121–130 of 144 posts
Earlier quoted context omitted.
How come this never happens to video game companies that give out various in-game currencies?
Because it does not cost them to provide in-game items (skins, weapons, etc.) On the other hand, certainly does cost companies to provide compute.
Earlier quoted context omitted.
> Why don't they count it as revenue the moment the credits are issued? Because the corresponding service hasn't been rendered yet. Conceptually you want the revenue and the costs to generate it recognised at roughly same time else your P/L number is volatile/meaningless
Well, your actual profits and expenses are volatile. Is it bad for your accounting to reflect the reality of your company?
Accounting is an exercise in standardization and communication. Like a network protocol you want different parts speaking the same language even if it requires some constraints and abstractions
The info you describe is something you’d have FP&A/MI team do. There you can do whatever the team thinks is best to capture things in a unique manner
Mixing the two is generally a recipe for disaster (and IRS audits)
(sarcasm)
But it kinda does I think.
Earlier quoted context omitted.
Well, your actual profits and expenses are volatile. Is it bad for your accounting to reflect the reality of your company?
> reflect the reality of your company Accounting is an exercise in standardization and communication. Like a network protocol you want different parts speaking the same language even if it requires some constraints and abstractions The info you describe is something you’d have FP&A/MI team do. There you can do whatever the team thinks is best to capture things in a unique manner Mixing the two is generally a recipe f…
Earlier quoted context omitted.
> you need to put that money into a separate, third party’s account that shields it from bankruptcy This is wrong. You don’t need to do any of that. They paid for a service and it becomes a liability, but there’s no duty to segregate those funds. You do not turn into a money transfer agent just because you sell pre-paid credits to your service.
This reminds me of a company in town that was known for doing the precise thing of putting money into separate accounts, specifically, CDs. It was the type of service where 50% was paid up front, 25% at specified milestone, remaining 25% at completion. So the company would receive the 50% and place a large chunk of that into a CD. There were lots of reasons , but my favorite was the excuse of it covers when someone f…
This doesn’t sound legal in California at least. I know gift certificates are not allowed to expire in California and I would hazard a guess that prepaid credits probably wouldn’t be allowed to expire either.
There doesn't seem to be a neutral option here, because it's very hard to account for inflation without the holding party paying dividends at the exact rate to offset it.
Earlier quoted context omitted.
> Why don't they count it as revenue the moment the credits are issued? You've gotten the revenue but you haven't paid the cost for that revenue yet. Those are essentially un-cashed checks that the accountants have to keep on the books indefinitely otherwise. Imagine you're chugging along and out of the blue someone shows up with $100M of credits they bought 10 years ago, expecting you to do something for them. Now y…
Makes sense. Just like how when you put money in the bank they have to put it in a big vault and not touch it so you can access it in the future. Oh wait... rules for thee and not for me.
Earlier quoted context omitted.
If the contract states the credits expire EOY all bets are off. Implicitly makes the credits the 'delivery' not the service itself.
> If the contract states the credits expire EOY all bets are off. Implicitly makes the credits the 'delivery' not the service itself. I wasn't addressing what the contract states and what the effect is; I was addressing the accounting rule for service sold but not yet delivered. As long as the credits are usable (i.e. not expired), those credits are a liability on the books and financial statements must reflect that.…
It may or may not be correct, but it is not obvious to me that the revenue should be recognised when the credits are used or expire rather than when they are sold.
its probably defined somewhere in the rules (I assume US GAAP in this case?)
Earlier quoted context omitted.
I don't really get this logic. Why don't they count it as revenue the moment the credits are issued? Or is this more just a "this is a convenient free win as a consequence of how we decide to manage our books."
> Why don't they count it as revenue the moment the credits are issued? Because the corresponding service hasn't been rendered yet. Conceptually you want the revenue and the costs to generate it recognised at roughly same time else your P/L number is volatile/meaningless
Most companies choose accrual-based accounting. It's much more complicated, and one of the things about it is that you don't don't get to count money collected as revenue until the customer actually "uses" it to buy something from you. That's just the way that goes. Remember - the company chose this method of accounting. If you form a company and don't make the choice, the IRS will assume you are using cash-based accounting.
But here's something interesting - Warren Buffett explaining how liabilities are insanely profitable for Berkshire Hathaway (except that he calls it "float" instead of "liabilities") [1]. Liabilities are just a number on a chart, neither good nor bad. How you handle them, how you communicate about them, etc. That's what matters.
Accounting rules. If the credits last indefinitely, any unused credits cannot be counted as revenue. Ran into this at my last company when we signed a big contract and gave them hundreds of thousands of dollars in non-expiring credits. Our accountant went nuts when we told him.