On 7/12/23 10:53 AM, Default User wrote:
... I understand that the fundamental accounting equation
is, of course:
Assets - Liabilities = Equity
No, and if you answered that on a test, it would be marked wrong.
While the math works out and equations can be manipulated (as is the
case with your example above), the *Fundamental* Accounting Equation is:
Assets = Liabilities + Equity
This is a system of Balance. Writing the equation correctly describes
how the system is designed.
There is a Left Side that is Equal to the Right Side.
Debit is on the Left.
Credit is on the Right.
Debit = Credit
Assets are normally Debit balanced.
Liabilities & Equity are normally Credit balanced.
You can expand the equation to include the temporary accounts Income &
Expenses, and being contributions to Equity, they belong on the Right or
Credit side of the equation:
Assets = Liabilities + Equity + (Income - Expenses)
Notice the (-) sign in front of Expenses. This indicates it is a 'contra
balanced' account, and since it is on the Right side of the equation
that means it is normally has the opposite balance of its side (Credit),
thus it normally has a Debit balance.
You can further manipulate the equation so all Debit balanced accounts
are on the left, and only Credit balanced accounts are on the right:
Assets + Expenses = Liabilities + Equity + Income
This is all right out of a basic accounting textbook.
There are many online, and every local library will likely have one too.
Regards,
Adrien
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