Equity Question

[Doug Laidlaw]

On Wed, 19 Aug 2009 12:44:45 am Josh Sled wrote:
> "Maf. King" <maf at chilwell.net> writes:
> > On Tuesday 18 August 2009 07:49:20 ooby wrote:
> >> Hi All,
> >> I'm new to this so possibly this is a really stupid question.  I have
> >> set up all my accounts etc.  I have an Equity account with a sub-account
> >> called Opening Balance with $500 in it (this is an example).  The $500
> >> is from a few different Asset Accounts.
> >>
> >> 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?
> >>
> >> Thanks
> >>
> >> ooby
> >
> > Hi ooby,
> >
> > I think that the equity you are looking for is calculated in the (net
> > worth)? report.  The "Equity" sub-tree in GC is not dynamically updated
> > with the changes made to Income, assets etc. accounts.
> >
> > Think of the "Equity" sub-tree as a place to keep things like opening
> > balances (or retianed earnings etc.) which need to be included in the
> > accounting equation definition of equity, but don't fit as assets or
> > liabilities.
> >
> > Any help, or just more confusing?
>
> I usually phrase this when the question comes up in IRC as: you should
> think of the "Equity" *account* as – and it probably should be renamed
> to – "Equity Adjustments".  "Instantaneous" Equity, as per the
> accounting equation, is only available by running a report.

I have only one account in the "Equity" subsection, viz. "Opening Balances."

The OP seems to be suggesting that the Equity placeholder should always reflect 
the net equity as per a Balance Sheet.  I imagine that in closing the books 
for a fiscal year, the net change to capital will be transferred to Equity as 
Retained Earnings.  I come from a handwritten ledger, where Equity did not 
change until then, so I haven't noticed it as an issue.

And really, the Balance Sheet takes net profit or loss, so without a P/L 
Statement, strictly there can be no Balance Sheet and no figure for Retained 
Earnings to put in Equity.

Doug.