Yeah, when you buy an asset, you have to record the book value of that asset, which is the purchase price. If the asset is later sold for a lower price, then the difference between that and is book value is depreciation, which looks like a kind of expense.
If you buy a $2,000 asset, and write it up as $1,500, it looks as if you actually bought a $1,500 asset, and siphoned $500 into your pocket.
But how can that even work? The ledger entries will not sum to zero. The $500 has to appear in the books somewhere.
It has to be accounted for; that's why we call this accounting. :)
Hey, it's time for some basics of accounting. Below are how those going to look like in the books. Assume initially there were $2000 in cash account, nothing in assets.
You can see that for each transactions, the CR/DR amount are always matching, but the money flows to different accounts. After those two transactions, the company still has $1500 in cash, and realized a $500 loss, but the sum of all account balances is still $2000CR.
Given the huge amount of transactions and the rounding associated with taxes, thus there might be very small discrepancies between CR entries and DR entries, and that's only legit reason money vanished from accounts. I would expect such amount is no more than a couple of hundred dollars, even take a step back thousands, that's still heaven and hell differences. I cannot find a reason other than fraud can lead to such a big hole.
You are doing it wrong; the sum of all accounts should always be zero.
In a certain dumb system used in English-speaking countries, instead of summing to zero, they play games with determining which account is a "credit" or "debit" and have to do the subtractions in the right way. This is for the job security of accountants.
In a sane system, you make external interests (owner's equity and loans/liabilities) negative-running accounts. E.g. if the business has $1000 equity and value of the business goes up by 10 dollars which does not come from a loan, then equity goes from ($1000) to ($1010) to offset that so the balance remains zero. If the 10 dollars came from a loan, then that loan account goes more negative by $10. E.g. loan goes to cash. Cash goes from $500 to $510. This comes from a new loan, so the account tracking that loan is ($10).
equity + liabilities + assets + .... every other account ... + cash = 0
Owner's equity is kind of a loan: the business "owes" that value to the owners. ("Owe" and "own" are related!)
I'm probably not understanding it fully, but the problem in TSLA accounting seems to be that assets they have not been sold are recorded in the books as undervalued.
Nope, I did not. I clearly mentioned the account initial balance etc., and most importantly I did not want to set up a whole charter of accounts. You cannot simply say the sum of all accounts should be zero, depending on the convention used, the balance of account can all be positive. The only thing you can say for sure is that sum of all credit amounts minus all debit amounts should be zero.
I don't think those listed companies tend to undervalue their inventories as it will make their balance sheet ugly and potentially reducing their ability to raise more capital. But even if they did do so, those gaps should be shown in accounts like unrealized loss etc instead of just evaporate. Tesla has a professional accounting team, it's impossible they made such mistakes.
Those are irrelevant facts in this case. Accounts match. PWC would notice.
The issue is that Tesla didn’t disclose any sales or “material” asset impairments that would account for the missing $1.4bn. The sum is so large that it would have to be disclosed. It's a huge red flag, caused either by weak internal controls, or classification of operating expenses as investment to make the books look better than normal. It's an indicator of accounting misstatement, not an accounting error.
TL;DR Tesla may be bullshitting in it's financial statement, or they made huge errors somewhere.
