Opening the books with a Loan
jedwards80 at gmail.com
Wed Nov 11 16:43:44 EST 2009
On Wed, Nov 11, 2009 at 3:13 AM, Pablo Francesca <rshgeneral at yahoo.com> wrote:
> Suppose a business starts with zero assets. Suppose they only have a loan for X dollars to start. This is obviously a liability. How would they open their books in GnuCash?
> I've considered the following: In Opening Balances, decrease equity by X and credit (increase) a liability account for X. This would mean that Assets would be zero, Liabilities would be X and Equity would be -X.
> Okay, looks good so far to me. Perhaps I'm missing something obvious in accounting in the next part. I run a balance sheet report and it tells me that Total Liabilites & Equity = 0. Shouldn't it be X or at least -X?
Leaving aside the question of why you would take out a loan and put it
into Capital, rather than the bank account, the balance sheet report
It doesn't matter how you get there, but your assets have to equal
your liabilities & equity.
If you use A = L + E, then your assets are 0, your liabilities &
equity total to 0. X + (-X) = 0.
If you use A - L = E, then each side of the equation would equal X.
The latter is how I was taught to do a balance sheet.
"You can insure against the weather, but you can't insure against
incompetence, can you?" - Phil Tufnell
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