[a_Guest03]

Using standard accounting practices, you can save tax money by claiming a loss much sooner and harder than it happens. Using the GAAP (Generally Accepted Accounting Practices), which is just what it sounds like, and IRS-approved, you can write off a load of depreciation (that's bad, like rotting buildings or server obsolescence) before it happens. Thus, to save a lot of money early on, you claim a bunch of losses that haven't happened yet. You'll be taxed the same overall whether you do it now or do it later. So, because they are doing really well, they can maintain more cash for more expansions while it's a hot market by claiming a loss. The income will be the same in the long run, and actually should help to balance out the costs versus income better.

Their greatest costs come when a mass-migration happens and they are left with hefty costs and reduced income. At this time, they need the cash they conserved by filing early losses, and they can ride out the hard times. When I start my business, I intend on filing early losses allowed under GAAP so that I can conserve cash instead of paying taxes. They will tax me eventually, but I'd like it to be when I'm most prosperous. I'll have the most to give back then. What good is it being taxed on a building that you can no longer afford? Get the tax breaks while the breaks are there!

So Sony's behaviour may contribute to why they have reported losses, when it's obvious that business is good. Never let a quarterly earnings form dictate whether life is good or bad! Business is a flow that you must control, and I'm sure their Comptroller is among the 1000 best in the world at controlling how the money flows.

Imagine that you will be taxed 40% on all profit (total earnings greater than total costs). Imagine that you pay 5% interest on all loans. Rather than pay that tax, and THEN get a loan, you would claim greater losses when you approach the point of being profitable. As a business with a lot of expenses, that additional cash can be used with marketing to utilize fully the bandwidth that you've already purchased, the servers that lay idle, and the employees that aren't helping people. That's how you make money.

Also imagine how many servers they purchased, and how quickly they can claim that they're "obsolete", knowing the current lifespan of a computer. It degrades from a $3000 machine to $200 in a matter of 2 or 3 years, but you can take nearly $1400 in losses the first year, and the rest at the end. There's an equation they follow that works it out perfectly, but I can't remember it now (sorry!). Anyway, if you make $1000000 and don't want to pay taxes on it, just claim the machines are junk and you lose money (awwww, no taxes! Yay!).

I'm sure their accounting practices were planned out to match their business plan to ensure that everything would run smoothly monetarily.

There's your lesson on why you need a good accountant running your finances if you ever start a business. Cash flow kills.