Odds of Party collapsing on Saturday? - Page 12

maurile · #**111** 10-10-2006, 01:37 AM

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If Party really has Player money in a segregated account then it should show up on the balance sheet and Barron's statement should prove to be bogus.

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Is this true? I'm not an accountant. But if they are holding the money in trust for the players, would it necessarily show up on the balance sheet?

I'm pretty sure (but not 100% sure) that when I deposit $400 billion into my Bank of America checking account, it does not show up on Bank of America's balance sheet. It's not an asset owned by the bank. Would my account at Party necessarily be treated differently (accounting-wise) from my account at Bank of America?

yukoncpa · #**112** 10-10-2006, 02:15 AM

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I'm pretty sure (but not 100% sure) that when I deposit $400 billion into my Bank of America checking account, it does not show up on Bank of America's balance sheet. It's not an asset owned by the bank. Would my account at Party necessarily be treated differently (accounting-wise) from my account at Bank of America?

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Well, it doesn't show up on their income statement and it isn't stock sold or additional paid in capital from partners, so it must be on their balance sheet. The bank owes it to you. So from the bank's perspective it would be a debit to cash and a payable credit to Maurile.

maurile · #**113** 10-10-2006, 02:23 AM

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I'm pretty sure (but not 100% sure) that when I deposit $400 billion into my Bank of America checking account, it does not show up on Bank of America's balance sheet. It's not an asset owned by the bank. Would my account at Party necessarily be treated differently (accounting-wise) from my account at Bank of America?

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Well, it doesn't show up on their income statement and it isn't stock sold or additional paid in capital from partners, so it must be on their balance sheet. The bank owes it to you. So from the bank's perspective it would be a debit to cash and a payable credit to Maurile.

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Thanks for responding. But help me understand. When I put my furniture in a local storage space, the storage company does not list my furniture on its balance sheet, right? It's not an asset owned by the storage company. The furniture is mine; I'm just keeping it there for a bit. It is essentially being held in trust for me.

Wouldn't a checking account work the same way? The cash in my checking account is not an asset owned by the bank. It's held in trust for me. It's in my locker, or my storage space.

(Even if my checking account doesn't work like this, since banks invest the capital and therefore take possession and control of it, wouldn't my PartyPoker account work like this if they keep it in a segregated account?)

Or am I way off on this?

yukoncpa · #**114** 10-10-2006, 02:30 AM

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Thanks for responding. But help me understand. When I put my furniture in a local storage space, the storage company does not list my furniture on the balance sheet, right? It's not an asset owned by the storage company. The furniture is mine; I'm just keeping it there for a bit. It is essentially being held in trust for me.

Wouldn't a checking account work the same way? It's not an asset owned by the bank. It's held in trust for me. It's in my locker, or my storage space.

Or am I way off on this?

[/ QUOTE ] very few items are considered off balance sheet items, you gave an example of one. The items in storage can't be valued by GAAP, so they would end up listed in the notes of the financial statements as a potential liability ( in case of loss ). Just like your money in the bank is a liability to the bank. It's just that all cash transactions can be exactly valued and therefore show up on the balance sheet instead of the notes. Party poker's customer deposits ought to be in a customer deposit account on their balance sheet, which would be a liability to them. By the end of the year, the offsetting debits could be anywhere. Remember that expenses are debits.

APerfect10 · #**115** 10-10-2006, 02:37 AM

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wouldn't my PartyPoker account work like this if they keep it in a segregated account?

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What you are describing is a segregated account (which you mentioned in the quote above)

Unfortunately, Party doesnt keep your funds in a segregated account...so the scenarios you've listed above do not apply in this case.

On the other hand, a site like PokerStars has made it clear that they DO keep a segregated account for all of their players' funds so what you describe above is true for them.

If you are asking why Party doesnt keep a segregated account? I'd imagine they feel they could put the money to better use with limited risk to their customers (much like a bank does with loans, etc. except obviously Party's risk is much higher than a banks although I still imagine its fairly low)

PairTheBoard · #**116** 10-10-2006, 02:37 AM

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I'm pretty sure (but not 100% sure) that when I deposit $400 billion into my Bank of America checking account, it does not show up on Bank of America's balance sheet. It's not an asset owned by the bank. Would my account at Party necessarily be treated differently (accounting-wise) from my account at Bank of America?

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Well, it doesn't show up on their income statement and it isn't stock sold or additional paid in capital from partners, so it must be on their balance sheet. The bank owes it to you. So from the bank's perspective it would be a debit to cash and a payable credit to Maurile.

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Thanks for responding. But help me understand. When I put my furniture in a local storage space, the storage company does not list my furniture on its balance sheet, right? It's not an asset owned by the storage company. The furniture is mine; I'm just keeping it there for a bit. It is essentially being held in trust for me.

Wouldn't a checking account work the same way? The cash in my checking account is not an asset owned by the bank. It's held in trust for me. It's in my locker, or my storage space.

(Even if my checking account doesn't work like this, since banks invest the capital and therefore take possession and control of it, wouldn't my PartyPoker account work like this if they keep it in a segregated account?)

Or am I way off on this?

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Your deposit at a Bank shows up on the Bank's balance sheet as a Liability. If they take that money and make a loan, that loan shows up on their balance sheet as an asset.

The money in player accounts is also showing up as a liability on Party Poker's balance sheet. My concern is what they do with that money. I had thought they deposited it in Banks and it would show up on their balance sheet as such. Evidently this is not the case though. They show Cash but as far as we can tell from the balance sheet, the Cash from Player Accounts is comingled with their other cash. There appears to be nothing stopping them from using it for something like buying Empire Poker.

PairTheBoard

maurile · #**117** 10-10-2006, 02:51 AM

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They show Cash but as far as we can tell from the balance sheet, the Cash from Player Accounts is comingled with their other cash.

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That was PokerSpot's practice as well, correct? I'm a lot more comfortable with the way Stars handles this issue.

maurile · #**118** 10-10-2006, 02:52 AM

yukoncpa, APerfect10, and PairTheBoard -- thanks for the explanation.

yukoncpa · #**119** 10-10-2006, 04:09 AM

Hi Maurile, I’m being pedantic here because long ago, I use to teach this stuff. I know you’ve already figured it out, but for those in New Jersey ( just kidding):

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Wouldn't a checking account work the same way? The cash in my checking account is not an asset owned by the bank.

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Correct, an asset (which is a debit on the balance sheet) is something that is owned. But a liability is something that is owed, and is a credit on the balance sheet. Debit means left and credit means right ( I swear, I don't think there is any further meaning than that). It is the amount that is owed, that is every bit as germain to a balance sheet than that which is owned, that ought to show up on Party Poker's Balance sheet.

Jouster777 · #**120** 10-10-2006, 05:19 AM

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Fortunately, I have a good friend who...offer me insurance...So we talked about what would be a fair price...he thought 20% was about right.

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...and he lets me whitewash the fence. What a friend!