[GNC] Question about the accounting equation in the GnuCash guide

[David Warren]

Hi.  No gnucash questions here.  I think maybe if the gnucash intro didn't
help, some other intro to the accounting equation is going to be critical
for you; e.g. https://www.investopedia.com/terms/a/accounting-equation.asp.

Income and Expenses are temporary accounts that get resolved to Equity.
So if the only thing that happened in the period was you earned $5 of
income and put it in the bank (into an asset account), we would
(temporarily) show
Assets $5 ..... Income $5
......................Expenses $0
which absolutely balances to a net worth of $5, as we would take (Income -
Expenses) -> Equity = $5

On Thu, Aug 14, 2025 at 5:46 PM Anselm Schüler <mail at anselmschueler.com>
wrote:

> Hi,
>
> I’m reading the GnuCash guide that’s offered on initial launch of GnuCash.
>
> The chapter The Basics introduces the accounting equation:
> /Assets - Liabilities = Equity + (Income - Expenses)/
> And I do not understand how it is intended to be understood.
>
> If we understand equity as representing the total net wealth,
> aggregating the “settled” income in assets and the “in-flight” income
> then we can see that a simple test scenario
> /Assets = $0
> Liabilities = $0
> Income = $5
> Expenses = $0/
> gives the absurd result of /Equity = -$5/. But if we instead take what
> the manual says earlier, that an increase in income is always paired
> with an increase in assets, by adjusting to /Assets = $5/, then we get
> the result that /Equity = $0/. This is similarly absurd, in my view.
> Shouldn’t we have /Equity = $5/?
>
> It’s also unclear if liabilities and expenses should be negative numbers
> in the equation. If I spend $5, does that mean the equation is
> /Assets - Liabilities = Equity + (Income - $5)/ (where expenses are
> denoted as positive values), or
> /Assets - Liabilities = Equity + (Income + $5)/ (where expenses are
> denoted as negative values)?
> If liabilities are not in lockstep with expenses, then this means that
> to get equity to behave intuitively, we’d need to treat liabilities as
> positive numbers, but expenses as negative numbers. If liabilities are
> in lockstep with expenses, then we either get /Equity = -$10/, or
> /Equity = $0/, which seem ridiculous.
>
> So I simply do not understand how equity and the equation is to be
> understood. Could anybody help me here and clarify what is meant?
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