Originally by: Varo Jan

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Originally by: Chingyz

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Originally by: Varo Jan

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You can&t use one valuation method for one side of the balance sheet and another for the other side!

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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.

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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:

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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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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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Originally by: Hexxx

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Originally by: Mme Pinkerton

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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

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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.

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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).

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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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Originally by: Varo Jan

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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.

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Originally by: Selene D'Celeste

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Yes, let's apply real world rules and reasoning to accounting in an environment which is distinctly different from the real world. Hexxx, if you're actually going to spend time on this, then go for what's practical. People care about estimated value. So do that. No one is going to give a **** that money is tied up in a Raven as opposed to liquid. If that raven is worth around X, then mark it down as X, and move on.

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Originally by: Hexxx

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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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Originally by: Hexxx

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Originally by: Selene D'Celeste

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Yes, let's apply real world rules and reasoning to accounting in an environment which is distinctly different from the real world. Hexxx, if you're actually going to spend time on this, then go for what's practical. People care about estimated value. So do that. No one is going to give a **** that money is tied up in a Raven as opposed to liquid. If that raven is worth around X, then mark it down as X, and move on.

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I'm trying to tackle this issue and others...I really do appreciate the amount of discussion so far.

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Originally by: Phoebe Halliwel

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Originally by: Hexxx

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Originally by: Selene D'Celeste

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Yes, let's apply real world rules and reasoning to accounting in an environment which is distinctly different from the real world. Hexxx, if you're actually going to spend time on this, then go for what's practical. People care about estimated value. So do that. No one is going to give a **** that money is tied up in a Raven as opposed to liquid. If that raven is worth around X, then mark it down as X, and move on.

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I'm trying to tackle this issue and others...I really do appreciate the amount of discussion so far.

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Glad you do Hexxx, so do I, it's a nice change from normal MD discussions

^^ The above statement, if you were to replace the word Raven with Golem, Rhea, Wyvern or Leviathan right now... you'd be looking at some extremely creative accounting if you try to value unsold stock (build, partially built or materials for production) at this point at current market value. Hence the argument about what stock should be valued at.

Selene, explain where "pragmatism" outweighs showing a "true and fair picture" in financial reporting.

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Originally by: Selene D'Celeste

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Yes, let's apply real world rules and reasoning to accounting in an environment which is distinctly different from the real world.

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Originally by: Varo Jan

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Off the top of my head that includes:

1. Mined ores
2. Mission rewards (including Cosmos, Epic Arc, Data Centre... Any others?)
3. Mission drops
4. PvP drops (or can the API extract this info from kill mails?)
5. Salvage (from missions, ratting and ninja activities)
6. Direct Trades (?)

Am I missing any?

Valuation at market cost gets my vote.

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Originally by: Phoebe Halliwel

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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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Originally by: Varo Jan

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Originally by: Selene D'Celeste

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Yes, let's apply real world rules and reasoning to accounting in an environment which is distinctly different from the real world.

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Enough already with this smokescreen. If you want to run a successful business long term *anywhere* you need realistic accounting standards. If MD wants to evolve, it needs consistent accounting standards applied to all businesses - your bank-to-be included.

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Originally by: Hexxx

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Originally by: Varo Jan

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Originally by: Selene D'Celeste

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Yes, let's apply real world rules and reasoning to accounting in an environment which is distinctly different from the real world.

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Enough already with this smokescreen. If you want to run a successful business long term *anywhere* you need realistic accounting standards. If MD wants to evolve, it needs consistent accounting standards applied to all businesses - your bank-to-be included.

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So how do we account for the problem areas I listed; loot, mining your own minerals, salvage, etc?

I'm looking for possible solutions here.

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Originally by: Claire Voyant

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Originally by: Varo Jan

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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.

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While I understand the need for this rule in the real world with real-word products, we are playing an internet space ship game with the possibility of perfectly efficient production and perfectly efficient reprocessing. I for one would like to talk more about why you feel this rule is appropriate in Eve, and less about the way it is done in the real world.

