On 8/28/2022 6:38 PM, W. Neal Lewis wrote:
I will agree that by mathematical logic, Assets-(Liabilities)=Equity.
∴ Assets+(Liabilites)-(Liabilities)=Equity+Liability, or stated more
simply, A=Eq+L. I have added Liability to both sides ∴ both sides
remain equal.
However, although (A+L)=Eq, (A+L)≠Eq+(I+Ex). I have added a term to
the right side that is most decidedly not on the left ∴ they cannot be
equal.
Income and expenses are of fundamental type equity (they just haven't
yet been combined with equity). They are also of opposite sense.
Expenses are debit and Income is credit. When you add income to equity,
you are increasing equity (equity is of sense credit). But when you add
expenses to equity you are decreasing equity (because the sense of
expenses is debit.
Assets = Equity + Liabilities << the fundamental equality at the start >>
Now at the start, there are yet no items of income or expense, so those
totals are zero. So no violation of anything if we add zero twice to the
right hand side.
Assets = Equity + liabilities + Income - Expenses << that's just
Assets = Equity + Liabilities + (0) - (0) and we are always allowed to
add or subtract zero, no violation yet >>
We will now look at two transactions, one for an item of income of x and
one for an item of expense of y. When we enter the item of income we
would be debiting an asset account by x and crediting an income account
by y. So ......
Assets + x = Equity + Liabilities + (0 + x) - (0)
And when we pay an expense of y we will be debiting an expense account
by y and crediting an account of type asset by y But remember, the
normal sense of assets is debit and the normal sense of expenses is
debit. Sp ....
Assets + x -y = Equity + Liabilities + (0 + x) - (0 + y)
OK now?
Michael D Novack
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