The Numismatic Industry (#244)
/In this podcast episode, we discuss accounting in the numismatic (coin collecting) industry. Key points made are noted below.
Inventory Tracking
A lot of a reseller’s business is conducted at auctions and trade shows. This means that their coin inventory can be scattered around, waiting for auctions to be conducted. And on top of that, they sometimes send coins to customers who might be interested in buying them. So their first issue is keeping track of the inventory, which could potentially be in dozens of locations. To do that, each coin is assigned a unique identifier code, which is what they use to track inventory in their database. And of course, they use the specific identification method, where costs incurred are assigned to specific coins.
Sales Taxes
A second issue is sales taxes. Coins aren’t necessarily sold from a single, fixed location. In fact, there may be no physical store front at all. Instead, a sale could occur at any number of locations, such as at an auction or at a customer’s location. So there may or may not be a need to charge a sales tax, depending on the local laws regarding whether nexus exists, and whether the sales tax applies to coins. This can get complicated.
Pooling of Cash to Buy Coins
A third issue is that some of these coins are very expensive. So expensive that a single reseller may not to bear the risk of purchasing a coin. To get around this, a couple of resellers will pool their resources to buy a coin. When this happens, one company pays the entire purchase price and is then reimbursed by their partner in the deal for part of the purchase price. The coin is shipped to the primary reseller.
Restoration and Evaluation Services
The primary reseller then pays for any restoration and evaluation services associated with the coin, and eventually sells the coin to a customer. At this point, the accountant for the primary reseller has to total up the original purchase price that it paid to the seller, subtract out the amount received from the partner, and add in all the other fees incurred, to arrive at the total net cost of the coin. Then the accountant subtracts all these costs from the revenue earned from selling the coin to figure out the profit, and then splits the profit with the partner.
Supplier Invoices
This is pretty complicated. It seems to be designed to make life difficult for the accountant, especially when you figure that some of these coins won’t be sold for a long time, so the supplier invoices may pile up for months, and could get mixed in with the charges related to other coins. And on top of that, it’s not unlikely for some supplier invoices related to evaluation services to arrive after the reseller has already sold a coin to a customer. This means the accountant has to use a checklist to make sure that all supplier invoices have been received before calculating the profit split with a partner. Or, if that’s not possible, he may just have to wait a while for the bills to arrive, which runs the risk of annoying the partner.
Billing Issues
A final issue is that the billing systems in the industry aren’t exactly world class. Instead, a sale at a trade show is usually documented on a hand written invoice. So you have to remember to log the invoice back into your system, in the correct amount, for the correct identifier code, in order to have an accurate record to match against all the associated costs.
Additional Issues
There are a few high level issues associated with the industry, too. One is that transactions are pretty much on a cash basis. Accrual basis accounting doesn’t really seem to have taken hold. Another concern is whether to write down the value of a coin if the market price declines. I would imagine that very few resellers even consider that option. After all, each coin is unique and the market is rather thin, so how could you even prove a write-down in the value of a coin?