Difference in Equity and Assets (checking a/c)

[Mike or Penny Novack]

On 9/14/2015 4:41 PM, Larry Evans wrote:
> gives the definition as: Assets - Liabilities = Equity
Well no, the definition originally in the form Assets = Liabilities + 
Equities. Double entry bookkeeping predates the common use of negative 
numbers. The only operation used being addition. You need to keep in 
mind that a net balance on the opposite side of the ledger than expected 
for that particular account is the equivalent of a negative amount.


> . Likewise, income and expense are both recorded in the gnucash 
> registers as positive but have an opposite effection on the change of 
> Equity or NetWorth because one is really a positive change and the 
> other is really a negative change. Of course probably people just 
> think it's easier to first add up all their expenses and then 
> substract them rather that substract each one from Networth
It really might help you understand what is going on with double entry 
bookkeeping if you went back to old fashioned "debit" and "credit" 
instead of thinking of increases and decreases.

Remember what I said about "income" and "expense" accounts REALLY being 
of fundamental type "equity"? So if you get  a paycheck, that's a debit 
to cash and an credit to pay (an income account, its normal balance on 
the credit side of the ledger), and so that is equivalent to a increase 
in equity (net worth) because equity is on the credit side of the ledger 
<< we would "close" pay to equity by a close transaction that was a 
debit to pay (after which net zero) and a credit to equity, increasing 
that amount.

Seriously, if you want to understand what you are doing instead of 
learning by rote things to do that seem to make no sense you will really 
have to bite the bullet and open an accounting (or bookkeeping) 101 
text. Gnucash is wonderful software that automates the process saving 
many errors, but to understand what you are doing really means 
understanding it even in old fashioned pen and ink on accounting paper  
terms.

Michael

Michael D Novack