Old Loans and "Retained Earnings"

Otto Müller otto.mueller@bundestag.de
Tue, 16 Oct 2001 12:52:30 +0200


David Overton schrieb:

> Kind of.  If I understand all this stuff, there are basically three
> types of accounts in a double-entry accounting system: Assets,
> Liabilities and Equity.

These are not hard-coded!
Double-entry accounting has the only significance, that money goes
from one account to some other, nothing else. As a direct consequence
you have that the sum of all accounts will (and must) be zero.

> The invariant which relates these three types of accounts is:
> 
>         Assets = Liabilities + Equity
> 
> For a business, the account types can be thought of as having the
> following meaning:
> 
> Assets:
>         What the business owns.
> 
> Equity:
>         What the business owes its owner(s).
> 
> Liabilities:
>         What the business owes other people.
> 
> By convention, assets are shown as positive when they are in debit, and
> liabilities and equity are shown as positive when they are in credit.
> (To get GnuCash to follow these conventions, you need to set
> "Reverse-balance account types" to "Credit Accounts" in the GnuCash
> Preferences.  If you don't have this setting, that is the reason your
> equity account balance has the wrong sign.)
> 

You will get the last-mentioned relation if you use these three types of
accounts in the stated sense.

Otto