Double-entry explanation (fwd)

[Beth Leonard]

[Forgot to CC the list again.  --Beth]

----- Forwarded message from beth -----

To: Maxwell Moyo <Maxwelmo at zimsun.co.zw>
Subject: Re: Double-entry explanation

On Sat, Sep 09, 2006 at 03:45:10PM +0200, Maxwell Moyo wrote:
> explain the use of double entry concept in the preparation of Balance
> sheet.

The basic idea is that money is neither created nor destroyed, it
only changes accounts.  

It changes accounts according to the equation:

	Assets - Liabilities = Equity

And the advanced form of that equation:

	Assets - Liabilities = Equity + (Income - Expenses)

So when you first start tracking your money in Gnucash or other
double-entry system, you do not add money to the system, you
merely make a transaction from your "Equity:Opening Balances" account
to your "Assets:Current Assets:Checking" account.  Money is neither
created nor destroyed, it just changes accounts.  Now instead of:

	Assets: 0
	Liabilities: 0
	Equity: 0

for your balances, you will have:

	Assets: $1000
	Liabilities: 0
	Equity: $1000

If you earn some money from your employer, say $100 and deposit the
money in your checking account, you make a transaction from 
"Income:Salary" to "Assets:Current Assets:Checking".  Both your
assets and your income have increased. 

The GnuCash concepts guide is another good source of documentation:
http://gnucash.org/docs/v1.8/C/gnucash-guide/basics_accounting1.html

--Beth 
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+                             Beth Leonard                          +
+       O say, does that star-spangled banner yet wave              +
+       O'er the land of the free and the home of the brave?        +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

----- End forwarded message -----

-- 
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+                             Beth Leonard                          +
+       O say, does that star-spangled banner yet wave              +
+       O'er the land of the free and the home of the brave?        +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++