[GNC] Equity Account "problem"

[Adrien Monteleone]

On 7/12/23 10:53 AM, Default User wrote:
> ... I understand that the fundamental accounting equation
> is, of course:
> 
> Assets - Liabilities = Equity

No, and if you answered that on a test, it would be marked wrong.

While the math works out and equations can be manipulated (as is the 
case with your example above), the *Fundamental* Accounting Equation is:

Assets = Liabilities + Equity

This is a system of Balance. Writing the equation correctly describes 
how the system is designed.

There is a Left Side that is Equal to the Right Side.

Debit is on the Left.
Credit is on the Right.

Debit = Credit

Assets are normally Debit balanced.
Liabilities & Equity are normally Credit balanced.

You can expand the equation to include the temporary accounts Income & 
Expenses, and being contributions to Equity, they belong on the Right or 
Credit side of the equation:

Assets = Liabilities + Equity + (Income - Expenses)

Notice the (-) sign in front of Expenses. This indicates it is a 'contra 
balanced' account, and since it is on the Right side of the equation 
that means it is normally has the opposite balance of its side (Credit), 
thus it normally has a Debit balance.

You can further manipulate the equation so all Debit balanced accounts 
are on the left, and only Credit balanced accounts are on the right:

Assets + Expenses = Liabilities + Equity + Income

This is all right out of a basic accounting textbook.

There are many online, and every local library will likely have one too.

Regards,
Adrien