Soundtrack: In Flames - Colony
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I’m not an accountant, but you can certainly balance books while showing a loss. Double-entry bookkeeping simply means that every transaction has two parts, and “balancing” simply means that all the transactions cancel out properly.
I joke with my accountant friends that their entire job is counting to zero.
Exactly. My terminology might not be correct, but my point is that their books can be perfectly balanced, and they can also be losing a shit-ton of money, as long as investors keep shoveling money in.
You can’t have balanced books where there are more debits than credits. That would be out of balance.
Balanced means debits = credits.
I’m not an accountant, but you can certainly balance books while showing a loss. Double-entry bookkeeping simply means that every transaction has two parts, and “balancing” simply means that all the transactions cancel out properly.
I joke with my accountant friends that their entire job is counting to zero.
A loss is not an imbalance of debits and credits, but how much of those debits end up in expenses and the credits end up in revenue.
DR Expense $1,000 CR Cash $1,000With no other activity in a period, that is a $1,000 loss funded by cash.
DR Expense $1,000 CR Loan $1,000Is a loss funded by borrowings.
DR Sales Discounts $1,000 CR Sales Revenue $1,000Is 0 profit/expense as the sale was marked down to 0 (assuming no cost of sales).
Exactly. My terminology might not be correct, but my point is that their books can be perfectly balanced, and they can also be losing a shit-ton of money, as long as investors keep shoveling money in.
Yeah the terminology
is the opposite of everything discussed above.