Autoblog

GM's announcement of a $38.6 billion loss yesterday generated quite a bit of shock and many questions. The explanation of "accounting adjustments" didn't sit well with those of us who don't study tax laws for a living, so we decided to pull out our Rolodex and call up someone who could give us a quick lesson in accounting standards. Fortunately, we had the number for Manuel Johnson, former chairman of the Financial Accounting Standards Board (FASB).

Mr. Johnson explained to us that U.S. tax law allows a corporation that suffers net losses to carry forward the total loss balance into future years in order to use the negative numbers as offsets against future profits. The result is that future taxes are lower because the corporation is taxed only on the profits minus the forwarded loss. Meanwhile, the total losses that are carried forward are treated as assets on the balance sheet. That is where GM gets its total of $38.6 billion; it is the automaker's cumulative loss total.