tag:blogger.com,1999:blog-37872616.post969248546690901832..comments2024-03-28T18:20:20.744+08:00Comments on BULLy the BEAR: My adventure into accountingsla papillionhttp://www.blogger.com/profile/01372278083694506953noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-37872616.post-15200856702520977792008-08-21T10:06:00.000+08:002008-08-21T10:06:00.000+08:00thanks LP for the lenghty explanationthanks LP for the lenghty explanationMike Dirnthttps://www.blogger.com/profile/04811948691612939470noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-31348638997863814252008-08-20T10:14:00.000+08:002008-08-20T10:14:00.000+08:00Mike,Thks for your suggestion. As I said before, I...Mike,<BR/><BR/>Thks for your suggestion. As I said before, I'm a newbie at the time I was doing this. Now I've seen enough balance sheets to make it look like the real thing :)<BR/><BR/>Before i tell you what is the difference between expensing and capitalising, you should know that there is a difference between cost and expense. If I buy something for $1000, the cost of $1000 can consist of $300 of asset and $700 of expense. <BR/><BR/>The cost of buying something that can be 'expensed' or 'capitalised'. Let's say I bought a machine at $1000 and wanted to capitalise it. This means that I straight away add the $1000 to the assets column of balance sheet and deduct $1000 from cash flow (assume i fork out $1000 to buy that machine). If I assume that the machine can be used for 10 yrs, I'll linearly depreciate the machine at $100 per year. This $100 per year will be deducted in the income statement and reduces my earnings, but it did not affect cash flow anymore (since I already straight away reduce $1000 in cash flow already). That is also the reason why to find operating cash flow, we need to 'add in' depreciation.<BR/><BR/>If I choose to expense it, it means that $1000 will be put under 'cost of goods sold' in income statement, straightaway reducing my earnings by $1000 (hence reducing my equities (retained earnings) by $1000). At the same time, I'll also deduct $1000 from cash flow (reducing my assets (current assets) by $1000). Still balanced! But take note, there will not be any depreciation charges for expensing the $1000 machine.<BR/><BR/>To summarise, to expense an item is to take a one-shot pain of reducing net income of that year of purchase by the cost of that item, no depreciation after that. To capitalise an item, we put it all into asset first, then slowly reduce the value of that asset and reducing each year by a fixed depreciation charge to the net earnings from the year of purchase.<BR/><BR/>Cheam hor?!la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-15953791789414526192008-08-20T01:55:00.000+08:002008-08-20T01:55:00.000+08:00LP very nice illustration. But its good if you put...LP very nice illustration. But its good if you put the period or day on top of the balance sheet and income statement.<BR/><BR/>i got lost for awhile while opening too many windows. haha coz they all look identical<BR/><BR/>about the depreciation of assets, you mentioned can be done through expenses and capitalise? you choose the latter for this example right. but its under expenses on the income? im a bit blur this partMike Dirnthttps://www.blogger.com/profile/04811948691612939470noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-81744705328794211392007-11-11T22:37:00.000+08:002007-11-11T22:37:00.000+08:00hey thks everyone! fishman, didn't know my account...hey thks everyone! fishman, didn't know my accountings can help someone understand, haha :) You must have followed it really closely.<BR/><BR/>Financial ratios not yet. I still want to work on my financial accountings yet. Next time i'll look at the impact of using debt equity and stock equity on net income :)la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-75675738981849061882007-11-11T21:12:00.000+08:002007-11-11T21:12:00.000+08:00"(haha, if i post more accountings, can help me po..."(haha, if i post more accountings, can help me point out more mistakes? more the merrier, thks!)"<BR/><BR/>Yeah sure, no problem =DProtonoidhttps://www.blogger.com/profile/16899362669748174423noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-60335674408429706702007-11-11T08:38:00.000+08:002007-11-11T08:38:00.000+08:00Hi lp,Great entry! Wa this is good stuff! I've als...Hi lp,<BR/><BR/>Great entry! Wa this is good stuff! I've also been trying to demystify accounting, but still very blur. Following through your excercise has helped me to understand better as well! Well done!<BR/><BR/>Will you be examining financial ratios of your business later? Maybe even sell stock and let us value it?! Haha just some suggestions!<BR/><BR/>Have a good sunday!<BR/>fishmansm@ll.fryhttps://www.blogger.com/profile/03751757859835343020noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-6390695572701445442007-11-10T19:59:00.000+08:002007-11-10T19:59:00.000+08:00Hey protonoid,Thks for pointing out that mistake! ...Hey protonoid,<BR/><BR/>Thks for pointing out that mistake! I was a bit confused over where to put in my $1000, so I just put into the retained earnings as it seems the most logical entry.<BR/><BR/>I'll remember that, thks! <BR/><BR/>(haha, if i post more accountings, can help me point out more mistakes? more the merrier, thks!)la papillionhttps://www.blogger.com/profile/01372278083694506953noreply@blogger.comtag:blogger.com,1999:blog-37872616.post-73277106683377003392007-11-10T18:21:00.000+08:002007-11-10T18:21:00.000+08:00Nice summary of basic accounting.1 mistake to poin...Nice summary of basic accounting.<BR/><BR/>1 mistake to point out though. Because you started with $1000, you shouldnt record it as Retained Earnings, but instead as Capital Stock, or in a separate Capital account.<BR/><BR/>Retained earnings is more to record the amount of profit generated by the company. =D<BR/><BR/>Im almost done with my 1 financial accounting module, yay!Protonoidhttps://www.blogger.com/profile/16899362669748174423noreply@blogger.com