alt Hacker NewsThis very much is debt. Is it your contention that debt can ONLY arise with an exchange of cash? Because as an accountant I find this preposterous. Under IFRS 16 we recognise, for example, long-term leases as debt, because they are obligations to the business. An obligation to pay in the future is almost the definition of debt. An interest rate is not part of that definition, necessarily.
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It is not the same thing. In long-term lease you get immediate control of the asset you are leasing and hence the lease becomes a liability in the books of accounts (you record both the asset acquired and lease liability in the books and it balances). A contract cannot be recorded in your books as a liability as neither work is performed yet nor any cash transaction has taken place. It is just a commitment. Once the contract starts being executed, only then can you record in the books.
A liability is not necessarily debt. You can have liabilities on your balance sheet for future obligations base on current circumstance. But the terms of those liabilities might allow exiting without fully realizing them.
Naive question: are you conflating debt with liabilities? Are these two separate technical terms or are they the same?
To my lay understanding, debt means a loan you have to pay back, whereas liabilities are everything you're on the hook for.
You are an extremely bad accountant if you classify obligations as debt.
> long-term leases as debt, because they are obligations to the business
I don’t think this is how your average reader of this would interpret debt.
When I and most people think of debt they think a negative equity account balance that you pay off to a bank or lender like a mortgage or credit card. Not a 24 month apt lease because no equity is being exchanged.
In part because of the reason OP said which was severability which isn’t something you can do with owed debt.
Graebers debt demonstrates that this is the most common way to think about it.
This is inaccurate. A conditional commitment to spend is not necessarily debt.
The difference is whether it is an executory contract.
If I sign a contract committing me to spend $10m in the future, but the other party is obligated to deliver that $10m of services, that is an executory contract and it is not considered a liability under IFRS because the commitment is contingent on the other party performing.
You're mixing this up with property leases, which create a debt because the tenant has obtained a Right of Use (ROU) asset, which is offset by the debt (lease payments). Leasing a property for ten years gives you both an asset and an offset liability, but only once the lease has commenced.
An obligation to pay that is contingent on the other party's performance of a contract is absolutely not a "debt".
Now, once that data center is built and turned over to the client, that may create an ROU that would generate both an asset (the ROU) and the offsetting liability. But if it's some future data center that will be built, it does not.
Even then, once the data center is built, an ROU may not be created: if the commitment is for a million GPU hours, with the seller having some freedom on how to deliver those GPU hours, that does not create an ROU. If it's for 100 specific GPUs for 10,000 hours each, it does, because it's about the right of use for those specific pieces of property.
For lease accounting, the asset and debt are only created at the point the lease begins, not the signing of the contract, so your reference to IFRS isn't relevant here.