Well put.
Hard-money types have never gotten past the line of understanding money as something other than what is earned to pay the rent. “Wealth” is a null word in their vocabulary.
Depends on your definition of “profit”.
If you are going strictly for cash, no.
IANAA but this is what I learned - in strict accounting terms, you must figure into the balance sheet, or statement of profit or loss - the value of assets according to GAAP - generally accepted accounting principles. IIRC, the most commonly accepted fundamental principle is a thing is valued at what you paid for it unless there are unusual circumstances. (I.e. gold is so liquid and volatile, pricewise, that you count it according to current market value; cows, cars, and canola oil, what you paid).
Starting Balance Sheet- you have $20 cash asset.
Ending balance Sheet - you have $20 cash and $15 of X.
Statement of profit and loss - net gain of $15.
I’ll buy that for a dollar!
IAAA. In UK GAAP, stock is valued at the “lower of cost and net realisable value”.
On a related note, today I went to the store with a coupon that said “buy one get one free”.
I spent $20, and got another $20 dollar product free. I figure that means I made a $20 profit.
Tomorrow I’ll go back to the store, and make $20 more.
it’s only worth $20 if you can sell it for $20. as posed in the OP, he can conceivably sell the product again for $35.
See my post.
You account for assets at the price you paid for them. (minus any claimed depreciation)
Thus if you paid $20 for 2 you have $20 worth of assets.
Exceptions, things like gold, stocks… where price is explicit, volatile, and simple. I.e. there’s a dispute what something like real estate or a used car would sell for. You get the same price for any gold bullion or listed stocks as everyone esle - so it’s easy to state the real world value. I assume the same applies to foreign curency holdings.
The reason for this is that for a lot of things, prices go up and down. unless the item is extremely liquid like the examples - equivalent almost to cash - it’s debateable what you would get for it. The danger of alterng your balance sheetevery time you get a new estimate or appraisal is that the business may seem to be doing better than it really is - or worse. Listing assets at market value for real estate, for example, would have done a roller-coaster ride on a company’s balance sheet over the last decade. Unless your business is buying and selling real estate, the changing market value of your widget factory for example has very little to do with telling people whether you are making money by assembling widgets.
Accounting is not quite so easily tricked as this.
A profit means revenue exceeded expenses. You started with $20 of assets. You paid $20 for two items, so your cost was $10 each. If we capitalize the expenditure, then you have no profit or loss, but you still have $20. If we expense the items instead, you have a loss of $20.
Yes, this goes to the heart of the reason for GAAP.
The “list price” may have been $20/each, but the actual cost was $20 for two.
You can’t essentially fudge the books, by using a price that has no basis in market reality.
To claim a profit of $20, you must sell the items for $20 more than you paid.
Before you sell anything, you are in a break-even. $20 (2@$10ea) of inventory.
If you sell one for $20, for example, you have a profit of $10 -
An item worth $10 (what you paid), and $20 cash.
Sell them both for $20 each, now you have $40, a $20 profit.
The last actual transaction for each item is the value you use.
IceQube could have stopped when in possession of $35 dollars. Is there a way for you to stop somewhere in the steps you make and have more money than you started with?
I see what you’re saying.
I should stopped after getting the free one.