Eneko, Remember this: In accounting Debits must equal Credits. 2 = 1 + 1 A = B + C Substitute D = B and E = C
A = D + E A = Assets D = Debt E = Equity. Assets = Debt + Equity. Mick > On Jun 1, 2017, at 12:42 AM, DaveC49 <davidcous...@bigpond.com> wrote: > > 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. _______________________________________________ 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.