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Author Topic: [ok] Profit vs. Cash flow, Accounting, Income statement  (Read 19844 times)

RB211TriStar

  • Former member
[ok] Profit vs. Cash flow, Accounting, Income statement
« on: December 28, 2009, 08:30:41 PM »
Not sure if this belongs in bug fixes or features, but here's my question.

From a financial standpoint, is there a way we can make the game differentiate between profit and cash flow? For example... say my fleet pulls in $1M/month, but I have $200M of cash on hand. As the game calculates things currently, if I use that $200M to buy new aircraft then is shows the airline as having negative profit (if my cash spending exceeds my income for that period).

Shouldn't profit be calculated based solely on income vs. liabilities? Profit calcs should not be effected on how i manage my cash. I'm not sure how cash spending affects net quarterly income either, but I'm under the impression is does.

Thoughts?
« Last Edit: January 16, 2014, 11:03:14 AM by sami »

Online schro

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Re: Profit vs. Cash flow
« Reply #1 on: December 29, 2009, 12:51:32 AM »
As an accounting major and someone that has spent the past 5 years working for a global accounting firm, the way that the income statement is calculated drives me mad. I've gotten used to it, and used it to my advantage from a tax perspective, but really, there should be a balance sheet and income statement.  The purchase of a plane should NOT trigger a huge paper loss for that quarter - rather its an asset (cash) thats being traded for another asset (an airplane).  The true expense of owning the airplane, in theory, should be its ratable decline of value over time (which the game does keep track of).  When a plane is sold, the only profit/loss on its sale should be what it fetches over/under fair market "value" according to the game. Leasing should be similar - the 4 month prepayment of a lease is really an asset that is consumed over the first 4 months of use until the payments kick in.

Back to RB211TriStar's point - the game seems to compute your profit/loss based on a statement of cash flows rather than any tax/accrual standard of accounting.

I would like to see the financial side of things revamped, and would be more than happy to assist with the accounting concepts involved to make it correct.

RB211TriStar

  • Former member
Re: Profit vs. Cash flow
« Reply #2 on: December 29, 2009, 02:18:58 AM »
You said it much more elegantly than I did but that's exactly what I was thinking. Whew... I thought I was the only one!

I would like to better understand how to use the system better to my advantage from a tax perspective, the the glaring downside was how much it hurt my ego to see my airline fall out of the top 3 by doing the "right thing".  8)

Offline Gaius Marius

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Re: Profit vs. Cash flow
« Reply #3 on: December 29, 2009, 04:20:25 AM »
Well stated.  This has been brought up several times before.  Sami has observed and asked questions when we were discussing it so I assume he knows that this aspect of the game needs to be re-developed.  It would be nice to know where this issue stands on his priority list as I know they are preparing a new release.   

GM
"Flying is learning how to throw yourself at the ground and miss"

Offline Sigma

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Re: Profit vs. Cash flow
« Reply #4 on: December 29, 2009, 04:48:58 AM »
Seeing that most players have a hard time understanding the extremely simplified version of accounting that we have now, I certainly wouldn't put it anywhere near the top of my list if I were Sami.  People have a hard enough time with the concept of a "4-month prepayment" and the effect that has on their future liabilities, imagine throwing in depreciated value of capital assets or accrual accounting.  It would be complete Greek to them and virtually impossible to understand.

Couple that with the fact that there are some rather significant accounting differences around the world (and high-capital industries and transportation entities often have a lot of their own significant differences as well), and one man's "better way" is another man's "WTF", even if they are learned enough to understand accounting complexities.

RB211TriStar

  • Former member
Re: Profit vs. Cash flow
« Reply #5 on: December 29, 2009, 04:59:30 AM »
I completely understand. I simply want to be able to use the indicators like profit percentage as a reliable comparator. As it stands now... I have to avoid large cash transactions for nearly 3 months just to assess the relative health of my airline. And one really can't justify sitting on hundreds of millions of dollars in their back accounts... at least I can't.

Yb

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Re: Profit vs. Cash flow
« Reply #6 on: December 29, 2009, 05:13:52 AM »
Maybe in the future we could take this as a user-based interface. There could be a choice between simplified, normal and complex accounting. The simple would be good for the new players, normal for everybody and complex for people who really want to see everything - how much they pay for what, how they are taxated etc.

Offline Sami

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Re: Profit vs. Cash flow
« Reply #7 on: December 29, 2009, 02:11:34 PM »
yes, there is already a thread of this, and changes are planned (but no ETA for it...)

RB211TriStar

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Re: Profit vs. Cash flow
« Reply #8 on: December 29, 2009, 05:12:00 PM »
Sweeeeeeeet! :D

Offline Name_Omitted

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Re: Profit vs. Cash flow
« Reply #9 on: December 30, 2009, 10:25:49 PM »
Seeing that most players have a hard time understanding the extremely simplified version of accounting that we have now

Actually, the only reason why the accounting system is hard to understand is the merger between balance sheet and income statement means you have to do some extensive (although not elaborate) math every time you want to find out how your airline is doing.  The game would be a lot more about planning for the future and a lot less about recurring math if the accounting system were simplified from it's current system by conforming more to norms.

