N00b question: expenses & equity

[Yawar Amin]

On 2010-10-25, at 22:11, Dr. Bubbles wrote:

> 
> Today I installed GnuCash 2.2.9 on Win7 Home.  After playing with it for a while to get used to it, I started entering real data, using my financial activities of today as the starting point.  I made one expenditure (groceries), paid for with cash, and I received no income.  So I balanced the Grocery expense from the Cash in Wallet asset but then I noticed that the Equity did not change.  I tried deleting and re-entering the transaction several times, using different accounts' registers, but the equity never changed.  I do not understand that.  It seems like Expenses should just make monetary value disappear from the system, otherwise I'll soon have much more in equity than assets.  And unless the economy is headed towards a "Merchant of Venice"-style 
> traffic in pounds of flesh, it's hard to see the sense of that. 
> 
> I'm not sure if this is an accounting or a software thing, but until I understand it, I'm hesitant to continue.  Is there something more I need to do?  I tried 'reconciling' because it was the only thing I could think of, but it did nothing.

Short answer: In GnuCash, you just run an Equity report and it immediately tells you what your current equity is. Each time you enter an expense and reload (refresh) the report, you’ll see your equity decrease.

Long answer: It’s an accounting thing. The equity account balances will not change until you ‘close the books’, so to speak. Traditionally this meant annually entering one or more closing transactions to zero out all your income and expense accounts and move their balances to equity (retained earnings) accounts. This would effectively make Equity the sum of all income minus all expenses for the year.

Hope this helps,

Yawar

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