Hi. No gnucash questions here. I think maybe if the gnucash intro didn't help, some other intro to the accounting equation is going to be critical for you; e.g. https://www.investopedia.com/terms/a/accounting-equation.asp.
Income and Expenses are temporary accounts that get resolved to Equity. So if the only thing that happened in the period was you earned $5 of income and put it in the bank (into an asset account), we would (temporarily) show Assets $5 ..... Income $5 ......................Expenses $0 which absolutely balances to a net worth of $5, as we would take (Income - Expenses) -> Equity = $5 On Thu, Aug 14, 2025 at 5:46 PM Anselm Schüler <[email protected]> wrote: > Hi, > > I’m reading the GnuCash guide that’s offered on initial launch of GnuCash. > > The chapter The Basics introduces the accounting equation: > /Assets - Liabilities = Equity + (Income - Expenses)/ > And I do not understand how it is intended to be understood. > > If we understand equity as representing the total net wealth, > aggregating the “settled” income in assets and the “in-flight” income > then we can see that a simple test scenario > /Assets = $0 > Liabilities = $0 > Income = $5 > Expenses = $0/ > gives the absurd result of /Equity = -$5/. But if we instead take what > the manual says earlier, that an increase in income is always paired > with an increase in assets, by adjusting to /Assets = $5/, then we get > the result that /Equity = $0/. This is similarly absurd, in my view. > Shouldn’t we have /Equity = $5/? > > It’s also unclear if liabilities and expenses should be negative numbers > in the equation. If I spend $5, does that mean the equation is > /Assets - Liabilities = Equity + (Income - $5)/ (where expenses are > denoted as positive values), or > /Assets - Liabilities = Equity + (Income + $5)/ (where expenses are > denoted as negative values)? > If liabilities are not in lockstep with expenses, then this means that > to get equity to behave intuitively, we’d need to treat liabilities as > positive numbers, but expenses as negative numbers. If liabilities are > in lockstep with expenses, then we either get /Equity = -$10/, or > /Equity = $0/, which seem ridiculous. > > So I simply do not understand how equity and the equation is to be > understood. Could anybody help me here and clarify what is meant? > _______________________________________________ > gnucash-user mailing list > [email protected] > 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 [email protected] 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.
