Basic Accounting Concepts - what am I missing?

Paul Hansen paul.hansen.name at gmail.com
Mon Jan 3 06:13:15 EST 2011

```I am not an expert but I think what I write below is correct

Assets = Equity + Liabilities
Assets = Equity(at period start) + Liabilities + Income(for a period) -
Expenses(for a period)
Start of with 1m:
Asset = 1m + 0 + 0 - 0
Expense: 1m
Asset = 1m + 0 + 0 - 1m

Or put in the equation you have:
Start of with 1m:
1m - 0 + 0 - 0 = 1m
Expense: 1m
(1m - 1m) - 0 + 1m - 0 = 1m
At closure of period, you will have 1m in deficit (1m on debited on your
expense account). To make your expense account zero (to get ready for a new
period) you will have to credit your expense account with 1m. Double entry
principle then forces you to debit your equity account with 1m. So equity
becomes zero. So at the opening of the next period you have:
A = Eq + L = 0 + 0

br

On Sun, Jan 2, 2011 at 5:50 AM, 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?
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