[GNC] Equity Account "problem"

[Default User]

On Thu, 2023-07-13 at 10:25 -0400, Michael or Penny Novack wrote:
> 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
> 
> 
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Hi, Miichael!

Thanks for the background information. 

Regarding:
"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."

Thankfully, I do not have to account for the finances of any of the
above mentioned entities. 

I am just trying to keep track of my own finances, so I guess you could
say that I am a "sole proprietor".  Since I am not running or
participating in a business, except for investments, I am spared most
of the complexity.  

But I do want to know a little about accounting, so that I don't have
to just give an accountant a load of boxes full of various financial
papers, and say "You figure it out".  
a) That would be rude. 
b) The less I can explain to said accountant, the more likely that said
accountant might have have to just resort to "best effort". 
c) The bill would make my eyes water!
: )

For now I will just have to always keep in the back of my mind that: 

1) Gnucash account ledgers should be thought of as primarily just a
place to enter and edit actual transactions.

2) The Equity account should normally be considered to consist of
Assets - Liabilities, (including opening balances, in Equity:Opening
Balances), but not including (Income - Expenses), unless there have
been no transactions affecting Income or Expense accounts since either
the date the books were originally created or the most recent date the
books were closed. I think! 

(Sorry for the run-on sentence!)

3) If I want a current "real" equity amount, I will just create a
Balance Sheet Report. 


Have a good day!