair value valuations of materials on the balance sheet but this too I realize is incorrect.
Now, MD likes it's NAV reports...I'm not sure how to address that just yet but I do know that I don't want to entirely bastardized years and years of basic accounting principles.
Just wanted to clear that up. I earned some of the criticism but not all of it. I tried to correct where I felt the criticism was warranted.
Hexx - thanks for the reply. My criticisms aren't directed at you; if you're willing to create a discussion and change how you percieve this should be done, fair play to you. You are quite correct, you are doing more for the community than many others who have the knowledge and tools to do so. You're probably the first person I've seen who's taken the recommendation of getting a qualified accountant's advice on a project like this. It's a massive undertaking IMO to create an accounting package from the ground up, but one that I definitely support and see the need for. I'd be willing to contribute ISK wise to the development, but we need to get away from forum drama queening and move onto a dispassionate discussion about the appropriate standards to apply.
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 17:08:00 -
[49] - Quote
Originally by: Phoebe Halliwel
3 or 4 different people have explained to you simply that profits are only realised at the point of sale on statutory reports, which the P&L/Balance sheet are. These are governed by global accounting standards. You and Hexx appear to be taking this as a criticism of your point of view, it's not, it's basic accounting. No matter how many times it's explained to you, you apparently aren't going to get it.
I don't understand why you think I'm saying something different..
In fact what I said in there is exactly what you say right here, where in what I said indicated anything other then keeping the remainder of the 50mil of unsold assets should be recorded as 50mil ONLY...
Did you even READ what I said?
Amarr for Life |
Prodigal
Caldari
New Genesis Project
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Posted - 2009.10.27 17:13:00 -
[50] - Quote
I for one hope that Hexx can develop this tool as it is in sore need for Corp finances.
Any help that I can provide is being extended and I hope a few more "accountant like" folks would come forward also. If Hexx would have us that is.
I also agree with some of the generalists here that Eve IS NOT like RL and therefore the accounting does not need to be as complicated as it can get in RL (thank "insert deity here" for that!!)
I simply believe and hope that a standard can be developed that will acceptable by all and my sincere hopes that said standard will at least adhere to some basic accounting principles.
From an accountants POV - the current standard set (as Hexx mentions) with the NAV reports are a joke at best (imho) and do not make any sense at all to accountants let alone to the general public or "joe investor" for that matter.
We need this tool more than most of us realise. Once its there things can finally move along as they should.
Cheers,
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Wyehr
Shadow Of The Light
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Posted - 2009.10.27 17:25:00 -
[51] - Quote
Originally by: Prodigal
Originally by: Wyehr
Originally by: Prodigal
You have an inventory item which is worth 100M because either it cost you that much to make it or you bought it from someone else.
You now have an asset worth 100M.
When you dispose of the asset (i.e sell it) for 110M which is the current market value (i.e. current market value because someone was willing to pony up 110M for it) your reduce your inventory (asset) by 100M and increase your Gross Sales by 110M.
The Cost of Sales of that transaction was 100M which leaves you with a Net Profit of 10M.
This is essentially what you referred to as "asset appreciation" but you cannot record it as such UNTIL the sale has been made. And the transaction leaves you with net profit not "asset appreciation".
I'm sorry, but this is totally wrong too. Thank you for demonstrating my point. :)
Your asset has no value until after you sell it. Until that point, the best you can do is estimate how much you might be able to sell it for. And your estimate necessarily depends on a bunch of assumptions that may or may not be true.
OMG - I will just leave it at that.
Well, I guess that is sure easier than reading or responding to the post. Let me repeat the first couple of lines:
You have an inventory item. That much can objectively be true.
It may or may not be "worth" 100M. The only way to be sure is to sell it for that much.
If it turns out to have been worth 100M, it sure as hell wasn't "because" you paid that much for it. And if you sell it for 110M, that should make it even more clear that 1) the "value" you had recorded for it was wrong, and 2) the lie you told yourself to explain the value you imagined for it was also wrong.
Back to Hexxx's topic. I think an automated tool is a great idea. Not that I imagine that the reports it generates will be any more honest than the ones done by hand, but by automating the procedure everyone can have the same flaws rather than picking the flaws most favorable to them at the moment.
