Hi Eneko, The full accounting equation is Assets = Liabilities +Equity+(Income -Expenses) where Income and Expense accounts are temporary Equity accounts which record the changes in equity during the current accounting period (usually a financial year). You can rewrite this as Equity = Assets - Liabilities, which possibly makes more sense to non-accountants.
It is not necessarily that an increase in assets is matched by an increase in liabilities. This is only true if you purchase an asset using credit. I.e. If you buy a piece of equipment on credit ( your credit card for example), the balance of the asset account for Equipment is increased by the amount of the purchase and the balance of your Accounts Payable ( a liability account) is also increased by the same amount. (Gnucash refers to these entries as splits) and a transaction recording an event in your account generally consists of at least two splits, each affecting one account, and can consist of more splits where a transaction affects more than two accounts ( atransaction which has a sales tax , VAT or GST component for example). For the above if the purchse price was $500, the splits would be Debit Credit Asset:Equipment $500 Liability:CreditCard $500. The transaction which records this is a debit entry to the Asset:Equipment account and a credit entry to the Liability:AccountsPayable account. This is why accountants write the equation in the first way above since in this form increases in accounts on the left hand side(LHS) of the equation are debit entries (and decreases in the accounts on the LHS are therefore credit entries) and increases in accounts on the right hand side are credit entries (and decreases in accounts on the RHS are debit entries). If your equipment purchase was by cash however, there is no liability created as you are paying from an existing asset, your bank account. As your bank account balance is decreased when you make the purchase, then entry to your bank account is a credit entry for the value of the purchase. I.e. the splits would now be Debit Credit Asset:Equipment $500 Asset:Bank Account $500. What has to balance for any given transaction is the sum of the debit entries (splits) and the sum of the credit entries (splits) for each transaction. More clearly an increase in a given asset account either has to be balanced by *a corresponding decrease in another asset account; or *a corresponding increase in a liability account; or *a corresponding increase in an equity account; or * any combination of the above in which the sum of the decrease in the asset account and decrease in the liability and/or equity accounts totals to equal the increase in the first given asset account. I hope this helps make this section a bit clearer. Wikipedia also has some fairly good entries on double -entry book keeping/accounting. David Cousens -- View this message in context: http://gnucash.1415818.n4.nabble.com/no-subject-tp4691972p4691976.html Sent from the GnuCash - User mailing list archive at Nabble.com. _______________________________________________ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user ----- Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.