[GNC] I need basic help

[Adrien Monteleone]

Edwin,

Debit/Credit is just Left/Right.



Maybe this will help...

The Accounting Equation:

Assets - Liabilities = Equity

	(let's make all terms 'positive')

Assets = Liabilities + Equity

	(now, we'll split off a subset of Equity)

Assets = Liabilities + Equity + Retained Earnings

	(now, we'll substitute temporary accounts for Retained Earnings)

Assets = Liabilities + Equity + (Income - Expenses)

	(now, we'll once again, make all terms 'positive')

Assets + Expenses = Liabilities + Equity + Income


And there, you have the full Accounting Equation with the five major 
account types that GnuCash uses.

-----

In double-entry accounting, ALL transactions are in the form of:

Debit = Credit

Left = Right


The 'Debit' accounts (those that are normally (positive) a Debit 
balance, and increase with a Debit, decrease with a Credit) are on the 
left of the equation:

Assets
Expenses

The 'Credit' accounts (those that are normally (positive) a Credit 
balance, and increase with a Credit, decrease with a Debit) are those on 
the right of the equation:

Liabilities
Equity
Income

A negative balance in any account would indicate either an entry error 
or a contra-balance situation. (rare for individuals)

-----
You can move funds from the left to the right, or vice versa, or between 
any accounts or types on the same side of the equation. (I will use the 
abbreviations Dr. and Cr. here)

Most texts will write transactions Debit first, then Credit as shown 
below. The amounts are not shown, because they *must* be equal.


Example Left to Right - Asset to Liability (paying down a debt)

Dr. Liabilities:Loan
   Cr. Assets:Cash

result: decreased Loan owed, decreased Cash on hand, Assets decreased, 
Liabilities decreased - equation still in balance



Example Right to Left - Income to Asset (receipt of income)

Dr. Assets:Cash
   Cr. Income:Salary

result: increased Cash on hand, increased Salary earned, Assets 
increased, Income increased - equation still in balance



Example Left to Left(same type) - Asset to Asset (buying land outright)

Dr. Assets:Land
   Cr. Assets:Cash

result: increased Land owned, decreased Cash on hand, Assets shifted - 
equation still in balance



Example Left to Left(different type) - Asset to Expense (buying groceries)

Dr. Expenses:Food
   Cr. Assets:Cash

result: increased Food expense, decreased Cash on hand, Expenses 
increased, Assets decreased - equation still in balance



Example Right to Right(same type) - Liability to Liability (paying down 
a loan with a credit card)

Dr. Liabilities:Loan
   Cr. Liabilities:Credit Card

result: decreased Loan owed, increased Credit Card owed, Liabilities 
shifted - equation still in balance



Example Right to Right(different type) - Equity to Liability 
(recognition of dividends to be paid - business transaction)

Dr. Equity:Retained Earnings
   Cr. Liabilities:Dividends Payable

result: decreased Retained Earnings, increased Dividends owed to 
shareholders, Equity decreased, Liability increased - equation remains 
in balance.



*it is rare and unusualy for an individual to shift Equity to 
Liabilities and vice versa. Forgiveness of Debt may in some 
jurisdictions be a transfer from Liabilities to Income.


Regards,
Adrien

On 10/20/23 12:02 AM, Edwin Booth via gnucash-user wrote:
> I need to wrap my head around the whole “debit/credit” concept.