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Author Topic: [ok] Profit vs. Cash flow, Accounting, Income statement  (Read 19811 times)

Offline dmoose42

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #140 on: January 11, 2014, 08:08:58 PM »
abez, i helped sami write the manual - so any errors in language my be my fault...

1) as for the leasing income - my understanding is that sami wanted it separate from operating income because it is not resulting from the company's core operations, but i agree with you from an accounting perspective that it should be in operating income.  Personally, even though it's not accurate, i like not having it commingled with operating P&L and cash flow.

2) You're probably right that 'fixed assets' is a better choice their than 'capital stock'.  You see capital stock used in both ways - from an accounting perspective it is typically defined as you say for the issuance of equity capital.  from an economics perspective, capital stock reflects the physical capital in the economy (manufacturing equipment, planes, etc.).  So I agree with your change in this context.  Good catch.

Offline LemonButt

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #141 on: January 11, 2014, 08:25:23 PM »
Since aircraft lease income is separated from operating expenses, shouldn't there be an extra line under other revenues/expenses for leased aircraft depreciation?  Otherwise, it would appear that leased aircraft depreciation would find its way in operating expenses, but not the revenue, which would skew the operating numbers.

Offline dmoose42

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #142 on: January 11, 2014, 08:28:08 PM »
Lemonbutt - that's a good point.  I agree.

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #143 on: January 11, 2014, 09:25:53 PM »
FYI - probably able to open the first test game tomorrow already, but it's without any tax functions so far. Everything else is getting to working order ...

And speaking of taxes. Basic system would be that it checks the weekly profit/loss at the end of each sunday, and pays possible tax advance already at that very point (when week's p/l is finalized). Then again on January it would check previous year's taxes, and make sure the totals were correct.   ..simple.

However we need to get into play also the tax deductions from previous years, let's say previous 3 years. Losses there would offset the profits made now. This is easy in the yearly calculation but may get a bit tricky for the weekly advances.
« Last Edit: January 11, 2014, 09:28:49 PM by sami »

Offline LemonButt

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #144 on: January 11, 2014, 10:36:48 PM »
And speaking of taxes. Basic system would be that it checks the weekly profit/loss at the end of each sunday, and pays possible tax advance already at that very point (when week's p/l is finalized). Then again on January it would check previous year's taxes, and make sure the totals were correct.   ..simple.

My main concern with this is small airlines that have to save up many weeks to make a purchase.  For example, an airline earning $100k/week in profit is $5.2 million/year.  If the tax man is taking 30k/week or $1.5 million/year, then the player is left with $3.7 million in cash to spend.  Unless they borrow money, they can't spend $5.2 million to have a $0 tax basis (assuming no depreciation and leasing all aircraft).

The easiest solution would be as I proposed previously in having an escrow account.  If you have $5 million in cash and $1 million reserved for taxes (paid quarterly lets say) then you can spend $6 million and anything over $5 million will be deducted from the escrow account.

The big issue with having taxes taken weekly is that unless a player is online every 4 hours, the tax man takes your money before you ever have the opportunity to spend it.  Thus, at a minimum, I think taxes should be taken out quarterly.

alfkan

  • Former member
Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #145 on: January 12, 2014, 12:08:52 AM »
IRL I don't think anywhere on this globe businesses are forced to forward tax to the taxman on a weekly bases although it could be hugh variations from country to country. Why not make a calculator running 24/7 telling how much the taxman will take from your company January 15th and it would be up to each CEO to make sure that these funds were available on that said date. Otherwise; BK!   ;D

abezerra

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #146 on: January 12, 2014, 05:29:36 AM »
Since aircraft lease income is separated from operating expenses, shouldn't there be an extra line under other revenues/expenses for leased aircraft depreciation?  Otherwise, it would appear that leased aircraft depreciation would find its way in operating expenses, but not the revenue, which would skew the operating numbers.

Well, it depends if we are trying to introduce financial statements, or a management accounting tool.

