If we now spend $3 on expenses we get Assets $2...........Income $5 Expenses $3......Liabilities $0
Nicely balanced. At the end of some period, we could resolve Income - Expenses to Equity and show Assets $2.........Income $0 Expenses $0...Liabilities $0 .......................Equity $2 All represented as positive numbers, which is all they knew when double side accounting started On Thu, Aug 14, 2025 at 6:03 PM David Warren <[email protected]> wrote: > 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.
