Basic Accounting Concepts - what am I missing?
jimsmth761 at gmail.com
Sun Jan 2 00:20:33 EST 2011
> On Sun, Jan 2, 2011 at 12:00 AM, Ryan Flegel <rflegel at gmail.com> wrote:
On 1 January 2011 22:50, Jim Smith <jimsmth761 at gmail.com> wrote:
> When one writes the Accounting Equation in the form shown below, it
> doesn't make any sense to me.
> (Assets - Liabilities) + (Expenses - Income) = Equity
> If I start off with 1 million in assets and no liabilities and then I
> encounter 1 million in expenses and have no income, I should end up
> with zero equity. The equation makes it seem like this scenario would
> give me 2 million in equity.
> What am I missing?
> You've got it mixed up I think. It should be:
> (Assets - Liabilities) - (Expenses - Income) = Equity
> Note the subtraction of (Expenses - Income) instead of addition.
Ryan, maybe I'm a bit rusty on my algebra, but I think your equation works
out to this:
(Assets - Liabilities) - (Expenses - Income) = Equity
Assets - Liabilities - Expenses + Income = Equity
Assets - Liabilities = Equity + (Expenses - Income) <-- not correct
So I'm still confused
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