Accounting practices and such
Jun. 26th, 2002 07:35 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
johnpalmerSometimes, things are so big that my emotional reactions aren't able to handle them, and I get analytical.
So, for those of you who might be curious as to what happened to Worldcom (aka MCI Worldcom, and UUNet, and "my employer", and a few other things), it's really pretty simple.
Accounting is nowhere near as complicated as one might think it is. Books are kept in a double entry style. Every positive entry is balanced by a negative entry, and vice versa.
If you buy something at wholesale (that you intend to sell at retail), you take a hit to cash, or to accounts payable (a negative entry) but you gain something else (an increase to inventory). There are a few dummy accounts that pick up the slack... things like "shareholder equity", and such, that get set at the close of a quarter, or a year, to balance out your profits (or losses). Otherwise, you couldn't ever really book profits, because everything else added up to a net 0 increase, right?
Now, either due to criminal incompetence, or intentional fraud, someone decided that the costs of the networks was the same as the purchase of a network.
This is a little complicated... see, if you buy a truck to make deliveries, you lose cash (or take a hit to payables) but you gain the value of the truck on your balance sheet. But when you pay to repair the truck, that's an expense.
Mind you, it's a very necessary expense, and it's one that can be very well justified. You can even think about it as "rebuying the truck for a very cheap price".
But, it's an expense. It's as *SENSIBLE* as buying the truck, but it's *NOT* buying the truck. It represents a drain on your resources.
Now, someone, somewhere, decided to do the same thing for Worldcom's network infrastructure as our hypothetical truck-repairer might have done above.
Rather than booking expenses as expenses, they reported them as purchases of network infrastructure.
Rather than saying "wow, we're bleeding a lot of money on upkeep of our network", they said "wow, we're buying a lot of new network stuff!"
I'm betting that someone was expecting a return of the "dot-com" economy sooner, rather than later, and was hoping to be able to hide this forever. I'm betting that that someone (or "someones") never figured the stock would drop from $64 to less than a dollar (then to nine cents) a share, triggering a lot more scrutiny than might otherwise show up.
What does this mean for the little guy? Like, oh, say, me?
Well, for one thing, it means I skipped going to The Wet Spot's drop in night tonight. I have a lot more studying to do. The trouble is, I'm not sure *WHAT* to study. That's always been my perpetual problem.
My job is safe for right now. I'm in a good part of the company. But, right now you could probably buy nearly anything from Worldcom for bargain prices. Hell, you could probably buy the whole friggin' company for "assumption of debt" (i.e.: offering to pay off the creditors) and a case of beer for each of the board of directors, and I don't think it would even have to be very good beer.
The stock was trading at 9 cents a share, fer crying out loud! A hundred shares for less than ten dollars! I think you could buy the whole friggin' company for a few hundred million!
(Keep in mind that, at its height, it's market capitalization (the total value of its stock) was over 60 billion dollars....) Crud, I have nightmares of Bill Gates deciding he wants free long distance and an ISP that *REALLY* hums.
Ah well... back to decisions. CCNP, or programming studies? Or just drink a lot of beer for tonight, and try to get some sleep?
So, for those of you who might be curious as to what happened to Worldcom (aka MCI Worldcom, and UUNet, and "my employer", and a few other things), it's really pretty simple.
Accounting is nowhere near as complicated as one might think it is. Books are kept in a double entry style. Every positive entry is balanced by a negative entry, and vice versa.
If you buy something at wholesale (that you intend to sell at retail), you take a hit to cash, or to accounts payable (a negative entry) but you gain something else (an increase to inventory). There are a few dummy accounts that pick up the slack... things like "shareholder equity", and such, that get set at the close of a quarter, or a year, to balance out your profits (or losses). Otherwise, you couldn't ever really book profits, because everything else added up to a net 0 increase, right?
Now, either due to criminal incompetence, or intentional fraud, someone decided that the costs of the networks was the same as the purchase of a network.
This is a little complicated... see, if you buy a truck to make deliveries, you lose cash (or take a hit to payables) but you gain the value of the truck on your balance sheet. But when you pay to repair the truck, that's an expense.
Mind you, it's a very necessary expense, and it's one that can be very well justified. You can even think about it as "rebuying the truck for a very cheap price".
But, it's an expense. It's as *SENSIBLE* as buying the truck, but it's *NOT* buying the truck. It represents a drain on your resources.
Now, someone, somewhere, decided to do the same thing for Worldcom's network infrastructure as our hypothetical truck-repairer might have done above.
Rather than booking expenses as expenses, they reported them as purchases of network infrastructure.
Rather than saying "wow, we're bleeding a lot of money on upkeep of our network", they said "wow, we're buying a lot of new network stuff!"
I'm betting that someone was expecting a return of the "dot-com" economy sooner, rather than later, and was hoping to be able to hide this forever. I'm betting that that someone (or "someones") never figured the stock would drop from $64 to less than a dollar (then to nine cents) a share, triggering a lot more scrutiny than might otherwise show up.
What does this mean for the little guy? Like, oh, say, me?
Well, for one thing, it means I skipped going to The Wet Spot's drop in night tonight. I have a lot more studying to do. The trouble is, I'm not sure *WHAT* to study. That's always been my perpetual problem.
My job is safe for right now. I'm in a good part of the company. But, right now you could probably buy nearly anything from Worldcom for bargain prices. Hell, you could probably buy the whole friggin' company for "assumption of debt" (i.e.: offering to pay off the creditors) and a case of beer for each of the board of directors, and I don't think it would even have to be very good beer.
The stock was trading at 9 cents a share, fer crying out loud! A hundred shares for less than ten dollars! I think you could buy the whole friggin' company for a few hundred million!
(Keep in mind that, at its height, it's market capitalization (the total value of its stock) was over 60 billion dollars....) Crud, I have nightmares of Bill Gates deciding he wants free long distance and an ISP that *REALLY* hums.
Ah well... back to decisions. CCNP, or programming studies? Or just drink a lot of beer for tonight, and try to get some sleep?
![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
Sleep first.
Date: 2002-06-26 09:47 pm (UTC)(OTOH I did once prove that I can, in fact, write JavaScript in my sleep. Literally. It even ran properly. This is what happens if you get really sleep-deprived, on order of 53 hours waketime. I don't do that anymore. I didn't like the hallucinations, for one thing. I'm much saner nowadays.)
If you'd like help/suggestions/etc. regarding programming, feel free to give me a holler. Don't know what a CCNP is, so I'm afraid I can't offer help on it :)
no subject
Date: 2002-06-26 11:39 pm (UTC)Just ... ouch.
Oh, and I love you.
Ahhh!
Date: 2002-06-27 02:20 pm (UTC)GoodThoughts winging your way for the best possible resolution for you.
Rhona