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

[Tom Route-36]

Hi Anselm,

I don't know if this will help or confuse further; but you might want to 
check out this YouTube video on the basics of Double-Entry Bookkeeping 
specifically for personal finance.  It includes some examples using 
GnuCash also.

https://www.youtube.com/watch?v=lIGJzQw79hg

Tom



On 8/14/2025 4:09 PM, David Warren wrote:
> If we now spend $3 on expenses we get
> 
> Assets $2...........Income $5
> Expenses $3......Liabilities $0
> 
> Nicely balanced.  At the end of some period, we could resolve Income -
> Expenses to Equity and show
> 
> Assets $2.........Income $0
> Expenses $0...Liabilities $0
> .......................Equity   $2
> 
> All represented as positive numbers, which is all they knew when double
> side accounting started
> 
> On Thu, Aug 14, 2025 at 6:03 PM David Warren <david at warren1.net> wrote:
> 
>> 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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