Offline Gaius Marius

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Re: Profit vs. Cash flow
« Reply #10 on: December 31, 2009, 05:59:15 AM »
Frankly, I am just happy it is on the list of upcoming improvements.  This game has improved so much since I started playing that I trust Sami, et al to continue to improve as the game develops.  Thanks Sami and friends for your hard work.

GM
"Flying is learning how to throw yourself at the ground and miss"

Offline LemonButt

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Re: Profit vs. Cash flow
« Reply #11 on: December 31, 2009, 07:21:05 AM »
Not sure if it is a bug or not, but since the income statement is calculated the way it is, you can completely dodge paying taxes.  I own 13 small CASA's worth $3-4 million each.  That I have secured loans on.  When they run through a B/C/D check, their value increases and I'm able to pay off the loan and get a new loan for a higher value and thus increase my cash on hand and lease/buy more planes with the proceeds.  However, when you make loan payments, it shows up as a negative on the income statement whereas the actual loan doesn't.  Therefore, I can pay off all my loans and take out new ones for a $45 million loss on my income statement.  I paid $400k in taxes the last period and I recieved a refund in full since I was on the books as losing $40+ million, even though I have netted quite a profit over the period.


Chaxterium

  • Former member
Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #13 on: September 12, 2012, 02:24:46 PM »
Hi sami,

It's been a while since there's been any news regarding this. I was just wondering if this is still on the horizon at all?

Cheers,
Chax

Offline EsquireFlyer

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #14 on: September 13, 2012, 04:48:25 PM »
It's been a while since there's been any news regarding this. I was just wondering if this is still on the horizon at all?

Have there been any change(s) to the system in the last three years, or was it always the way it is now?

My suggestion would be to make taxes based on change in company value over the last month (and then recalculated for the entire year in January as usual). That way, plane purchases would not generate instant, massive "losses" and tax deductions. However, depreciation of the owned plane would implicitly provide tax deductions, because depreciation of an owned plane lowers your CV, and thus offsets some amount of increase to your CV resulting from profits in that accounting period. IMO that's a much more realistic way to simulate the amortization that happens in real life, without needing to make players worry about the real-life complexities of tax filing.

claudietto

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #15 on: September 14, 2012, 09:25:05 PM »
It shouldn't be difficult to implement a system that allocate aircraft purchase as CAPEX therefore deduct from the Income statement only the depreciation of it year over year. Is it?
Claudio

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #16 on: December 08, 2013, 10:22:28 PM »
Working on these  ...

Here's a first draft of a cash flow statement. (this is doable with the current database structure too, but other accounting changes may need major db changes, requiring then a new game version  .. but let's see)

So basically there would be three pages:
- balance sheet
- income statement
- cash flow statement


(naturally all companies in real life publish these statements only on Q/Y basis but for usability I'd retain the same W/M/Q/Y format as in present incomesheet .. )
« Last Edit: December 08, 2013, 10:36:04 PM by sami »

Offline JumboShrimp

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #17 on: December 08, 2013, 11:23:12 PM »
I think the current Profit / Loss statement is already sort of a Cash Flow statement, instead of being an Profit / Loss statement.  IMO, instead of writing 2nd Cash Flow statement, some fixes to Profit / Loss statement, as described here:

http://www.airwaysim.com/forum/index.php/topic,50466.0.html

would go a long way, and they would also have an implied Cash Flow statement.

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #18 on: December 09, 2013, 09:56:15 AM »
Cash flow statement (preview above) may be previewed here:

http://www.airwaysim.com/game/Office/Cashflow

Currently there is no link to this page on the interface, consider this a beta page. It's missing still the chart/graph links and few other things. Also any withdrawn new loans are visible only after this moment, and some items may be misplaced ..


and ref. to previous post, income statement will change also later on. (there will be no separate small "fixes" to them, but instead a larger overhaul)
« Last Edit: December 09, 2013, 10:02:57 AM by sami »

Offline JumboShrimp

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #19 on: December 09, 2013, 10:45:31 AM »
Looks interesting, couple of comments:

- Purchase / sale of fixed assets: would be helpful if leases vs. outright purchases were split
- And as far as Leases, ongoing lease payments should be segregated from one time lease prepayments / termination fees (on both income and expense side)
- Splitting One line of Capital Expenditure into 3: Purchases, Leases, one time lease pre-payments/terminations with proper labels would avoid a lot of confusion that one line of Capital Expenditure will cause.
- Fuel Contract: if the contract cost is taken out of the operating cost, then perhaps the gain / loss of fuel expenses should be taken as well
- Hedge: and if the effects of the Fuel contract is fully taken out of the operating income, maybe so should the hedge, leaving operating income be based of market fuel prices, effects of Fuel Contract / Hedge in investment activities

 

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