Profit Question

Factual Questions
1

This is a real scenario:

I had 20 dollars. I spent the 20 on product X. I resell product X for 35. I then buy product X from someone else for only 15 dollars.

Did I make a profit or break even?

Algebraically, it seems that I broke even:

-20 (spending 20 dollars on product X) + 35 (reselling it) - 15 (re-buying it) = 0

But thinking about it like this: in the beginning I had product X and 0 dollars in my pocket but in the end I had both X and 20 dollars left in my pocket. What’s the straight dope?

2

[ol]
[li]In the beginning you had $20.00 and no product.[/li][li]You bought the product, and then had no cash.[/li][li]You sold the product (for $35.00), making a profit of $15.00.[/li][li]You bought the product again, this time for $15.00.[/li][li]At the end you have $20.00, but you have the product.[/li][/ol]
You made a profit. How hard is that not to understand?

3

He got a free product. Not quite the same as “profit”.

4

In dollar value, yes.

5

Correct. The profit was made. The fact that the proceeds were spent on the same product does not mean that the profit never existed.

6

It’s exactly the same. The profit was the product.

7

And:
If you then sell the product for $35 again. You will have $55 - a profit of $35 on the whole transaction. Not bad for an original investment of $20 - 175%

8

For 1 thing, in terms of cash flow, there’s no net cash increase. That’s a little confusing.

In terms of income the new $15.00 purchase should only be expensed as a cost of goods sold when IceQube sells it. Until then it’s an asset on his balance sheet, which I agree is clearly better at the end than the beginning.

But in terms of profit, understanding why the $15 purchase doesn’t belong on your P&L statement isn’t very intuitive for someone with no knowledge of accounting. It’s a little hard to believe someone could give any thought to his question and not see why it’s confusing IceQube.

9

Oh, horse shit. How anyone could perceive a (net neutral dollars + tangible worth property) transaction as less than a profit is more than hard to believe. It’s fucking belligerent, is what it is.

10

… perhaps the same folks who would argue that a “profit” is really a tax on somebody else’s labor.

11

You think IceQube’s question was aggressive and warlike? :confused::confused::confused:

12

Let’s play pedantry, yay! You already had a head start.

Was there a profit? Yes, unquestionably. Was the profit spent on a replacement? Completely irrelevant.

You can talk P&L until you’re blue in the face, but if you’re arguing that this isn’t a simple case of profit, you lose. If you still disagree, I’d like to hear your argument with the IRS.

13

What the hell is your problem? This isn’t a discussion forum only for accountants and people experienced at business.

I specifically said that there is a profit. It’s also perfectly understandable that someone who doesn’t have a rudimentary understanding of business and accounting might be confused why.

I can’t for the life of me understand why you’re so angry at IceQube but he’s not the one being hostile.

14

I’m not angry with anyone, but if I took exception with anything it was your statements of fact. Particularly this one:

That was you, dude. You started the fire, and your argument was ill-conceived. If you can’t see that in retrospect, we don’t have anything else to discuss.

15

So… what is the profit? $15 (determined at the time of the second transaction, and whatever happened after that is irrelevant)? “One item of product X” (the dollar value of which depends on what he can sell it for)?

Something else? Clearly, the OP is up after the three transactions, I can see that.

16

It’s just $15.00. Next month if he sells the product for $5 (for example), he’ll have a net loss of $10 for the month, because he spent $15 acquiring the widget and sold it for $5. You recognize the cost of the goods you sold in the same period as you recognize the revenue, because it gives you a more accurate financial understanding. In my example, the widget was sold at a loss for unknown reasons.

Of course you can look at the two months together and see IceQube is still ahead by $5 from when he started, with $25 and no inventory.

17

Anyone got two tens for a five?

18

Ordinarily people think of profit in terms of money. If you if you have some income, and reinvest it - for example, in new inventory - it’s not profit anymore, it’s a business expense.

19

What?

Of course any exact piece of “wealth” becomes defined differently depending on what it was last spend on or how it was earned. But that doesn’t change silk into a sow’s ear.

The only difference between money in a bank account and inventory in a warehouse is the process used to establish each’s value. Only when inventory is sold or used in production does it again become something cash-valued. But it’s in no way an expense all by itself.

20

This is a classic illustration that wealth is different from money. At the start he has $20 and no product. At the end he has $20 plus a product. The money hasn’t changed, but he is wealthier. Where did the wealth come from? Thin air.

This is why people who natter on about hard money and similar delusions don’t understand economics. Wealth is not fixed. It can be created or destroyed. Money just supplies lubricant for the transaction.