Equity account

[Tom Collier]

I'm going to go out on a limb here and presume to give one of many
possible answers to your question. There are accountants and bookkeepers
who are much more qualified than I and could (and probably will) go into
exquisitely detailed answers, but here is a vastly oversimplified
answer:

Equity is where the the "accounting equation" (Equity = assets +
liabilities) shows you how well you are doing financially.  If you have
positive equity, you're good to go. If you have negative equity, that's
technically called "bankruptcy" ... a consummation devoutly to be
avoided.

As you use GnuCash, it will calculate and adjust the Equity account
without your direct intervention. What the Equity account shows will
vary depending on what you are using GnuCash for.

Business uses, payables and receivables, fixed assets, and the like will
show equity differently than if you are using GnuCash for personal
finances. For personal finances, Equity will vary depending on whether
you are tracking things like mortgages, car loans, stocks, bonds, and so
on or whether you are using GnuCash simply to keep track of your
checking account and credit cards.

In practice, if you don't use the Druid for the initial information, you
use the sub-account "Opening Balances"  as you setup GnuCash.

Example setting up GnuCash for the first time: I have $100 in my
checking account; so I "deposit" $100 and choose "Equity:Opening
Balance" in the Transfer Column. Example 2: I carry a $100 balance on my
credit card, so I enter a charge of $100, then choose "Equity:Opening
Balance in the Transfer Column of the register.  So....If I only have
$100 to my name and owe $100 on the credit card, GnuCash will calculate
that I have $0 equity.  Vast, vast oversimplification, but it
illustrates what Equity does.

If you use GnuCash simply to track checkbook and credit cards, as I do,
then Equity just shows in vastly simplified terms, whether my personal
cashflow is behind or ahead of itself.  Your mileage may vary.

Tom

On Mon, 2012-02-20 at 06:47 -0500, trenton hall wrote:

> Just starting to work on this and I've got what may seem obvious, but not to
> me.  I don't understand how this Equity account works. Do I have to first
> add money to it, or can I just start an opening balance in say my savings
> account, by way of the Equity opening balance.?   Thank you
> 
>