181–190 of 262 posts
This is my article! I was surprised to see it here again. I hope you all enjoy it, I had a blast writing it. Thanks again everyone for the kind words and valuable feedback.
Kudos for taking the time to put it all together.
This is bad, don't read it. When you borrow $100 you do not create a liability which includes the interest to be paid. People who don't understand the very basics of finance and accounting shouldn't write about finance and accounting.
Balance sheets and accounting are made up. You know in maths how you could do calculations on two different ways and arrive at the same result? That's what the author is doing. "Proper accounting" is how you do it, but you could actually just think of it this way. It makes no difference to the end result.
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He's talking about bonds, though. These can't generally be paid back early. The same goes for some other loans like mortgages which often come with an agreement that you won't pay it back within a number of years (unless you pay a fee). If you intend to pay back the interest normally then you could totally book it as a liability up front, it's the same thing at the end of the day. I mean, it is literally a liability.…
Not "often". Prepayment penalty mortgages can exist but I've never seen or talked to anyone who has seen one in practice.
Some web searching suggests that only about 2% of home mortgages have prepayment penalty clauses.
Earlier quoted context omitted.
He's talking about bonds, though. These can't generally be paid back early. The same goes for some other loans like mortgages which often come with an agreement that you won't pay it back within a number of years (unless you pay a fee). If you intend to pay back the interest normally then you could totally book it as a liability up front, it's the same thing at the end of the day. I mean, it is literally a liability.…
> mortgages which often come with an agreement that you won't pay it back within a number of years Not "often". Prepayment penalty mortgages can exist but I've never seen or talked to anyone who has seen one in practice. Some web searching suggests that only about 2% of home mortgages have prepayment penalty clauses.
[flagged]
He's talking about bonds, though. These can't generally be paid back early. The same goes for some other loans like mortgages which often come with an agreement that you won't pay it back within a number of years (unless you pay a fee). If you intend to pay back the interest normally then you could totally book it as a liability up front, it's the same thing at the end of the day. I mean, it is literally a liability.…
For a car it is particularly easy, look up its value in one of the standard sources like blue book.
What you seem to be saying is that you don't really care to track your current net worth. Which is totally sensible if you don't care about that.
But if you wanted to track net worth, then you'd need to track the actual value of everything you own, which includes adjusting the value of depreciating (and appreciating) assets regularly.
Earlier quoted context omitted.
He's talking about bonds, though. These can't generally be paid back early. The same goes for some other loans like mortgages which often come with an agreement that you won't pay it back within a number of years (unless you pay a fee). If you intend to pay back the interest normally then you could totally book it as a liability up front, it's the same thing at the end of the day. I mean, it is literally a liability.…
True or false? « If you intend to hold a bond to maturity you could totally book all the future coupons and capital gains as an asset up front, it's the same thing at the end of the day. »
If you intend to hold to maturity then you should accrue the bond coupons over time, that’s the modal case
If part of your bond portfolio is available for sale, then you should use mark-to-market accounting, which prices in the present value of future coupons and the discount rate as well.
IIRC this was one of the issues with the failure of SVB, they were forced to sell their bonds and realize a huge MtM loss
Earlier quoted context omitted.
The $100 does become a liability on your balance sheet. You’re right that interest doesnt and is an expense. In the context of this post, does it matter? He’s not teaching bookkeeping here. He’s explaining the time value of money.
It matters because it screams "I don't actually know what I'm talking about". And it's not just a bookkeeping error. It's a conceptual error. It's a complete misunderstanding of the time value of money. As such, it's a self indulgent piece of writing, not a helpful one.
Earlier quoted context omitted.
He's talking about bonds, though. These can't generally be paid back early. The same goes for some other loans like mortgages which often come with an agreement that you won't pay it back within a number of years (unless you pay a fee). If you intend to pay back the interest normally then you could totally book it as a liability up front, it's the same thing at the end of the day. I mean, it is literally a liability.…
> For example, how do you book depreciation of a motor vehicle? For a car it is particularly easy, look up its value in one of the standard sources like blue book. What you seem to be saying is that you don't really care to track your current net worth. Which is totally sensible if you don't care about that. But if you wanted to track net worth, then you'd need to track the actual value of everything you own, which i…
It doesn't, obviously, unless maybe one of the seats falls out or something.
Looking up the potential market value of your car regularly is exactly the kind of ridiculous thing regular people don't need to do. Just put it in your assets as "1 car" and don't think about it again. Most people aren't going to be liquidating all their assets and moving half way across the world, and even if you are you don't need to do this.
Earlier quoted context omitted.
He's talking about bonds, though. These can't generally be paid back early. The same goes for some other loans like mortgages which often come with an agreement that you won't pay it back within a number of years (unless you pay a fee). If you intend to pay back the interest normally then you could totally book it as a liability up front, it's the same thing at the end of the day. I mean, it is literally a liability.…
> mortgages which often come with an agreement that you won't pay it back within a number of years Not "often". Prepayment penalty mortgages can exist but I've never seen or talked to anyone who has seen one in practice. Some web searching suggests that only about 2% of home mortgages have prepayment penalty clauses.
Earlier quoted context omitted.
He's talking about bonds, though. These can't generally be paid back early. The same goes for some other loans like mortgages which often come with an agreement that you won't pay it back within a number of years (unless you pay a fee). If you intend to pay back the interest normally then you could totally book it as a liability up front, it's the same thing at the end of the day. I mean, it is literally a liability.…
True or false? « If you intend to hold a bond to maturity you could totally book all the future coupons and capital gains as an asset up front, it's the same thing at the end of the day. »