When using bookkeeping tools to do stock/flow analysis, it’s important to remember that we are just doing debits and credits and summing them up into stocks of debits and credits. We are using the tools of journals and balance sheets to do economic analysis.
And that’s it. If you have experience of using these tools in other contexts beware of letting other matters from those contexts drift in. Chances are they don’t apply, or at least not in the way you think...
Saturday, January 2, 2021
It's Just Debits and Credits — NeilW
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14 comments:
Except the liabilities of banks toward the non-bank private sector are largely a sham due to government privilege.
So the accounting is a sham too.
Likewise the genuine negative feedback that an honest banking model would possess is missing too.
He talks about sneaking in fixed exhange rate thinking, but he totally forgets when he writes
"Standard accounts include ‘real assets’, again valued in the reporting currency"
That those values aren't actually firm values of anything. Just as you can't convert dollars to pounds (you must sell one for another) you can't convert a house or stocks into cash.
Equity or Capital is not a component of Liabilities...
https://www.freshbooks.com/hub/accounting/balance-sheet
“since a negative liability is an asset and a negative asset is a liability. “
No they are not ... you have to code them that way...
You answer like that on an Accounting exam and you would flunk...
So if equity is a Liability component and you were to say a firm had “negative equity” that would be a good thing because “a negative Liability is an Asset”?
Meanwhile the firm was bankrupt?
Equity or Capital is not a component of Liabilities... Franko
Some folks are so intent (e.g. Yves Smith of Naked Capitalism) on denying that the share owners own the company that they make them just another creditor, though with the least senior claim.
So to these folks, common stock companies have no owners.
Maybe Yves was educated in UK? Maybe Neil is just reflecting the way the Accounting is taught in UK?
Her reasoning is:
1) Every financial asset is someone else's liability.
2) Common stock is a financial asset.
3) Hence common stock is a liability (of the company).
But common stock CANNOT be a liability since the common stock owners ALREADY own Assets - Liabilities.
So 1) is false since common stock is an exception to "Every".
Better, common stock is NOT a financial asset but a title of ownership.
Btw, the mantra that "All money is debt" is also proven false since common stock is a money form that requires no debt.
Well “money” is a figure of speech so the word can be applied to numerous things..
Sounds like she was never trained in Accounting...
"That those values aren't actually firm values of anything. Just as you can't convert dollars to pounds (you must sell one for another) you can't convert a house or stocks into cash."
Correct Joe.
Hence why I state: "The first is to homogenize heterogenous capital assets and make them seem interchangeable (cows and helicopters both end up described as a quantity of a denomination), which they are not as the Capital Debates explained, "
In the very next sentence.
"No they are not ... you have to code them that way...
You answer like that on an Accounting exam and you would flunk..."
Only on a basic one Mat designed for low level bookkeepers working at a firm.
When you're actually writing computer code, and being paid for it, that manages books at a far higher level of activity, you pass the exam.
On this one you are so wrong as to be laughable. Particularly when it's against me.
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