By replicating standard financial statements as they are disclosed by large corporations, depreciation should remain in one line. "Investing cash flow" is usually the sale/purchase of fixed assets, and all costs/expenses (including leasing revenues) are in the operating cashflow.

If we what we want is management accounting (i.e. the internal reports that the management needs for performance follow up), then we can do whatever we want. Like: split the Income Statement into revenues/cost/result from flight operations, and revenues/cost/result from AC trading/leasing activity.
Or: breaking costs down into into direct (aircraft) / indirect (base) / overhead (headquarter) costs, and introducing the concept of Gross Operating Profit (before overhead costs) so as to have a more meaningful view of each base's contribution on the company global result.

Maybe we it would be wiser to proceed step by step, and start by implementing financial statements in their standard format?

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #147 on: January 12, 2014, 12:30:45 PM »
Test world is now open http://www.airwaysim.com/forum/index.php/topic,51298.msg291567.html#msg291567

Please check&test actively, problem reports to bug forums.

BD

  • Former member
Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #148 on: January 12, 2014, 03:20:22 PM »
IRL I don't think anywhere on this globe businesses are forced to forward tax to the taxman on a weekly bases although it could be hugh variations from country to country. Why not make a calculator running 24/7 telling how much the taxman will take from your company January 15th and it would be up to each CEO to make sure that these funds were available on that said date. Otherwise; BK!   ;D
I don't know that any government leaves any corporation off the hook until the end of the tax year.  Maybe not weekly, but I doubt they get any later than quarterly payments.  Governments don't want to have that much risk on receipts and also desire to smooth out their cashflows.

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #149 on: January 13, 2014, 12:31:20 AM »
The tax system will be probably the simple one now in use at the test world, with some adjustments. A rolling tax payment system taking into account the previous 3 years.

Very simple. At the end of every Sunday the taxable sum on P&L statement is checked; if you have recorded a profit on that week the system checks your previous profits and paid taxes over last 3 years (all profits and all paid taxes summed). If you owe money, you pay it instantly.

For example: period 1 - loss $500; no taxes paid, period 2 - loss $500; no taxes paid, period 3 - profit $500; no taxes paid (-500-500+500=-500), period 4 - profit $1000; pay taxes based on income of $500 (-500+1000=500), period 5 - profit $1000; pay taxes based on this $1000 (previous losses were covered already) ..etc

No year-end tax returns or payments or any hassle at the end of each month, and P&L statement is clear to read in this matter (will add also a line where you can see the overall taxation status for the 3 year period). Taxes paid are always pretty much correctly and there are no sudden/large payments. Only downside is that if you make a large profit now, thus pay taxes, and then make losses for a very long period into the future, the previously paid tax is not counted towards your advantage until you start making profits again. So perhaps the total taxes should be checked still at the end of each year (there basically you'd get only tax returns for this one case, otherwise it's all paid), but this complicates it again..

But in any case, as simple as possible. (...or is there something else that I missed?)


(and with regards to previous comments about week being too short interval - the aim is not to avoid the taxes by being online "all the time"; by route openings etc you cannot avoid the taxes anymore since a/c and slot purchases are NOT directly tax deductible so it's a moot point really... And for the real-life aspect, the weekly calculation is the best because it's the simplest to follow in your income statement, technically simplest also and this way also sudden large cash jumps are avoided. (salaries aren't paid usually weekly either ...) )
« Last Edit: January 13, 2014, 12:40:02 AM by sami »

abezerra

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #150 on: January 13, 2014, 08:28:22 PM »
Well, there are places where wages are paid weekly, and other places where taxes are paid twice yearly.
Personally I am not against in you fixing specific rules for the game.

