> Begin forwarded message: > > From: Mick Hartzell <[email protected]> > Subject: Re: (no subject) > Date: June 2, 2017 at 11:45:21 AM CDT > To: DaveC49 <[email protected]> > Cc: [email protected] > > 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 <[email protected]> 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 >> [email protected] >> 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. >
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