Basic concept question on "Basic Accounting Equation"

[Mike Leone]

Duncan Thomson had this to say:
> OK, thanks that helps.
> 
> This is all just simple addition and subtraction, so the math is trivial.
> What's confusing is the definitions of terms.  I was interpreting "Equity"
> as "Net Worth," and in fact the manual implies that definition:
> 
> "...your net worth is calculated by subtracting your liabilities from your
> assets:
> 
> *Assets - Liabilities = Equity"*
> But I think that's where I'm going wrong.  Because clearly net worth goes up
> and down every time I take in income or incur an expense.  If I buy a
> package of ramen noodles for $.45 and eat them up (yummy!) 

You seemed to have spelled "blech" as "yummy" .. LOL

 > my net worth just went down by 45 cents.
 > That's assuming I'm not counting my improved
> nutritional state as an asset.
> 
> Right?

Technically, yes. I say "technically", because "net worth" is usually 
calculated as of a certain point in time. For instance, in your example, 
your net worth went down when you paid for the noodles. Suppose you 
found a dollar bill on the ground while walking home. Now your net worth 
is + 0.55$. During the course of that half hour, your net worth went 
down, then up.

Rather than fiddling with the calculation on a day-to-day basis, or 
hour-by-hour basis, therefore, most people speak of net worth as of a 
certain point in time, usually at the end of a period of time.

> So.. I think you're telling me that "Equity" in this equation is just a
> constant.  It represents my net worth at some point in time before I start
> taking in income and paying out expenses.

It represents your net worth at the point of last (periodic) 
calculation. You then take in income, and pay out expenses. Then, if you 
wish, you can recalculate. Some folks recalculate at the end of every 
calendar month; it's mostly a matter of convenience, unless you have a 
specific need to know what the value is, on a specific day.
> 
> Am I on track here?  (I come from a math background, I find it a little hard
> to think like an accountant.)