If I am producing shuttles, give me one good reason why I shouldn't value them based upon the current value of the trit they contain, or for that matter, why I shouldn't value a pile of trit at it's current market price.

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Originally by: SencneS

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Direct Trade doesn't tell you what it was that was traded, it's like contract, shows up as a journal entry with a value on it. But doesn't tell you what it is.

Direct Trade and Contracts can be accounted for in terms of value, just not what items where associated with it. Maybe that's what needs to be done. Account for these as raw cash expense/profits. Any item that magically appears gets filed as fair value.

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Originally by: Varo Jan

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Originally by: Claire Voyant

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Originally by: Varo Jan

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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.

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While I understand the need for this rule in the real world with real-word products, we are playing an internet space ship game with the possibility of perfectly efficient production and perfectly efficient reprocessing. I for one would like to talk more about why you feel this rule is appropriate in Eve, and less about the way it is done in the real world.

If I am producing shuttles, give me one good reason why I shouldn't value them based upon the current value of the trit they contain, or for that matter, why I shouldn't value a pile of trit at it's current market price.

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Is coding in Eve any different to the real world? Is marketing in Eve different? Is man-management different? Is researching a market different? No, no, no and no. So what&s with all the angst about accounting?

One of the foundations of accounting is conservatism. That principle doesn&t disappear here in Eve. That&s why you should show your shuttles at cost - not at some hypothetical selling price. In fact, the principle applies very strongly here. Look at the recent massive drop in trit alone. Look at the wild fluctuations in module prices you see on a daily basis.

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Originally by: Drab Cane

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Hexx, you're going to have to manually record the 'magic bucket' items.

Record the items at whatever market price you would reasonably pay for them. It will constitute an increase to your assets, and an increase to your revenue. Show the revenue as "Revenue from . . ." whatever the source was (mining, salvage, loot) on the income statement.

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Originally by: Hexxx

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So *IF* we can account for exact cost, we do so.

If we can't account for exact cost (so called "magic bucket" items), what do we do then? Are they zero cost? From an income statement perspective I'm ok with that, but how do we show that in a balance sheet? Do they not show up on the balance sheet?

I think this is what drove most people to adopt a NAV report, it's just easier....easier isn't what I want. I want something more accurate and more detailed than just a NAV dump.

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Originally by: SencneS

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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.

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Originally by: Drab Cane

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Along the same vein as Wyehr's question, Hexxx, are you looking at building a system for your operations only, or are you looking at a system that could be rolled out for other, interested players?

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Originally by: Drab Cane

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Again, regarding recording items that have not been obtained through the EVE market (and thus through the API):

Would it be safe to say that an NAV worksheet is pretty much the standard financial statement for EVE? I would think that assets are relatively easy for an auditor to tie out with the NAV, and any liabilities would just have to be confirmed.

My point is, your balance sheet and income statement could be used as internal reports, and the NAV would be used for external purposes (auditors and investors).

You could reflect whatever asset value seems reasonable for your internal accounting, and reflect market value on your NAV. As long as your accounting system correctly tracks how many assets (inventory, etc.) you have, and how much cash you have in your wallet(s), producing both the internal and external reports should be straightforward.

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Originally by: Drab Cane

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It sounds like you do want to have an auditor confirm not just the value of the operation, but its profits and expenses as well. I don't think you'll find a shortcut, you'll have to go 'all in'. The API simply does not track enough information to properly track most asset transactions, and you will need to generate your own records that fill the gaps (as I believe someone suggested above already).

Why is grouping alts that much of a challenge? As far as I know, all transaction/journal/asset IDs are system-wide. Track individual alts as their own 'department'. Add a 'department' field to your import tables, and fill it with either the ID of the character you're importing from, or the number of the corp wallet.

You should be able to code the 'department' field in such a way that you can automatically handle 'inter-departmental' transactions (at least, that's the theory).

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