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Author Topic: [ok] Profit vs. Cash flow, Accounting, Income statement  (Read 19789 times)

Offline JumboShrimp

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #40 on: December 10, 2013, 10:23:54 PM »
Stockholder equity I don't think would be a line item unless sami incorporated some sort of stock shares/options for CEO pay, which would be a cool feature to include and would make CEO wealth a little more relevant.

For the sake of completeness, the initial investment amount, for example if the airline starts with 10m, and 5m of that is a loan, the other 5m would be shareholder equity.

Offline JumboShrimp

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #41 on: December 10, 2013, 10:59:03 PM »
The 'beta' cash flow statement page is updated: http://www.airwaysim.com/game/Office/Cashflow    (ctrl+f5 on first page load please to load the new script)

Just a quick comment about what is included where, the big one that should probably move is lease payment from capital expenditure to just being a regular expense, component of the net operating income.

Another comment, and this is just a general comment, it is great to have a cashflow statement, but as far as accounting is concerned, it is a distant 3rd most important item behind Income Statement and Balance Sheet.

Another idea: Since, in effect, AWS is simulating management of an airline that is publically owned, and publically owned airlines publish their quarterly reports, perhaps we should also have the Income Statement and a Balance Sheet (once they are done) of the other airlines publically available for other players to see...

Offline JumboShrimp

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #42 on: December 10, 2013, 11:13:32 PM »
If AWS is going to transition to GAAP style accounting (and I think it could be done in current games as well without too much pain - maybe one time tax forgiveness to phase things in without bankrupting airlines), some of the database fields representing some of the missing account will need to be added to the system:

ASSETS
Current assets:
  Cash - we have
  Prepaid expenses (leases) - can be gathered from aircraft on order and select aircraft within 4 month period
Total current assets
Property and equipment, at cost:
  Flight equipment - this one may be tough to obtain.  I am not sure if the system maintains the original cost paid for the aircraft
  Deposits on flight equipment purchase contracts - this can be gathered from the aircraft on order.  All info seems to be stored already
  Less allowance for depreciation and amortization - this one can be calculated from the day purchased, age at that time to today.
Intangible assets (if we chose to track them)
  Airport slots - this can start from zero, since it will eventually go to zero (net), and history may not be there
  Less allowance for depreciation and amortization - same as above for old slots, can start the counter for only the current slots.

LIABILITIES AND STOCKHOLDERS’ EQUITY
  Loans - we have
  Prepaid Income - equivalent of pre-paid leases when leasing out.
  Retained earnings? - I guess this can be plugged in as a difference, assuming that sum of assets and liabilities is zero.


BD

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #43 on: December 11, 2013, 04:39:45 AM »
Just a quick comment about what is included where, the big one that should probably move is lease payment from capital expenditure to just being a regular expense, component of the net operating income.

Another comment, and this is just a general comment, it is great to have a cashflow statement, but as far as accounting is concerned, it is a distant 3rd most important item behind Income Statement and Balance Sheet.

Another idea: Since, in effect, AWS is simulating management of an airline that is publically owned, and publically owned airlines publish their quarterly reports, perhaps we should also have the Income Statement and a Balance Sheet (once they are done) of the other airlines publically available for other players to see...
What you say is true for financial accounting.  But, we are running the airlines, so our need is more balanced toward management/cost accounting reports.  

There is a difference between financial accounting (which the i/s, b/s, and cf statements are geared towards), and reports used internally for managing an entity.  The audience for financial accounting is largely external to the operation.  http://en.wikipedia.org/wiki/Comparison_of_management_accounting_and_financial_accounting

Of the three statements, the cashflow one might actually be the most beneficial for running our airlines.

Having reviewed the one sami linked to, it is pretty good.  I have a delta with what I was calculating independently, but I did not spend much time analyzing it - I'm probably missing something  :P.  