What he should not do is feel overly constrained by real world conventions. There are no "statutory reports". Those laws do not exist here. There is no advantage in recording a profit or loss at any time more than another. The tax laws and wall street reporting cycles that make this important in real life do not exist here. |
Phoebe Halliwel
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Posted - 2009.10.27 18:06:00 -
[52] - Quote
Originally by: SencneS
Did you even READ what I said?
I did; your numbers suggested you agreed, but the final statement contradicted the principle.
Originally by: SencneS
Like Hexxx, I believe asset value is important enough for overall corporation health.
Either way I agree with you in part. For internal or even external reporting you may wish to analyse your stock in more detail. Personally, I think you should do this away from recognisable financial statements and create something bespoke for Eve, that becomes a generally accepted form of reporting. At the moment the NAV is nowhere near that.
Originally by: Wyehr
What he should not do is feel overly constrained by real world conventions. There are no "statutory reports". Those laws do not exist here. There is no advantage in recording a profit or loss at any time more than another. The tax laws and wall street reporting cycles that make this important in real life do not exist here.
Don't agree with this, although its a valid point of view. Even if Eve users are not subject to RL legislation(yet), statutory reports are also bound by Generally Accepted Accounting Principles (GAAP) - not all accountants adhere to these principles because of legislation in their native country. If you look at GAAP you'll see concepts like prudence, materiality and consistency. There is every reason these principles should be considered in Eve reporting as much as in RL, regardless of whether we are legally bound to use them.
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SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 18:27:00 -
[53] - Quote
Edited by: SencneS on 27/10/2009 18:33:43
Originally by: Wyehr
What he should not do is feel overly constrained by real world conventions. There are no "statutory reports". Those laws do not exist here. There is no advantage in recording a profit or loss at any time more than another. The tax laws and wall street reporting cycles that make this important in real life do not exist here.
As it's plainly clear a simple question like "Should assets be recorded as cost or value" on a the balance sheet yielded a heap of posts, people from different countries and different point of views, all had similar tones. What's funny is the same argument used in a different case would indicate that "MINED MINERALS ARE FREE".
In a Balance sheet any minerals you had mind could have a "Zero" cost. Mining companies use the costs associated with mining as the "Cost" of the materials they have mined. It also includes depreciated fixed assets. In EVE there is no depreciation of your mining equipment apart from Mining Crystals (If you use them). You also don't have to pay out workers or any other real cost. While the initial cost is there, you could depreciate the value of the equipment as some sort of cost. However, after a while you will have mined out enough to have paid back 100% of the initial cost, or be fully depreciated.
What now? You have this equipment, which doesn't "cost" you anything yet can grow the value of your company to an infinite value over time. You could potentially have an endless supply of raw materials that cost nothing on your balance sheet if you go with what these "accountants" say. This goes against the "Mined minerals should be marked at market value" these same accountants peddle every time someone asks!
Don't get me wrong I'm on the side of using fair value for mined minerals. However it's a classic example of Real Life and EVE Life simply do NOT translate. So why would a Balance sheet need to be 1:1 translation when a 1:1 translation could land you in some SERIOUS trouble in EVE..
Edit:- MIND into MINED
Amarr for Life |
Chingyz
Caldari
untaught
Blade.
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Posted - 2009.10.27 19:02:00 -
[54] - Quote
Originally by: Varo Jan
Originally by: Hexxx
I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.
No, no! You can&t use one valuation method for one side of the balance sheet and another for the other side!
Not if your intention is to provide a "mature" accounting tool, one in accordance with even the simplest accounting standards.
English is not my first language so bear with me on this.
It is not only possible to use different valuation for your income statement and your balance sheet, it is actually in some ways recommended that you do it. Take a look at the IAS, which is what most countries in some way is moving towards when it comes to accounting standards.
You use FIFO, LIFO average or whatever for pricing in your income statemnet and then you use most recent market prices in your balance sheet under your assets. The diffrence is then offset under asset depreciation or appreciation.
The difference between the income statement and the balance sheet is that the income statement shows your historic transactions, while the Balance sheet shows the value of your company at the end of your accounting period.