However, even with weekly payments I think that you can hardly avoid calculating tax returns on a yearly basis, because of the reason you mention:
-current losses help compensating future profits.
-but current profits would never be compensated by future losses: they are "lost" forever!
Exemple I make a profit of +5000 in January, and a loss of -500 per month from Feb to Dec --- my taxable result in the year is a loss of (+5000 +11x(-500)) = -500. But I will have paid taxes on +5000 of taxable result, which is unfair IMO.
This would oblige players to artificial strategies, consisting in making losses first and keeping profits for later (e.g. on sale of aircrafts).
That's why I think you should keep yearly returns. With aircraft purchases being no longer deductible, I don't think that yearly tax returns would trigger such huge amounts of cash in January as in the past.


The other simple option you have is (even if someone won't like it, it's my favourite): no weekly payments, but one yearly payment at the end of the year.
Players will know by looking at the tax counter how much cash they need to save to pay taxes in January.
At year end:
if the counter of taxable result was positive, tax is paid and the counter is reset to zero for the following year.
if the counter of taxable result was negative, no tax is paid and the counter continues with the same value for the following year (so that losses in year Y can compensate profits in year Y+1)

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #151 on: January 13, 2014, 09:22:43 PM »
Yep, added the end-of-year tax result message. It's run on the last sunday of the tax year, and checks if you have paid too much taxes for the current year.

abezerra

  • Former member
Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #152 on: January 15, 2014, 01:55:41 AM »
Now that one tax year has ended in the test game, I am no longer sure about how you plan making the tax losses carryforward work.

I made a +3 mUSD taxable profit in 2002. I paid taxes. The "profit-loss in the taxation period" counter has not zeroed.

Now let's assume I'll make a -3 mUSD taxable loss in 2003, and then a +3 mUSD taxable profit in 2004.
Will I pay taxes in 2004?

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #153 on: January 15, 2014, 12:10:38 PM »
Your profit last game year was 3 437 371 USD and you paid 996 838 USD taxes (29%) which is correct.

So far this year profit is 12 457 539 and taxes this year have been 3 526 580. While it's midweek you owe a bit taxes, as paid taxes for that profit should haev been 3 612 687, difference is 86107 payable.

The tax overview shows the last 3 years' profit total correctly but amount due is zero for some reason, have to check.. The "p/l in taxation period" shows total profit from the last 3 years, but that may be confusing so I'll change it for the current year perhaps.


--
And also in your example. If you made a profit last year and paid taxes, then that year is "closed". If you make losses this year, you pay no taxes (any paid taxes for THIS year are refunded). So paid taxes from previous years cannot be carried forward to cover future losses.
« Last Edit: January 15, 2014, 12:50:02 PM by sami »

abezerra

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #154 on: January 15, 2014, 02:16:16 PM »
Your profit last game year was 3 437 371 USD and you paid 996 838 USD taxes (29%) which is correct.

So far this year profit is 12 457 539 and taxes this year have been 3 526 580. While it's midweek you owe a bit taxes, as paid taxes for that profit should haev been 3 612 687, difference is 86107 payable.

The tax overview shows the last 3 years' profit total correctly but amount due is zero for some reason, have to check.. The "p/l in taxation period" shows total profit from the last 3 years, but that may be confusing so I'll change it for the current year perhaps.


--
And also in your example. If you made a profit last year and paid taxes, then that year is "closed". If you make losses this year, you pay no taxes (any paid taxes for THIS year are refunded). So paid taxes from previous years cannot be carried forward to cover future losses.


Yes, last year's tax return worked perfectly, and I assume it will work fine this year.

My concern was if last year's tax profit is "closed", as you say, and will not interfere with taxable income/losses compensations for the following 3 years.

So in my exemple if I make a taxable loss this year for -3 millions, and a taxable income next year of +3 millions, I will pay no taxes next year, i.e. last year's profit will not interfere --- which is correct.

Actually, the "taxation period" line was misleading in my airline's case. But it would be very useful if it could display the carried amount of past usable past losses ("usable", i.e. less than 3 years old, and net of past losses already used to compensate past years' taxable profits).
It could be updated once per year at the same time as tax returns: I do not need to have it updated weekly, as I already know my taxable income/loss for the current year "in real time" via the Income statement.

 

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