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Comment by cas | Hacker News Reader

AFAIK there is no substantial evidence that the Kindle Fire is being sold as a loss leader however I can imagine the profit margins are slim.

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Given that no kindles fires have shipped, they haven't booked any revenue or costs for them yet, either.

I've ordered a kindle fire, and Amazon has not yet charged my credit card. So I don't see how they could book the revenue yet.

I'm pretty sure their vendors would disagree.

I'm pretty sure they wouldn't, since that's how GAAP accounting works. For revenues and costs directly related to a product, you don't book them until the product is shipped to a customer.

Its been awhile since I took an accounting class, but lets say my cost of producing the kindle fire was $20 and my expected ability to sell it was at $15, I would book my kindle inventory at $15 on the books even though its acquisition cost was higher (i.e. you put it on your books at the lower of acquisition cost and expected disposal value). This has only been part a GAAP since 1990 though.

I'm not sure why you're being downmodded, you're absolutely correct.

IAS 2[1] states "inventories shall be measured at the lower of cost and net realizable value", which is exactly what you said.

IAS is the International Accounting Standards, which is what pretty much all accounts meet. Inventories mean stock. Net realizable value means what you can get for them. US GAAP covers this as well (though I can't find a reference right now).

Showing your inventory at $20 per unit, when you can only expect to make $15 per unit selling them, would be overestimating the value of your stock. A competent auditor wouldn't sign off on your accounts like that.

[1] (http://www.icaew.com/en/library/subject-gateways/accounting-...)

(from a trainee accountant)

Not exactly. While you are correct that their profits would not necessarily be impacted, it's because the purchased goods or raw materials are booked as inventory (asset), and not part of COGS (liability).

The cost of constructing the new Kindles is still booked, just under a different part of the book. Once the devices are sold, the amount changes from an asset to a liability.

That's the point - we're talking about their Q3 profit. The parent post suggested that the Kindle Fire might have depressed Q3 profits, which is impossible given that it's not being sold yet.

FYI, once it's sold, it's neither an asset or a liability - it's no longer reflected on the company's balance sheet. The revenue and COGS show up on the income statement, and may also be reflected on the cash flow statement. But they're off the balance sheet.

You may be surprised. Amazon is expert at "ship now, pay vendors later". In many areas, Amazon maintains a negative layover from when they pay vendors to when customers pay Amazon.

They're losing $50 per kindle fire.

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