[GNC] Handling of Equity and Retained Earnings

[David Cousens]

Hi Michael

An equation is not changed if terms are transposed from one side to another
with a change of sign. It is still equally valid. I rearranged the extended
fundamental accounting equation including  the temporary accounts from

Assets =Liabilities +Equity +( Income -  Expenses)

to
 
Assets - Liabilities = Equity + (Income - Expenses).

This is still the same fundamental accounting equation. The point of
expressing it in this form is that any point in time if the books are
correctly maintained, the total of the balances of Assets - Liabilities must
equal the total of the balances of Equity, including the temporary account
balances, the nett of which is the Retained Earnings balance. This is a
mathematical reality. It is irrespective of whether the books have been
formally closed or not as that only transfers the temporary equity account
balances to the permanent Equity account balance and does not affect the
Assets and Liabilities balances. A balance sheet at the time the old books
cease operation must satisfy the accounting equation.

My basic assertion is that if all the balances of the Assets and Liabilities
accounts are transferred to the new books (but not the Equity and Income and
Expense account balances) the Opening Balance entries to Equity implicitly
contain the total contributions to Equity in the old book at the time the
balances are transferred, negating any need to separately have an explicit
Opening Balance for a Retained Earnings account.

David





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David Cousens
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