Equity doesn't balance

Mike or Penny Novack stepbystepfarm at mtdata.com
Sun Apr 28 17:52:52 EDT 2013


>
>
> On 04/28/2013 04:22 PM, DutchPro Computer Service wrote:
>
>> Hello Everyone!
>>
>> I am fairly new to GNUcash and thought I had everything balanced, but 
>> my equity doesn’t make sense.
>> I thougth my equity should be my ‘net worth’ but the only thing 
>> entered in equity is my opening balance of my
>> checking and savings account given in a negative number. Assets, 
>> expenses, income and liabilities all balance and are correct.
>> What am I missing or doing wrong?
>
OK, we'll do it again.

When double entry bookkeeping was new many centuries ago income and 
expense transactions were immediately posted against equity. This made
net worth" always available but lost important information about those 
income and expense items. So somebody got the bright idea of FIRST 
posting these transactions to (temporary) income and expense accounts 
whose fundamental type is actually equity. Now totals of various income 
and expense categories could be seen but determining their effect on net 
worth required a "trial close" of the books. At the end of the 
accounting period these accounts were actually closed to equity after 
first closing them to another temporary account called "profit and loss" 
(it would be the amount, on either the debit or credit side required to 
balance this account to zero that would be posted to equity. Those of us 
who learned in the old pen and ink on paper days are familiar with the 
process.

With software like gnucash you don't have to actually do a "close the 
books". You can ask gnucash to generate the appropriate reports at any 
time, an "Income Statement" (aka "Profit and Loss") for some time 
interval and the Balance Sheet reports at the start and the end of that 
period. These reports will show:

a) Net gain or loss (on the Income Statement)
b) Change in retained equity (on the Balance Sheet)

If you want that change actually entered into equity then you do a 
"close the books" (once a year, once a quarter, etc.). But most of us 
just use the reports.

Michael


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