Equity-Opening Balance

[Jeff Kletsky]

Accounting is a pretty bizarre thing at least until you figure out why 
it "works."

The basic rule is "everything comes from somewhere and goes to 
somewhere" -- this means that you can (or your computer can) sum up two 
sets of numbers and, if they match, the "books balance" -- if not, you 
made a mistake somewhere.

There are a few big categories:

Income -- Money you "make" -- things that, for some reason, add to your 
"big pile of money" (BPOM)
Expenses -- Money you "spend" -- things that take away from your BPOM

Liabilities -- Money you "owe" -- things that will eventually take away 
from your BPOM
Assets -- Money you are "owed" -- things that eventually should/could 
add to your BPOM

Equity -- ok, this is the funny one

Think about Equity as how much you have invested, or think of it in the 
personal accounting world as how much you were worth at the end of the 
year (or just before you opened your current books). For more practical 
approach, Equity is the bucket you put your opening balances into so 
that id doesn't mess up looking at the more tangible ideas of
( income - expenses ) + ( assets - liabilities )

What else goes in Equity? For a personal set of accounts, often not much 
else. So yes, it is something of an arcane "standard accounting 
practice" that the account structure for personal use is "Equity:Opening 
Balances" rather than just calling it "Opening Balances"

For businesses, it is a lot more complicated with investors and 
shareholders and needing to produce periodic reports. You may hear of 
"closing the books" for a business -- what they basically do is "roll 
up" many of the accounts into Equity accounts so that the new period has 
"zero balances" starting off in the basic accounts -- In a business you 
often want your account balance to represent "how much have I sold this 
year" as opposed to "how much have I sold since I started the company"

On 1/27/10 7:01 AM, Collier-Sanuki Yoko wrote:
> I'm a new user.  I've searched and read various GnuCash information 
> but cannot find an answer to my simple question:
>
>     GnuCash creates as a default "Equity" place holder and "Opening 
> Balance" under it.
>     But what else goes under "Equity"?  Why not just make "Opening 
> Balance" top-level account?
>