Basic Register - Removing Unwanted Columns

[DaveC49]

Keith,

The use of debit and credit is usually a little bit confusing until you get
a handle on the basic mathematics behind double entry accounting. The actual
meaning of a debit (or credit) depends upon the type of account it is acting
upon. The whole basis of double entry accounting is based on the
relationship between classes of accounts: Assets, Liabilities and Equity
expressed in what is called the Accounting Equation.

    Assets = Laibilities + Equity.

To allow easy calculation of profit/loss  (or surplus/deficit for non profit
accounting) over  what is referred to as the Accounting Period ( this can be
weekly, monthly, quarterly, half-yearly or annually depending on how often
you need for internal management or are required to provide information for
external reporting on your profit/loss) two additional temporary Equity
classes are introduced, Income for increases in Equity and Expenses for
decreases in Equity to give the full Accounting Equation:

Assets = Liabilities + Equity + (Income - Expenses). These are
temporaryaccounts in classical accounting because at the end of the
Accounting period their balances (more correctly the difference in their
balances) are normally transferred to an Equity Account (often called
retained Earnings or something similar).

Any transaction affects two or more accounts and the individual components
of a transaction are referred to in Gnucash as splits with each split either
debits or credits one account from one of the above classes of accounts.

A debit split affecting an account on the RHS of this equation, i.e. an
Asset account produces an increase in the balance of that asset account and
correspondingly a credit split to an Asset account will decrease the balance
of an asset account.  

On the other side of the Equation in Liability, Equity and Income accounts a
credit split affecting an account produces an increase in the balance of the
account while a debit split reduces the balance of the account.

Because of the negative sign before Expenses, a debit split to an expense
account increases the balance of that Expense account while a credit split
decreases the balance of that account.

Confusion often arises when we get a statement from a Bank (or supplier or
vendor). They are doing their internal accounting from their perspective
using the convention described above.  Your bank account, an asset to you is
a Libility account to the bank because the money in the account is money
they may have to provide to you at any time. Hence when you deposit money to
your bank account your statement for that account has a credit to it and
when you withdraw money from your bank account your statement will have a
credit, the reverse of how debits and credits affect your asset account from
your perspective.

Using the above you can easily translate between the column headings
Debit/Credit and Increase/Decrease for the various asset classes.

David Cousens



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David Cousens
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