5 ms·

It's not actually a liability; it's an account with a credit balance. Sales flows into retained earnings which is an equity account, which has a credit balance

by mordero 16y ago

It's not actually a liability; it's an account with a credit balance. Sales flows into retained earnings which is an equity account, which has a credit balance per the accounting equation of Assets (Debit balances) = Liabilities + Equity (Credit balances).

Vivtek 16y ago
I think the rules may differ in Europe (the way things are classified) - but the insight I had was that something that seems clearly to be an asset to my naive view (sales) can actually be a sort of accounting fiction to make the balances come up right, and thus be shown as a liability. Without checking my notes on a specific translation I did about 15 months ago, I don't even remember if it was sales or not. (I have computers so I don't have to remember things, obviously, ha.)
- drindox 16y ago
  I think the rules may differ in Europe (the way things are classified) Nope. Sales is NOT a liability, and there is no accounting fiction. Sales are also not an asset. They are an income. The money earned from the sale is the asset. I think you may be confusing ledger credits with liabilities. All credits are not increases in liabilities, but all increases in liabilities are credits. Good background on Wikipedia: [ http://en.wikipedia.org/wiki/Debits_and_credits http://en.wikipedia.org/wiki/Debits_and_credits ] [ http://en.wikipedia.org/wiki/Double-entry_accounting_system http://en.wikipedia.org/wiki/Double-entry_accounting_system ] [ http://en.wikipedia.org/wiki/Accounting_equation http://en.wikipedia.org/wiki/Accounting_equation ]
  - Vivtek 16y ago
    Ah - finally I found the balance sheets I was thinking of (some Deutsche Bank stuff from 2009). Turns out I was misremembering; it was equity capital that falls under liabilities, which is counterintuitive to me. Capital is, after all, something I have - but I suppose since it's an investment, it represents something I owe. And I see capital is shown in the balance sheet in the original post as well - but what struck me as counterintuitive in the original post is representing sales as, effectively, a cash flow towards the customers. If not a fiction, surely you have to grant it's an abstraction.
    - drindox 16y ago
      Equity is on the same side of the balance sheet as liabilities because of the accounting equation: Assets = Capital + Liabilities. See this tutorial as well: http://www.principlesofaccounting.com/chapter%201.htm http://www.principlesofaccounting.com/chapter%201.htm

by mordero 16y ago

Vivtek 16y ago

I think the rules may differ in Europe (the way things are classified) - but the insight I had was that something that seems clearly to be an asset to my naive view (sales) can actually be a sort of accounting fiction to make the balances come up right, and thus be shown as a liability. Without checking my notes on a specific translation I did about 15 months ago, I don't even remember if it was sales or not. (I have computers so I don't have to remember things, obviously, ha.)

drindox 16y ago
I think the rules may differ in Europe (the way things are classified) Nope. Sales is NOT a liability, and there is no accounting fiction. Sales are also not an asset. They are an income. The money earned from the sale is the asset. I think you may be confusing ledger credits with liabilities. All credits are not increases in liabilities, but all increases in liabilities are credits. Good background on Wikipedia: [ http://en.wikipedia.org/wiki/Debits_and_credits http://en.wikipedia.org/wiki/Debits_and_credits ] [ http://en.wikipedia.org/wiki/Double-entry_accounting_system http://en.wikipedia.org/wiki/Double-entry_accounting_system ] [ http://en.wikipedia.org/wiki/Accounting_equation http://en.wikipedia.org/wiki/Accounting_equation ]
- Vivtek 16y ago
  Ah - finally I found the balance sheets I was thinking of (some Deutsche Bank stuff from 2009). Turns out I was misremembering; it was equity capital that falls under liabilities, which is counterintuitive to me. Capital is, after all, something I have - but I suppose since it's an investment, it represents something I owe. And I see capital is shown in the balance sheet in the original post as well - but what struck me as counterintuitive in the original post is representing sales as, effectively, a cash flow towards the customers. If not a fiction, surely you have to grant it's an abstraction.
  - drindox 16y ago
    Equity is on the same side of the balance sheet as liabilities because of the accounting equation: Assets = Capital + Liabilities. See this tutorial as well: http://www.principlesofaccounting.com/chapter%201.htm http://www.principlesofaccounting.com/chapter%201.htm