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Ask Marilyn: Still Not Convinced About the Tourist and the $100 Bill?
Mark Garlikov of Dayton, Ohio, writes:
Marilyn I teach Financial Accounting at the University of Phoenix Online, and I read your answer to the puzzle about the tourist and the $100 bill. (July 8, 2012). This is a basic accounting problem. If we consider each business having an asset of $100 and a liability of $100, each of them have a net worth of $0. When each debtor pays his creditor $100, he is using an asset to satisfy a liability and accordingly, there is no effect on the net worth.
The only one in town to show a profit will be the accountant when he bills each of them for his services. Of course, each of the others will show a loss, and none of them will pay taxes.
Think of it this way, readers: The tourist deposits a $100 loan on the counter. Everybody pays his or her creditors in turn, and when the party-planner returns with the $100 and pays the hotel for the party room, the owner picks up the bill and pays off the loan to the tourist.
I sometimes think that if I were a tax auditor, I wouldn't bother auditing accountants. They would do everything just right!