Originally by: Claire Voyant

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Isn't FIFO kind of archaic? Does it make sense to say the profit on an item is based on materials purchased maybe months ago, instead of comparing current sales price against current material cost on the market. Then you also track you inventory (both materials and finished goods) against market value and try to manage the market risk of your inventory. Either by keeping inventory as low as possible, or by "hedging" by buying inventory when prices are low and not buying when prices are high. Anyway, that is what I would do if I could be bothered.

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Originally by: Chingyz

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If your program is going to be used by auditors then you are looking at a bigger problem then just the pros and cons of FIFO versus average (or any of the other types of valuation). For finding profit of historic transactions then it really doesn't matter that much which type of valuation you use (although there are more benefits to FIFO). The problem lies in the valuation of your assets. When it comes to assets like stock of finished goods or raw materials it's often better to use current prices for valuation rather than FIFO. This is due to the nature of assets, which is to show what they are worth at the end of the historic period

The best way to get around this is to have several layers/pages in your program. Use one for profit calculations, based on the FIFO principle. One for assets based on current prices. This can also be used as a tool for setting sale price of your items.

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Originally by: Chingyz

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The best way to get around this is to have several layers/pages in your program. Use one for profit calculations, based on the FIFO principle. One for assets based on current prices. This can also be used as a tool for setting sale price of your items.

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Originally by: Hexxx

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I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.

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Originally by: Hexxx

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I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.

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Originally by: Hexxx

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I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.

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Originally by: Claire Voyant

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Originally by: Hexxx

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I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.

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Very difficult to do because the numbers on the two statements need to agree. You would probably need some inventory adjustment on the income statement to account for market changes, but that would make your whole FIFO valuation moot.

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Tracking first in and first out (FIFO) allows not just for assigning specific costs to individual manufactured items but the profits for trading any given item.

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Doing so is a superior solution to simple cost averaging (though cost averaging remains a useful tool) for accounting for cash flows and balance sheets.

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Reconciling on a daily basis allows for reconciling direct trades and pulls from Corporate hangers.

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Multiple characters can provide inputs into a single automatic and near real-time business report.

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Manufactured cost is actually pretty simple since manufactured items and associated costs can be maintained in a separate table and then simply reconciled against transaction logs.

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Originally by: Don Caetano

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I gave some hard thought to the subject recently (when I was setting up my manufacturing profit database) and what I was actually looking for was not FIFO but LIFO accounting, as I am more interested in accurate representation of current P/L than balance sheet.
After some more hard thought on how it could be acheived (and how much time it would take) I settled on averaging as an acceptable compromise.

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Originally by: Claire Voyant

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What I'm suggesting is something like the "mark to market" accounting rules for financial companies. For my business, I could take the inventory of all my raw materials, components, and finished products and calculate their value according to the current prices of 7 minerals. Seems a lot simpler to me.

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Originally by: SencneS

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FIFO on Income and Market valuation on Balance, No I don't agree. Balance sheet would need to be FIFO as well, but assets would be considered market valuation, maybe as some sort of passive growth. Say you have 100mil units of trit which you purchased for 2ISK each, and it's now worth 2.1 ISK each. You'd show 10mil in asset growth, which on the balance sheet would be it's own line entry. Each month this could be up or down. However it doesn't effect FIFO as it's asset value is being captured on it's own record.

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Originally by: Prodigal

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Asset "appreciation" (asset growth as you called it) does not make it on the balance sheet in its own line. On the balance sheet that becomes Gross Profit and valued against the Cost of Goods Sold line of the assets of your Balance Sheet.

The only time an assets market value is being considered is when said company is disposing of that asset (or i.e. selling said asset) is looking to sell shares of said company or selling the entire company or operation.

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Originally by: SencneS

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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.

edit:- lol sorry I had a brain fart, you wouldn't report it 10mil per month LOL Just 10mil on the first month and 0 as it's value hasn't gone up any more. duh, been a long day.

edit#2:- I still don't like it in Gross Profit though.. If you account for asset appreciation of materials in one month, then you use those materials the following month you'll have to remove the "Profit" the following month as now you're using those materials which will also have realized profits when the produced item sells.

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Originally by: SencneS

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Edited by: SencneS on 26/10/2009 23:20:10
Edited by: SencneS on 26/10/2009 23:15:36

Originally by: Prodigal

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Asset "appreciation" (asset growth as you called it) does not make it on the balance sheet in its own line. On the balance sheet that becomes Gross Profit and valued against the Cost of Goods Sold line of the assets of your Balance Sheet.

