RSS

[KL:Consideration]: Consideration Accounting 101

31 Mar

The King’s Law on Consideration

I – To consider or not to consider, that is the “?”
II – Let’s be honest about honesty…
III – Honesty’s Gray Area
IV – Egocentrism and Honesty
V – The Consideration of Time
VI – The Consideration of Self
VII – Consideration Accounting 101

If you missed the last blog (The Consideration of Self) about “happiness”, essentially all you need to get from it is that “happiness” exists when you have something to be happy about… when things/people that make you happy are present.

The reason for this is simple… Ownership. People love (the illusion of) having things. Ownership implies comfort, convenience, satisfaction, and availability. Ownership provides security and thus a sense of stability. However, when those things we’d like to claim are not there, we are insecure because there is no guarantee that we can access, use, and thus be satisfied by the object of our happiness. That’s because we view these objects as:

property – noun
something at the disposal of a person, a group of persons, or the community or public

Today I thought of an interesting analogy to discuss this, however I’m afraid that it may only be appealing to people who enjoy financial talk… but I’ll keep the schooliness out of it as much as possible. (However this is definitely a good supplemental read for an introductory Accounting course)

Property is at our disposal. It is ours to obtain, own, squander, give, trade, sell, buy, or even forget. But any piece of valuable property (such as cash) must and should be accounted for. Accountants have a (not so) simple system to do this… I’m going to make it very simple, so simple in fact I expect my accounting friends to scold me about this, lol.

Observation I:
In “accounting” (or more basically, “counting”) we have “debits and credits”, or more basically gains and losses. For every gain, there is a loss elsewhere, for example: you buy a shirt for $20, you debit (gain) one shirt valued at $20 and you credit (lose) cash valued at $20. Because of how this works, every transaction is said to “zero out” which means what you gain is always worth what you lose (theoretically).

Obersvation II:
The property that you own and can do with what you please today is called an “asset”. Strangely in the world of accounting, assets also include things that are owed to you (that you may never actually own). This “account” is called a “receivable” because it is property that is expected to be gained… so we act like we already have it.

Observation III:
The property that you own but is owed to somebody else is called a “liability” because it is property that the owner is liable for until those assets are rendered to the “creditor” or gainer. As the “debtor” you are in debt and have an obligation to pay because the creditor has already counted the asset you own as something that they own (so technically you have it, but you know it’s not yours).

——————–

Isn’t it funny how some if not most of our “happiness assets” are never really ours even though we account for them as if they were? Think about your relationships, friendships, your accomplishments, the recognition owed to you… they are owned by you and are thus assets.. but are they really “at your disposal”? Their value is more based on what you can “receive” from them in the future as opposed to their current worth. The truth about these types of assets are that they cannot be accounted for because they are not tangible, and they cannot be used to settle debts. This makes them invaluable (without standard comparative value) or priceless. Thus when we gain or lose them, the other side of the transaction usually involves an asset with similar characteristics: consideration. The reason why this transaction “zeroes out” is because “happiness assets” are all forms of consideration as well.

The problem with our calculation of these assets is the expectancy of our receivables”… In the business world, companies will count their receivables as an asset knowing that some of those funds will never reach their accounts. They will eventually debit their receivables account for “bad credit debt” via a “write off” when they realize that they are not going to receive what they are owed… In the accounting of happiness, many individuals tend to forget that consideration transactions have no promise of return (much because there is no common standard for valuation). Thus because consideration is at “zero value” to begin with, a write off of bad debt doesn’t change the budget of emotional frugality; when we realize we’re not getting what we are owed, we become upset because of our own valuation standards and not because of that of others.

Example, you say? ok… A friend of yours is bored, you have other shit to do, but you volunteer your time to chill with them so that they don’t have a bad day. You just credited your friendship “X” points of considertion and debited your time “X” points of consideration (which to you has actual value because you cannot get your time back). On your birthday, your friend doesn’t come through… you are pissed because you feel that it’s now their turn to give some time or some consideration, but any considearation you receive may or may not be of equal value to you because your friend may not think your consideration was that valuable… you are great at picking friends obviously…

Thus you acted accordingly… you counted your receivable consideration as owned, only to find out you weren’t going to get it back. Unfortunately for us, it’s easier said than done to “write off” our friends with “bad debt” because our consideration is spent and thus we already feel invested. In accounting they call this type of investment a “sunk cost” which means that the money is spent and the investment is depreciating in value (kinda like spending $2000 on a car that breaks next month *sad face*). What the accountants will tell you is that you should disregard financial options based on the fact that you spent this money, because the money and the correlating asset is already gone… in other words, don’t make decisions based on preserving a lost cause. In the end you could blame your friend for being inconsiderate, but it’s just not logically sound because in the end you chose to value them with your consideration… the bad decision was really on you, not them…. the idea is to prevent any further waste of your consideration.

After analyzing all of this, I guess it really did make the most emotional frugal sense to base the valuation of my consideration on others’ opinions, because at least then I could accurately predict what kind of consideration I would receive in return… however this is where the analogy starts to fizzle.. why? because people lie (and omit and euphemize)… and more often then not, they have bad debts.

It is apparent to me now what a recession really is… I feel as if I have been the credit card company with a few loyal billpayers and a bunch of people who will never grant me my “receivable” consideration. As any company would do I’m expecting to write them off for “bad debt”, but beyond that, what do I do?

The trade of consideration is scarce these days…. so how do we make good decisions about who to trust with our most coveted asset, our consideration? And furthermore, how can we ensure that the return of our consideration will continue to make/keep us happy?

Comment Please…

The King’s Law

Advertisements
 

Tags: , , ,

2 responses to “[KL:Consideration]: Consideration Accounting 101

  1. fnasty

    April 1, 2011 at 5:51 PM

    What about discounts? What if you get a shirt [or friend] valued at $20, but really worth 30x more?! Would you not be “winning?!” Wouldn’t that steal in friendship or consideration help elevate you from some sunk costs?

    Couldn’t stand accounting btw. Those balance ledgers weren’t for me.

    #TeamLoyalBillPayer

     

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

 
%d bloggers like this: