[GNC] Bravo, Adrien, well explained! [was: Re: I need basic help]

[Jim DeLaHunt]

Bravo, Adrien!

You weren't writing this message for me, but you happened to write the 
explanation of "debit" and "credit" which I found very clear. I realise 
that this won't be the ideal explanation for everyone, but it was for me.

Thank you for helping me understand. And thank you to everyone who has 
taken the trouble to explain things on this -user list. You help more 
-users than perhaps you will know.

Best regards,
     —Jim DeLaHunt, long-time GnuCash user who is about to start using 
"formal accounting labels"


On 2023-10-22 10:36, Adrien Monteleone wrote:
> 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.
>
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