Basic Accounting Concepts - what am I missing?

jomali jomali3945 at
Sun Jan 2 16:31:41 EST 2011

On Sat, Jan 1, 2011 at 11:50 PM, Jim Smith <jimsmth761 at> 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 are double-counting. Expenses and income are (at least in Gnucash)
immediately posted into Assets or Liablilities. In traditional
journal-oriented bookkeeping, the journal is posted into the General Ledger
periodically, so that to obtain an intermediate picture, you have to
consider the journal entries as well as the General Ledger.

In the case of Gnucash, the Accounting Equation is always  Assets -
Liabilities = Equity. The Income and Expenses accounts merely record where
the changes in assets and liabilities come from.

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