Difference in Equity and Assets (checking a/c)

[Hossain]

Why is salary an income for a business ? Its an income for individual.
The business pays for salary, it shud be expense in business account.

On 15-Sep-2015 2:41 AM, Larry Evans wrote:
> On 09/14/2015 04:41 AM, Michael Hendry wrote:
>>> On 14 Sep 2015, at 08:54, Hossain <contacthossain at gmail.com> 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 doesn't 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?
>> Welcome, Hossain.
>>
>> This is an accountancy question - I don’t think you fully
>> understand double-entry bookkeeping.
>>
>> (I’m not an accountant, I hasten to add).
>>
>> Equity represents your contribution to the business whose
>> accounts you are keeping (and perhaps contributions of
>> business partners).
>>
>> When you make a double-entry of income arriving in your
>> Current Account (= US Checking Account), you must record
>> the source of this income in one of your Income accounts -
>> for example, “Income:Salary" or "Income:Bank Interest".
>>
>> Michael
>>
> Hi, Hossain.
>
> Like Michael, I'm not an accountant either.  My education
> was engineering and computer science.
>
> This reference:
>
> https://en.wikipedia.org/wiki/Accounting_equation
>
> gives the definition as:
>
>    Assets - Liabilities = Equity
>
> An equation using more understandable terms(for a
> non-accountant) would be, in my opinion:
>
>    Owned - Owed = NetWorth
>
> What missing is income and expenses, which occur later in
> the wikipedia page in:
>
>    NetIncome = Income − Expenses
>
> So, in a Gnucash Income account, incomes are recorded in the
> income column of the income account register
> (e.g. Income:Salary) and then transferred (i.e. entered in
> the Transfer column of the Income:Salary register) to some
> Asset (or, in my terminology, Owned) account, such as your
> checking account at some bank, such as Assets:CitiBankChecking.
> Alternately, in a Gnucash expense account, expenses are
> recorded in the expense column of the expense account
> register (e.g. Expenses:Gas) and then transferred to some
> asset acount such as Assets:CitiBankChecking, but
> that transfer decreases the NetWorth of your
> Assets:CitiBankChecking account.
>
> As far as I can tell, there only needs to be 2 types of top
> level accounts.  NetWorth and WorthFlow.  A subaccount of
> NetWorth, (e.g. NetWorth:CarLoan) can be negative (which
> would make it a Liability account in Gnucash's terminology)
> or positive (e.g. NetWorth:Citibank:Checking) which would
> make it an Asset in Gnucash's terminology).  Likewise, a
> WorthFlow can be either positive (an income, Income:Salary)
> or negative (an expense, Expense:Gas).  The WorthFlows cause
> changes in the NewWorth over time. It's just a convention
> that accounting practice records both Assets and Liabilities
> as positive amounts, but when calculating Equity, it
> substracts the two, reflecting the wikipedia article
> equation.  Likewise, income and expense are both recorded in
> the gnucash registers as positive but have an opposite
> effection on the change of Equity or NetWorth because one is
> really a positive change and the other is really a negative
> change.
>
> Of course probably people just think it's easier to first
> add up all their expenses and then substract them rather
> that substract each one from Networth.  Likewise, people
> probably think it's easier to add up all the things they own
> and the add up all the things they owe and substract the two
> to get NetWorth.
>
> Of course maybe I'm missing something.
>
> -regards,
> Larry
>
>
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