Question

There is an old industry joke that if you ask an accountant what four plus four is, she will tell you it’s whatever you want it to be. Explain what is meant by this statement.

Answer 1

This means different forms of adjustments by which (4 + 4 =) 8 could be represented; such as (1 + 7), (6 + 2), (5 + 3), (1 + 7), and etc.

Any sort of adjustments would give the same result, which is the inner-meaning of this joke and it is possible in accounting. It happens because each and every accounting transaction follows an equation: Assets = Liabilities + Capital

Any sort of increase or decrease in a head must be compensated with other heads; therefore, there must not be any discrepancy.

Example: suppose a loan of $10,000 is taken by a firm; it increases cash, so as to assets, and loan account, so as to liabilities; this makes the same net effect by satisfying the above equation.