Blog by Sumana Harihareswara, Changeset founder
Hi, reader. I wrote this in 2006 and it's now more than five years old. So it may be very out of date; the world, and I, have changed a lot since I wrote it! I'm keeping this up for historical archive purposes, but the me of today may 100% disagree with what I said then. I rarely edit posts after publishing them, but if I do, I usually leave a note in italics to mark the edit and the reason. If this post is particularly offensive or breaches someone's privacy, please contact me.
My pedantic little distinctions include "abbreviation" vs. "acronym" and "between" vs. "among." Today I learned a new one: tangible long-term assets get "depreciated," while intangible long-term assets, such as a franchise fee, get "amortized." I've been using "amortized" for years to refer to using up the value of tangible assets, but as long as I'm only hanging around non-accountants that should be fine. This is akin to saying "sorting" instead of "hashing" around computer programmers.
Another accounting wrinkle I learned today gave me pause. An asset is something you now control, thanks to a past acquisition or transaction at a measurable cost, that you expect will give you economic benefits in the future. This means that employees don't belong on the balance sheet. They could quit at any time so you don't control them, the work to be performed is in the future instead of the past, and so on. This seems fishy to me. I mean, does anyone really control anything? Your warehouse might burn down, or the town might rezone your land. And you buy an asset, or hire an employee, because of perceived future use.
But in accounting terms, it's only an asset if you can put a price on it. If you don't know how much you'll end up paying an employee in total, you can't valuate her work as an asset or her future wages as a corresponding liability.
So if you wanted to create your own derivative of standard accounting that included particular workers or their work as an asset, you could buy them as slaves, or you could hire them on periodic contracts and think of the contracts as assets. Sure, you haven't paid yet, but sometimes you buy assets entirely on credit.
Another option: pay your employee her entire year's salary in advance, when she signs a one-year contract. I don't know what would be more radical, that or putting workers down as assets on the balance sheet.