Cash versus Accrual. Two basic types of accounting: do you follow just the cash in the cigar box at the end of the day, and that determines whether or not you had a good day? Or do you amortize for this and depreciate for that and treat capital expenditures with all kinds of voodoo, mathy science?
The method you choose has to stay with you throughout the life of the company. You can't just flip back and forth depending on your mood. See Accrual Accounting and Cash Accounting and Cash Flow Statement if you're really bored.
Related or Semi-related Video
Finance: What are sunk costs?2 Views
Finance allah shmoop What are sunk costs Mother sunk there
gone There been no money back guarantee kind of costs
Gold diggers No different kind of gold digger Real ones
heading to a far off land in a politically unstable
country Where this week you happen to believe that american
relationships with whatever stand will be Oh just great forever
You spend fifty million bucks shipping tractors trucks granola bars
anti diarrheal medicine hard hats and twenty thousand of those
little pan thing is that you you know paying for
golden You know those All right Well you just start
digging and well there's a coup and the prime minister
of whatever stand is overthrown by rebels and you have
to leave or die What to do what to do
what to do Well so yep That's Fifty billion bucks
sunk Gone No money back Cia Fifty mil Those dollars
sunk But some costs aren't just about costs that were
you know gone and never to be gotten back They
also relate to project started where you can't get your
initial outlay back Like when a large corporation are twelve
Newly minted mba is for their corporate finance department And
nine get fired within the first two years Could you
have saved a million box and just hired the three
Good ones instead No why Because you never know who
the good ones will be in advance until they've been
you know tested on the field of financial battle the
nine fails or a sunk cost of the business You
can also think about typical sunk costs as revolving around
the decision whether you should continue to produce a product
like when you're managing a company you really need to
ignore sunk costs For example think about our little lemonade
stand prototype Here we use the best granite and reclaimed
wood and we're selling lemonade for a buck a glass
and are variable costs or in fifteen cents give or
take We spent a million dollars on a lemonade stand
Is that million dollars considered when we decide whether or
not we gotta work tomorrow We'll know it's a sunk
cost or nothing we can do about it It doesn't
affect whether we go to work tomorrow or not side
in fact pair so sunk costs are costs which big
boys and big girls know are never recoup a ble
there indem it parts of doing business as capital is
risked on ventures that may or may not have positive
Payback But hopefully your payback is better than the payback 00:02:26.313 --> [endTime] because this guy got
Up Next
GAAP is an acronym for Generally Accepted Accounting Practices. In order to remove as much subjectivity as possible, accounting policy bodies, such...
When assessing the amount of profitability in a company’s various services and/or products, the contribution margin is a metric that is relied up...
Accretive: the acquisition has a net positive impact on earnings per share. Dilutive: earnings per share are negatively impacted as a result of the...
A company has numerous operating expenses, but the primary ones have to do with payroll, sales and marketing, taxes and fees, office supplies, some...