It is much easier now to see what your operations are contributing to your airline's health.  It will probably make it clearer the importance of liquidity and help players make better decisions on investments with their cash flow impact.  From this statement, all kinds of interesting metrics can be made to help one manage their airline.  ;D

The income statement will probably be more important in understanding the basis for taxation.  Would/will be nice to see depreciation and amortization rolled into it and to see the smoothing effects on tax.  This will likely take a big bite out of the year end tax purchases of aircraft - they will then spread more evenly through the game year.

The balance sheet might be the least useful, except as a "score card" where the equity account would indicate how much "wealth" is being created by the airline.

But that triggers a thought...maybe I missed it, but won't this all ultimately impact the credit rating too?  The balance sheet would be very much part of that assessment from a "credit ratings agency".

Offline JJP

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #44 on: December 11, 2013, 02:38:37 PM »
I just found out about this and took a look at my "Cash Flow" statement.  I may not be an accounting major, but shouldn't a cash flow statement show me whether or not I have positive or negative cash flow?  The only thing this beta statement shows me is my total income.  That's an income statement.  A cash flow statement shows total receipts (for a certain period, like a month) minus regular, repeating expenses - normal operating expenses.   From Wikipedia, "Essentially, the cash flow statement is concerned with the flow of cash in and out of the business . . . . As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. [emphasis added]"

To be honest, I'm with Jumbo in agreeing that the current financial statement works great IF one-time sales and purchases are removed.  This one change to that statement would make if the perfect tool to know the finincial health and viability of your company.  Furthermore, every airline's "Profit Margin" stat wouldn't be a gross misrepresentation of its true financial status.  We would finally get a real picture of how each company is doing.

Just my two cents . . .
« Last Edit: December 11, 2013, 02:41:36 PM by JJP »

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #45 on: December 11, 2013, 02:43:02 PM »
No, that cash flow statement shows exactly and indeed how your cash has moved.


Also, for the earlier discussion about aircraft value depreciation. The transition plan, to make it fair, is to implement the new depreciation system into running games so that the starting value for a/c book value when system is introduced is the present-day calculated a/c value, and from there it depreciates at the standard rate to the residual value level. All new purchases will be then given the actual purchase value as the starting point for calculating depreciation like it should be ... this way there won't be any sudden jumps in company values.
« Last Edit: December 11, 2013, 02:45:29 PM by sami »

Offline JJP

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #46 on: December 11, 2013, 03:04:03 PM »
No, that cash flow statement shows exactly and indeed how your cash has moved.

It wasn't clear to me that you are simply taking the bottom line number (before bank activity) from the current income statement and entering that as the "Net Operating Income."   If so, I'm not sure how much more useful this is as a tool to use (though, I don't begrudge anyone who wishes to utilize it).  Thus, I still agree with Jumbo on the Income Statement:

We need to go to full Income statement and decode things:  Everyone spends a minute to subtract out all of the one time items in order to arrive at the real figure.  Doing just that, segregating one time items would solve 90% of the issues people have with the accounting.

To make players 90% satisfied, I would just keep the current cash accounting system and just improve the reporting of it to make it useful.
The improvements to accounting that would still be common sense, and also very simple.  For P/L:
1. segregate all of the one time items, (deposits, pre-payments) on the P/L from ongoing expenses so that the player can easily see his operating P/L
2. there is no #2



Adding additional statements beyond this (cash flow, balance sheet, etc) is perfectly fine by me as long as we can have the above.  

« Last Edit: December 11, 2013, 03:50:06 PM by JJP »

Offline LemonButt

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #47 on: December 11, 2013, 03:39:31 PM »
Since we're on the subject of accounting, one thing that would help out greatly would be a revenue analysis sheet/tab/lines of some sort.  There are only 3 reasons revenue changes and with all the factors at play it is very difficult to distinguish in AWS: change in price, change in sales mix, change in volume.  It would be just a few calculations based on YCF average price, YCF sales mix, or change in volume (average price and sales mix stay constant, but you have more routes etc).  I can do this on a spreadsheet if you'd like to show an example.  This typically done on a quarterly versus weekly basis, so there would have probably be some sort of indexing to inflation to ensure we're talking about constant dollars.

Offline JumboShrimp

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #48 on: December 11, 2013, 06:28:06 PM »
Also, for the earlier discussion about aircraft value depreciation. The transition plan, to make it fair, is to implement the new depreciation system into running games so that the starting value for a/c book value when system is introduced is the present-day calculated a/c value, and from there it depreciates at the standard rate to the residual value level. All new purchases will be then given the actual purchase value as the starting point for calculating depreciation like it should be ... this way there won't be any sudden jumps in company values.

There will inevitably be one time sudden jump in company values, when the pre-payment and deposits are taken into account (along with new valuation of aircraft).  That's why I suggested one time tax forgiveness, at the point when the tax calculation will switch from cash accounting to GAAP accounting, so that the newly recognized assets are not treated as gains.

Or, since the CV right now has no effect, when accounts for pre-payments and deposits are introduced, the CV can just become this new value, that includes them, and it should not have any side effect.

That may be the best start of the transition, to introduce these accounts for lease pre-payments (both sides) and purchase deposits, populate them with initial values, maybe place the total on Company Value page, which can later become the balance sheet, and show changes to them on the Income Statement.

BTW, I was just thinking about slots, and they may just as well be treated as a regular expense, rather than asset, tracking the amount spent as the system currently does.  The reason for this: Let's say I move a flight by an hour.  I don't have any more of an asset than before.  Or let's say I close a flight at 8am and open it at 8pm, so I buy a new set, lose an old set.  I have the same amount of slots, yet I spent money.  So Slots should probably be an expense the way they are, and should not be considered an asset.

BD

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #49 on: December 11, 2013, 11:05:04 PM »
I just found out about this and took a look at my "Cash Flow" statement.  I may not be an accounting major, but shouldn't a cash flow statement show me whether or not I have positive or negative cash flow?  The only thing this beta statement shows me is my total income.  That's an income statement.
It wasn't clear to me that you are simply taking the bottom line number (before bank activity) from the current income statement and entering that as the "Net Operating Income." 
Oh my, not sure we are looking at the same report... :o

Net Operating Cash Flow (with the exception of lease payments, which mentioned above probably ought to be included) shows how much your operation is gushing (or bleeding) cash.

Then there are two other non-operational categories that show the draw from or add to cash due to type of activity:  Investing, and Financing.

The bottom section reconciles the cash balance. 

The report categorizes all your sources and uses of cash.  There's no total income referenced here.

I have both reports open side by side and comparing the bottom line number (before banking activity) to the Net Operating Income on the other,  one is negative while the other is postive - mostly due to the non-operational activity which is included in the Income Statement's bottom line. 

It takes a bit to get used to what the cash flow report gives you, but it really is much more useful over the Income Statement.

BD

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #50 on: December 11, 2013, 11:08:23 PM »
Since we're on the subject of accounting, one thing that would help out greatly would be a revenue analysis sheet/tab/lines of some sort.  There are only 3 reasons revenue changes and with all the factors at play it is very difficult to distinguish in AWS: change in price, change in sales mix, change in volume.  It would be just a few calculations based on YCF average price, YCF sales mix, or change in volume (average price and sales mix stay constant, but you have more routes etc).  I can do this on a spreadsheet if you'd like to show an example.  This typically done on a quarterly versus weekly basis, so there would have probably be some sort of indexing to inflation to ensure we're talking about constant dollars.
Right, those are the types of things (metrics) in management accounting that get reported.  Not sure if we can accumulate them here or if sami would like a separate feature request for these.  But would be nice to see some of these and others.  ;D

