[GNC] Equity Account "problem"

[Michael or Penny Novack]

On 7/12/2023 8:18 PM, Default User wrote:
> On Wed, 2023-07-12 at 16:38 -0400, Michael or Penny Novack wrote:
>> On 7/11/2023 6:48 PM, Default User wrote:



This is a case of not knowing the history (how bookkeeping changed over 
~thousand year history) and never having kept books pen and ink on paper 
in modern bookkeeping (the last couple hundred years)

> I will freely admit that I do not fully understand the formal
> definitions and usage of income and expense accounts.  Indeed, I am not
> an accountant, or even a bookkeeper.  But I do think I know enough to
> understand how closing the books includes transferring income and
> equity balances (or at least "income - expenses") to equity.

The PROCESS of :close the books" in the old days of pen and ink on paper 
(how I learned) not only ended up with all income and expense accounts 
closed to equity but also produced the "Profit&Loss" report (aka "Income 
Statement, aka "Statement of Revenues and Expenses", etc.). The income 
and expense accounts were closed to equity INDIRECTLY. Only their net 
was actually transferred to equity.

There was ANOTHER temporary account of fundamental type equity called 
"Profit and Loss". The income and expense accounts were closed to this 
account and then it closed by whatever amount would bring it into 
balance. That would be labeled "net gain" or "net loss" depending on 
what side it was on and the other side of that entry would be equity.


> So, "retained earnings" of "retained losses" would not be actual
> accounts, with actual transactions, but instead just calculated sums
> that appear in a Balance Sheet report?
Yes, but now you see where would be coming from, an entry in the "P&L" 
account (once was a real, if temporary account under equity). In other 
words, perhaps confused by temporary accounts once used in a process but 
that were zero balance before and after. The Balance Sheet report 
assumes the books are closed when it is run << income and expense 
accounts do not appear --- only their NET >>
>    
> Perhaps that is similar to how I have always thought of equity - not as
> an actual account, but (very simplified, of course) the result of the
> calculated result of Assets - Liabilities. "Take what you own, subtract
> what you owe. What's left is your net worth (equity)".

NOT a good idea to think that way because you are thinking only of the 
very special case of "sole". Equity is the ENTITY'S net wort, not 
necessarily yours, and you had best think of real accounts as would be 
containing important information for joint ventures, partnerships, 
co-operatives, corporations, etc.

Michael D Novack