Equity Question

Mike or Penny Novack stepbystepfarm at mtdata.com
Tue Aug 18 12:03:17 EDT 2009


>s.
>
>I went and entered that I paid my Credit Card of $200 from one of my Asset
>Accounts.  The Asset accounts now show that I have $300 but the Equity account
>has changed at all, it still shows $500, the original amount.
>
>My understanding of this is that the Equity should also show $300.
>If I open the Equity account it shows the opening balances and isn't reflecting
>that one of the Asset accounts is now minus $200
>
>I have reconciled everything as well
>
>Am I missing something or not getting it?
>  
>
Not getting it at all I'm afraid.

Switching around the usual way it is put according to the traditions of 
accounting to be more like we would usually think of it, the fundamental 
equation is
Assets - Liabilities = Equity

So transferring between an asset account and a liability account 
(decreasing both as they are on opposite sides of the ledger) wouldn't 
change the value of the right hand side of that equation. Make more 
sense now? You have made no change to your net worth by spending cash to 
pay off a debt.

Michael


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