BD

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #51 on: December 11, 2013, 11:28:50 PM »
BTW, I was just thinking about slots, and they may just as well be treated as a regular expense, rather than asset, tracking the amount spent as the system currently does.  The reason for this: Let's say I move a flight by an hour.  I don't have any more of an asset than before.  Or let's say I close a flight at 8am and open it at 8pm, so I buy a new set, lose an old set.  I have the same amount of slots, yet I spent money.  So Slots should probably be an expense the way they are, and should not be considered an asset.
Perhaps that works for Income Statement and Balance Sheet, but because they are large and periodic, I recommend that they remain where they are in the Cash Flow statement (Investment).  Otherwise, back to using calculators/spreadsheets to filter out the stuff that are non-operational to get the "real picture".  :P

Then, how slots get treated really only makes a difference, in practical terms, in how the tax liability is determined, assuming the Income Statement's bottom line is the figure used as taxable income (regardless if we abandon a slot and purchase a replacement).  

The real question is:  Should slot purchases reduce tax liability in the year they occur, or should that be spread out across their useful life, similar to aircraft purchases.  Taking the expense in the year of purchase is probably advantageous for faster growth, especially at the start of the game.  Is that desirable for gameplay? - I'm too new to say firmly yea or nay and leave it for others to comment.  ;D

BD

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #52 on: December 11, 2013, 11:54:16 PM »
One request for the CF statement...can we add the graph option to the drop down detail line items?  Otherwise, would have to open the income statement just to do that.  :P

BD

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #53 on: December 12, 2013, 06:05:44 PM »
Having reviewed the one sami linked to, it is pretty good. I have a delta with what I was calculating independently, but I did not spend much time analyzing it - I'm probably missing something  :P.  
I found the source of that delta:

I was calculating Taxable Income by taking from the Income Statement the Results and adding back the Loan Payments and Taxes Paid (or subtracting Tax Refunds).  This worked nicely in determining my tax burden at the end of the year and what size of purchase I needed to reduce that burden to zero (and maximize my refund).

However, the Net Operating Income in the CF Statement is a little different.  It contains (adds back) Fuel Contract Fees, Bank Fees and Interest.  These three items do show up elsewhere on the CF Statement because they are not considered part of the operations.

That explains the delta.

Fuel Contract Fees could debatably be treated as an expense, and a reduction in operational cash flow.  But, the amount is relatively small, so no qualms leaving it as is.  ;)

BD

  • Former member
Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #54 on: December 13, 2013, 03:07:47 PM »
Would recommend a separate line item for tax refund to separate the tax hit for the recent period prior from the annual refund received on January 15 (once we move to the coming change in rolling tax liability calculation, may not be necessary).


Offline 11Air

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #55 on: December 14, 2013, 10:20:26 PM »
The 'Office' graph should be useful but a/c 'purchase' or 'lease down payments' rather disguise what's actually going on with sudden drops etc.
If the graph line did it's operating profit first and then dropped vertically to show 'capital' spend the slope would show up much better giving the poor CEO some encouragement even as the capital took a plunge.

Offline Sami

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #56 on: December 19, 2013, 10:26:37 PM »
Small change:

Lease termination costs (one time payments) are now under new line 'Aircraft lease fees', visible in both income statement and cash flow statement.     ...please note that in income statement this change is only temporary as the whole page will be changed later, but in cash flow statement this cost is under capital expenditures instead of earlier operating costs (when it was tied to monthly lease costs)

In cash flow statement the one-time lease payment when ordering new/used planes is still under ops costs. Since that's what they basically are, just pre-paid. (unless you have other ideas for this?)



I'm also seeing if I can separate the fuel hedge fee (the few %) from the actual fuel cost; there the % portion goes under investments (fuel fees) and rest under ops costs in cash flow page.    ..edit:  Fuel hedge fees are also now separated from the basic fuel cost.


