[GNC] I need basic help

[David Cousens]

Adrien,

This needs to make it into the Basics section of the Guide. I am planning to
revise it when I get a break from grandchildren and other activities in line
with some of flywire's comments re putting transaction explanation before the
details of accounts. 

David

On Sun, 2023-10-22 at 12:36 -0500, 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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