Difference in Equity and Assets (checking a/c)

[Larry Evans]

On 09/15/2015 07:03 AM, Hossain wrote:
> 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.

Sorry, Hossain, I don't see where I wrote that salary was
income for a business.  I'm guessing that maybe when I wrote

>> 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.

that maybe you thought Assets::CitiBankChecking was a
business account for the CitiBank business.  What I meant
was it was the individual's CitiBankChecking account.

Now if CitiBank (the actual business) was using Gnucash,
they might have a Liability account named something like:

  Liabilities:CheckingAccounts:Hossain

And that account would have a value in the Balance column
which would be the same as your Assets:CitiBankChecking.

I apologize for not being clearer, and I hope the above is a
bit clearer.

-regards,
Larry

>
> 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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