Also for slot costs .. they are commonly referred as assets in airline's books as far as I am aware. For purposes of AWS I think it would be easiest to write their value off immediately, but some let's say 5 year amortization period could also be reasonable, depending on technical side of it (may become too heavy since there are a lot more slots than there are planes, and original slot payments/prices are not stored ..etc).    ..edit: Since slot's purchase costs are not stored together with each individual slot, any slow value decrease in these cannot be calculated. And adding such data would increase the database size rather much (there are some 1 000 000 slots currently in MT9 for example), and the advantage of this would be minimal compared to the gains. However I still wouldn't see them as operating expenses under cash flow statement nor balance sheet, and would rather keep them as assets .. but that's not then fully correct either (ie. asset on balance sheet that is written off immediately etc .. ). humm.. have to investigate a bit more.
« Last Edit: December 19, 2013, 11:56:10 PM by sami »

Offline LemonButt

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #57 on: December 19, 2013, 10:41:15 PM »
If slots are an asset, then their price should fluctuate based on available slots.  If you have 100 slots at LHR and there are 0 avail, they are worth a lot.  If there are 1000 slots avail, your slots are worth a lot less.  This could cause a balance sheet to get real volatile when a competitor BKs, but nonetheless it would be the right way to do it.

Offline dmoose42

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #58 on: December 19, 2013, 11:13:15 PM »
I don't think that having the value of slots fluctuate substantially adds a lot of value to the player.  i would suggest just holding them at cost on the balance sheet and accounting for them a capital expenditure for the income statement.  Given that using slots does not cause their value to inherently depreciate, I would suggest not depreciating them over time.  What is the value to the user of amortizing them over time?  It would reduce 'income' in future periods relative to cash flow as the depreciation is a non-cash expense, but as a player of AWS, I don't see how incorporating the depreciation of slots had much to the experience.  However, if we go down that route then the cost of the slots never shows up as an expense until the player relinquishes them by closing the route.  To me that is actually an interesting measure as it lets me see how much slot expense I've wasted...

On a related note, are we going to do annual impairment testing on our planes?  I suspect a lot of them are worth a lot less than the carrying value currently displayed in the sim.

In regards to prepaid leases, I think for planes purchased on the UM, it is probably fine to just bury them as a current expense.  It is only 4 months and you will be drawing down the prepaid amount immediately.  However, for prepaid leases for new planes that may not arrive for a year or several years, those really should be included as an asset rather than written off at the time.

In regards to the fuel hedge fee, why would you classify this as an investment?  Unless you are planning on booking the delta between the hedged price and the current price as an asset (or liability).  However, that again would seem to add a lot of volatility, but may be an interesting tidbit of information (i.e., at current prices how much is my hedge saving/costing me).

Just a few thoughts, but happy to help test out the new "accounting" system if that would help.

Offline ezzeqiel

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Re: Profit vs. Cash flow, Accounting, Income statement
« Reply #59 on: December 19, 2013, 11:52:59 PM »
As an accountant myself I would prefer seeing sami working on city based demand other than any other feature.. (I keep checking this game once every few months to see if city based demand has been implemented yet, and I'm dissapointed every time)..




That sayed a small contribution: Slots should be an asset (even if you can't sell them individually on AWS), and their value should reflect the actual price of the next slot at X airport for that company (current value).

It doesn't matter if you can't sell the slots individually here, they are worth a lot, and the balance sheet should reflect that, because an investor can see you have some rights to operate a constrained airport, and that's a huge difference between companies...

The whole idea of a balance sheet is to provide information about a company; if the slots you bought 5 years ago value reaches zero, the idea of a balance sheet becomes null, because a very important piece of information (how much the slots you own at LHR are worth) will be missing...

If we go more technical: "A tax term relating to the practice of deducting the cost of an investment in a qualifying non-tangible asset over the projected life of the asset"... Slots do not have a specific lifetime; they are rights you own forever, hence they do not depreciate...


I don't agree with hedge being an investement.


Leases here are operating ones (airlines do not acquire ownership), so it's an operating expense.


Planes amortization: regardless of what airlines do in RL, here in AWS you can use them for 30 years (if I'm correct), so they should amortize in 30 years (adding the scrap income to the residual value)...


PS. is there a balance sheet beta yet ??

 

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