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Mme Pinkerton
Caldari
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Posted - 2009.10.27 19:04:00 -
[55] - Quote
Edited by: Mme Pinkerton on 27/10/2009 19:05:17
Originally by: SencneS
Don't get me wrong I'm on the side of using fair value for mined minerals. However it's a classic example of Real Life and EVE Life simply do NOT translate. So why would a Balance sheet need to be 1:1 translation when a 1:1 translation could land you in some SERIOUS trouble in EVE..
but minerals you mine yourself *are* free IRL - let's say I have inherited a piece of land and discover it has a natural spring on it. So, I am going to build a well and bottle the water for selling.
Guess what, the "value" of the actual water will never appear on my balance sheet (only the cost of refining/bottling the water). Not any different from EVE. Yes, even in EVE, ore/minerals you mine yourself are free - only the time you needed to mine/refine them is not.
The only difference is that for statuary purposes you cannot book opportunity costs, while for internal management usage it might be useful to include some kinds of opportunity costs in your "balance" sheet (e.g. if you don't pay yourself a wage, but only pay yourself out of your ventures' profit, you should definetely have a look at your labor's opportunity cost - but that's only for *internal* decision making).
" Credit is the economic judgement on the morality of a man. " |
SencneS
Rebellion Against Big Irreversible Dinks
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Posted - 2009.10.27 19:21:00 -
[56] - Quote
Originally by: Mme Pinkerton
Guess what, the "value" of the actual water will never appear on my balance sheet (only the cost of refining/bottling the water). Not any different from EVE. Yes, even in EVE, ore/minerals you mine yourself are free - only the time you needed to mine/refine them is not.
The only difference is that for statuary purposes you cannot book opportunity costs, while for internal management usage it might be useful to include some kinds of opportunity costs in your "balance" sheet (e.g. if you don't pay yourself a wage, but only pay yourself out of your ventures' profit, you should definetely have a look at your labor's opportunity cost - but that's only for *internal* decision making).
That really didn't address the issue :) However, I have applied bold your statement. From my understanding the costs associated with the refining and bottling of the water IS the cost of the bottled water in inventory. While the water is in the spring it's not in sell able form and you certainly can't claim it as an asset on your balance sheet. Only until it's been extracted from the spring and placed in sell able form can you actually sell it. The costs associated with making it sell able is what is used.
Mind you I don't work for a Mining company I'm going of a few investment sites information about how to read a mining companies balance sheet. Apparently it's vastly different then an average companies balance sheet.
The issue that it didn't solve is how do you account for magical items that appear in inventory with no "Cost" associated with them. Things like Mined minerals, Mission Loot, Exploration rewards, and salvage etc.
Amarr for Life |
Mme Pinkerton
Caldari
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Posted - 2009.10.27 19:42:00 -
[57] - Quote
Edited by: Mme Pinkerton on 27/10/2009 19:43:12
Edited by: Mme Pinkerton on 27/10/2009 19:42:18
Originally by: SencneS
The issue that it didn't solve is how do you account for magical items that appear in inventory with no "Cost" associated with them. Things like Mined minerals, Mission Loot, Exploration rewards, and salvage etc.
For statuary accounting, you account for them once you have sold them.
I think what you still have not completely realized is that every serious company IRL uses a number of very different accounting schemes in parallel. There's a reason why there are 3 accounting lectures (general statuary accounting, internal & external accounting, accounting for finance/investment) in my university curriculum - and I am doing economics, not business administration.
For external accounting (and that's what an auditor should confirm) the key idea is to create as much comparability between enterprises as possible (i.e. strict standards) while giving equity holders/investors data they can rely on (say, in case of a chapter 7-like insolvency).
In internal accounting (you would generally not base any business decisions on the balance sheet done for the external world) you can do whatever you deem to be useful - but no analyst or investor is ever going to see these balance sheets. In internal accounting you are more concerned with getting a realistic estimate of the state of your business (not a super-conservative one), e.g. one of my professors suggests that you should include the projected value of your customer-base and your human capital ressources in your internal balance sheets - you could ofc never write these in any officially published balance sheet.
I get the feeling that you think that internal accounting practices should be applied to the balance sheets you are going to publish - that's generally not the case (reasons listed above).