The only time an assets market value is being considered is when said company is disposing of that asset (or i.e. selling said asset) is looking to sell shares of said company or selling the entire company or operation.

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In real life this is acceptable, however in EVE, you never really "Dispose" of an asset. Sure you can, but why would you, you'd sell it for whatever you can get for it. Since items don't expire, appreciation and depreciation should be accounted for when running an audit. Although I can see it being used in "Gross Profit" I think it's a little dangerous in there, because unrealized gain or loss. You really shouldn't report it month after month in profits or losses for that matter.

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Originally by: SencneS

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In real life this is acceptable, however in EVE, you never really "Dispose" of an asset.

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Originally by: SencneS

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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.

edit:- lol sorry I had a brain fart, you wouldn't report it 10mil per month LOL Just 10mil on the first month and 0 as it's value hasn't gone up any more. duh, been a long day.

edit#2:- I still don't like it in Gross Profit though.. If you account for asset appreciation of materials in one month, then you use those materials the following month you'll have to remove the "Profit" the following month as now you're using those materials which will also have realized profits when the produced item sells.

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Originally by: Prodigal

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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".

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Originally by: Wyehr

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I am supremely unqualified to have any opinions on accounting.

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Originally by: Wyehr

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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.

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Originally by: SencneS

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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.

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Originally by: SencneS

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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.

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NAV reporting must be a part of that, as MD have grown accustom to seeing it in reports.

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We all know MD/EVE Accounting differs from real life accounting, this is just one of them.

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Originally by: Hexxx

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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. ...

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Originally by: Varo Jan

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His opening post deals with stock valuation only.

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Originally by: Varo Jan

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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.

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Originally by: Varo Jan

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NAV reporting must be a part of that, as MD have grown accustom to seeing it in reports.

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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.

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We all know MD/EVE Accounting differs from real life accounting, this is just one of them.

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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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I am not an accountant, but I don't think I'm as off-base as you imply. I can read a balance sheet

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Originally by: Varo Jan

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Originally by: Hexxx

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I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.

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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.

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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)

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Anyway, you've got the criticism thing down...how about working on a solution with the rest of us?

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Originally by: Varo Jan

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Anyway, you've got the criticism thing down...how about working on a solution with the rest of us?

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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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Originally by: SencneS

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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.

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Originally by: Wyehr

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Originally by: Prodigal

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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".

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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.

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Originally by: Phoebe Halliwel

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Originally by: SencneS

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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.

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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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Originally by: Hexxx

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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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Originally by: Phoebe Halliwel

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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.

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Originally by: Prodigal

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Originally by: Wyehr

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Originally by: Prodigal

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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".

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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.

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OMG - I will just leave it at that.

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Originally by: SencneS

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Did you even READ what I said?

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Originally by: SencneS

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Like Hexxx, I believe asset value is important enough for overall corporation health.

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Originally by: Wyehr

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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.

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Originally by: Wyehr

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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.

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Originally by: Varo Jan

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Originally by: Hexxx

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I'd imagine I would use FIFO for the Income statement and then asset valuation on current market prices for the Balance Sheet.

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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.

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Originally by: SencneS

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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..

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Originally by: Mme Pinkerton

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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).

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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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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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Originally by: Mme Pinkerton

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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).

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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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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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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.

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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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Originally by: Varo Jan

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Originally by: Claire Voyant

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Originally by: Varo Jan

---

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.

---

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.

---

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: Claire Voyant

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I have repeatedly said I'm not talking about valuing manufactured items at their hypothetical selling price. What I am talking about is updating the "cost" to reflect current mineral prices, call it "current production cost" and updating the value of raw mineral inventory to current market prices. If you ask me, the recent massive drop in trit supports my case.

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Originally by: Wyehr

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SencneS, please stop and read your post carefully. You are saying that two identical units of tritanium have different values depending on how much you paid for them. This may be "good accounting", but is it totally ****ing wrong.

If you are wondering, the least insane way for a builder to view the value their inventory is at the price their next batch will cost.

In your example, when the price of trit swung from 2.9 to 2.51, you can put that trit into a new pile, shine it up real good and pass it down to your children as a cherished family heirloom, but that money is gone. If you wait for the value to come back up over 2.9, you'll get your 195M ISK back, but it'll cost you however much you could have earned if you hadn't idled 1.255B ISK of your assets for the duration, and if it never comes back you won't have lost 195M ISK, but 1.45B ISK.

