TEACHER'S COLUMN

In October 2020, Beppu's city-managed hot springs raised their prices for the first time in 19 years. The reason given was a deficit, but the concepts of accounting and finance are useful in evaluating the economic effects of such measures. First of all, as an accounting concept, as a result of cash flow, if less money goes out than comes in, there is a surplus; if the opposite is true, there is a deficit. It may seem simple at first glance, but it is actually quite complex. For example, how do you calculate sales when books of tickets purchased in the previous year are used in the following year, or how many years should the construction costs of a spa facility be divided and recorded as expenses? Criteria for judgment have been established to more accurately represent the reality of business for such questions.

While accounting focuses on the money cash flow in the past, finance is focused on what value will accrue going forward, in other words, on the future. Land with a hot spring and land without naturally differ in value. How to value land is a part of finance. In addition, in order to look to the future, we must organize our thoughts based on a proper combination of accounting evaluations, such as whether the funds invested in a hot spring hotel can be properly recovered from the future earnings of the business. Accounting and finance are truly two halves of a whole.

Of course, hot springs are just one example; our understanding of accounting and finance is also strongly connected to our personal activities. We need to understand our personal cash flow and manage it with an eye to the future. Being able to analyze money with accounting and finance concepts can bring comfort to our daily lives.