On Wed, 27 Sep 2000 00:14:26 EDT, the world broke into rejoicing as
"Robert W. Brewer" <[EMAIL PROTECTED]> said:
> I'm using gnucash 1.4.6 under Linux. It seems to be
> pretty nice for tracking my personal finances.
> I have some questions though. I'm
> an accounting newbie, but I've been reading up on enough
> accounting lately to be dangerous. :)
>
> My "Accounting for Dummies" book says that the fundamental accounting
> equation is
>
> assets = liabilities + equity
>
> To me this seems to be how the whole double entry system works.
> I read somewhere in the online help that opening balances should
> be taken from an equity account, and this matches what the "Dummies"
> book says too.
>
> But when I create fresh assets and equity accounts, then transfer my
> opening balance from equity to assets, I'm left with a negative equity
> account balance. Is this what I want? I would think it should be
> positive so the above fundamental equation would be satisfied.
>
> Thanks for your time!
What you're getting is fine.
That equation is expressed in such a way that it normally works out
nicely with the "signs" of all three values being of "positive" value.
A very simple balance sheet might look like:
Assets: $100 in cash
Liabilities: $50 balance on credit card
Equity: The difference, namely $50 of "retained earnings."
That works nicely with
$100 = $50 + $50
But it sort of oversimplifies things. Accounts tend to either have
a "credit" balance or a "debit" balance. Asset accounts _usually_
take on "debit" balances, whilst liabilities and equity are typically
"credit" balances.
Thus, the above would be represented via:
Debit Credit
Cash $100
Credit Card $50
Retained Earnings $50
Totals: $100 = $100
In GnuCash, "debits" are treated as positive values, while "credits"
are negative values, so that you'd get:
Cash $100
Credit Card: -$50
Retained Earn.-$50
Total: $0
Whether we have "debits" and "credits," or whether we use positive/
negative values, it is fairer to say that in the accounts,
assets + liabilities + equity = 0
That's probably a more useful claim to use 90% of the time.
The other 10% is when you're writing financial statements, which
is is probably _not_ what you'll be doing all the time.
--
[EMAIL PROTECTED] - <http://www.hex.net/~cbbrowne/linux.html>
They are called computers simply because computation is the only
significant job that has so far been given to them.
-- Louis Ridenour
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