Doesn't Chapter 2.1 Accounting Concepts cover exactly this? David T.
On Oct 22, 2023, 11:46 PM, at 11:46 PM, David Cousens <davidcousen...@gmail.com> wrote: >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. >> >> _______________________________________________ >> gnucash-user mailing list >> gnucash-user@gnucash.org >> To update your subscription preferences or to unsubscribe: >> 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 >To update your subscription preferences or to unsubscribe: >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 To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user ----- Please remember to CC this list on all your replies. 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