Difference in Equity and Assets (checking a/c)

[Mike or Penny Novack]

On 9/14/2015 3:54 AM, Hossain wrote:
> Hello, I m very new to GnuCash, I need some clarifications.I m 
> confused about Equity.
> I have 1000$ in checking a/c (parent-Assets). I make a transaction at 
> Income
> for 200$ (Assets:Current Assets:Current Account) but
> it doesnt increase my-  opening balance(parent-Equity). IT only 
> increases checking a/c (parent-Assets)
> to 1200$. As far as I knw, Equity is what I have in total, then why is 
> this 200$ not added to Equity?

This is a case of not understanding the history of double entry 
bookkeeping (hundreds of years old). I've described this before but not 
for a while.

Originally, there were no income or expense accounts. All transactions 
of this sort were immediately entered against equity. And that's where 
your (mis)understanding comes from. While this gave immediate access to 
the balance of equity, all information categorizing/grouping income or 
expense transactions was lost.

Then somebody got the bright idea of introducing TEMPORARY accounts of 
sub type "income" and "expense". These would be of fundamental type 
equity, but during the accounting cycle kept discrete. That allowed the 
business to see how much was spent for each expense, what the sources of 
income were, etc. At the end of the accounting period, these income and 
expense accounts were all closed to a special account (type equity) 
called "profit and loss" and then this account closed to equity << 
that's what would change total equity >> See the documentation of "close 
the books". With modern computerized accounting systems, can do a 
"virtual" close the books since the reports can be produced with doing 
an actual "close the books". Do it either way.

Makes sense now? Any time you want to now your net equity, can run a 
report which will show among other things, the "delta" from the original 
opening entry (or since last "close the books")

Michael