" Credit is the economic judgement on the morality of a man. " |
Hexxx
Minmatar
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Posted - 2009.10.27 20:22:00 -
[58] - Quote
Originally by: Mme Pinkerton
Edited by: Mme Pinkerton on 27/10/2009 19:43:12
Edited by: Mme Pinkerton on 27/10/2009 19:42:18
Originally by: SencneS
The issue that it didn't solve is how do you account for magical items that appear in inventory with no "Cost" associated with them. Things like Mined minerals, Mission Loot, Exploration rewards, and salvage etc.
For statuary accounting, you account for them once you have sold them.
I think what you still have not completely realized is that every serious company IRL uses a number of very different accounting schemes in parallel. There's a reason why there are 3 accounting lectures (general statuary accounting, internal & external accounting, accounting for finance/investment) in my university curriculum - and I am doing economics, not business administration.
For external accounting (and that's what an auditor should confirm) the key idea is to create as much comparability between enterprises as possible (i.e. strict standards) while giving equity holders/investors data they can rely on (say, in case of a chapter 7-like insolvency).
In internal accounting (you would generally not base any business decisions on the balance sheet done for the external world) you can do whatever you deem to be useful - but no analyst or investor is ever going to see these balance sheets. In internal accounting you are more concerned with getting a realistic estimate of the state of your business (not a super-conservative one), e.g. one of my professors suggests that you should include the projected value of your customer-base and your human capital ressources in your internal balance sheets - you could ofc never write these in any officially published balance sheet.
I get the feeling that you think that internal accounting practices should be applied to the balance sheets you are going to publish - that's generally not the case (reasons listed above).
So from the perspective of external accounting, how do we account for items which "magically" appear in inventory with no trace in any API record?
Should these instances be flagged and manual categorization be performed?
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Phoebe Halliwel
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Posted - 2009.10.27 20:26:00 -
[59] - Quote
Originally by: Mme Pinkerton
For statuary accounting, you account for them once you have sold them.
I get the feeling that you think that internal accounting practices should be applied to the balance sheets you are going to publish - that's generally not the case (reasons listed above).
Better said than I could, this was essentially what I was getting at.
In the UK it's financial vs management accounting. Financial accountants produce the stat reports, management produces internal reports that are used to look at specific areas to analyse cost/profit. To be qualified you need to be able to produce both. What's interesting and perhaps relevant is that management accounting evolved from Cost Accounting and is perhaps relevant to this discussion. Large scale businesses do need to report in detail on specific areas that are not covered by stat reports to aid decision making.
I don't think the accountants that are posting have been "yapping" SencneS or being overtly hostile. They are offering their opinion and being countered repeatedly with "Eve isn't the real world", "MD is used to the (laughable) NAV report" and "I think it should be like this". At which point they'll either try to explain their POV or walk away. What's the point of creating a discussion thread about accounting standards if you are not willing to accept these points of view without throwing a forum tantrum and abusing the very people whose opinions may be useful?
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Varo Jan
Minmatar
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Posted - 2009.10.27 20:28:00 -
[60] - Quote
Originally by: Chingyz
Originally by: Varo Jan
You can&t use one valuation method for one side of the balance sheet and another for the other side!
English is not my first language so bear with me on this.
It is not only possible to use different valuation for your income statement and your balance sheet, it is actually in some ways recommended that you do it. Take a look at the IAS, which is what most countries in some way is moving towards when it comes to accounting standards.
You use FIFO, LIFO average or whatever for pricing in your income statemnet and then you use most recent market prices in your balance sheet under your assets. The diffrence is then offset under asset depreciation or appreciation.
Read IAS2. The fundamental principle of that accounting standard is: "Inventories(stock) are required to be stated at the lower of cost and net realisable value (NRV). [IAS 2.9]" In practice, that means that stock enters the balance sheet at cost and remains at cost unless seriously adverse conditions occur. You do *not* revalue stock (a current asset & part of your working capital) upwards. Ever.
I suspect you may be confusing current assets with fixed assets, where the latter are depreciated as a matter of course and are very occasionally revalued.
Quote:
The difference between the income statement and the balance sheet is that the income statement shows your historic transactions, while the Balance sheet shows the value of your company at the end of your accounting period.
I prefer to think of it like this. The P&L or Income statement is one line in the balance sheet. It tells you how well or badly you have done over a period of time. The balance sheet is a snapshot of a company&s financial status/health at a specific point in time.
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