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Originally by: SencneS

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Edited by: SencneS on 28/10/2009 14:48:45
You do realize in the example I'm also purchasing what was consumed. If I used 1b units of trit I repurchase 1b to recovery the consumption.

I didn't say it was a smart business plan, just the way I was considering accounting for consumption and the rather quick market changes in materials.

What I don't think you understand is I could care less about that trit that cost 2.9 ISK, if it sits there for an eternity, so be it. If I used it in production, a Shuttle would cost 7,250 ISK in materials. There is no way it will ever sell if people are selling for 7,249 and making a 974 ISK per shuttle because they purchased trit for 2.51. It would be utter stupidity for me to keep the shuttles at build cost on the market when everyone else is buying new trit at 2.51 and selling them cheaper.

Sure I could take a loss, but I'd rather sit on the inventory which costs nothing to sit on, and hope one day the price of trit gets above 2.9. And here is why - You say "You'll get your 195M back but it'll cost you however much you could have earned if you hadn't idled 1.255B ISK in your assets..." I didn't idle anything, you can only produce at a given rate, if I choose to purchase materials cheaper then my inventory cost, use it, and sell, my production didn't idle. You can only produce so fast.

Maybe it might help if I added ONE SINGLE LINE to the example.

"I produce shuttles at the fastest rate possible and at the maximum production rate I can obtain, constantly without break."

There does that make it better for you?

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Originally by: Wyehr

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This may be "good accounting", but is it totally ****ing wrong.

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Originally by: Wyehr

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If you are wondering, the least insane way for a builder to view the value their inventory is at the price their next batch will cost.

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Originally by: Wyehr

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In your example, when the price of trit swung from 2.9 to 2.51, you can put that trit into a new pile, shine it up real good and pass it down to your children as a cherished family heirloom, but that money is gone. If you wait for the value to come back up over 2.9, you'll get your 195M ISK back, but it'll cost you however much you could have earned if you hadn't idled 1.255B ISK of your assets for the duration, and if it never comes back you won't have lost 195M ISK, but 1.45B ISK.

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Originally by: SencneS

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I just remembered the biggest reason why I rationalized doing that. I considered the fact that I had IDLE Cash/Capital. Which is worse, Idle cash or idle inventory?

Using the idle inventory is guaranteed to take a loss. Using idle cash to purchased cheaper inventory, use it, and sell product results in a profit.

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Originally by: Wyehr

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As a builder, your cost for production is how much it will cost you in the future to replace the materials you are using right now, not how much you paid for them in the past.

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Originally by: Prodigal

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Originally by: Wyehr

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As a builder, your cost for production is how much it will cost you in the future to replace the materials you are using right now, not how much you paid for them in the past.

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Are you really serious about that statement!?!?

This is fundamentally wrong no matter what "accounting method" you are using.

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Originally by: Wyehr

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I'll do a car analogy. You buy a new car and it either comes with a full tank of gas or you fill it up. The cost of that gas either way is part of the cost of the car. As you drive, you borrow from the tank, and you have to refill it at some future rate. If you get screwed and end up paying way too much for gas one day, you sure as hell don't park the car and tell yourself that it is the right thing to do because the gas in it is "worth" a fortune. The gas is "worth" as much as it is going to cost you to replace it after you use it, regardless of how much you paid for it, or how much you should have paid for it.

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Originally by: Prodigal

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Originally by: Wyehr

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I'll do a car analogy. You buy a new car and it either comes with a full tank of gas or you fill it up. The cost of that gas either way is part of the cost of the car. As you drive, you borrow from the tank, and you have to refill it at some future rate. If you get screwed and end up paying way too much for gas one day, you sure as hell don't park the car and tell yourself that it is the right thing to do because the gas in it is "worth" a fortune. The gas is "worth" as much as it is going to cost you to replace it after you use it, regardless of how much you paid for it, or how much you should have paid for it.

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Only one problem with your analogy....

When you buy a BPO or BPC - It DOES NOT come along with a manufacturing job running in it already.

If this does not make sense to you, then you will have to accept the fact that I simply cannot waste any more time explaining it.

We will simply have to write you off of the books.

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Originally by: Claire Voyant

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What I am talking about is updating the "cost" to reflect current mineral prices, call it "current production cost"

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Quote:

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My first coding project thirty years ago was an accounting program for a commodities futures trader. We used mark-to-market accounting because that was the standard and our statements had to agree with the statements the customers were receiving from their brokers. I know for a fact that accounting standards do change to reflect new technologies, etc.

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