Adrien, This needs to make it into the Basics section of the Guide. I am planning to revise it when I get a break from grandchildren and other activities in line with some of flywire's comments re putting transaction explanation before the details of accounts.
David On Sun, 2023-10-22 at 12:36 -0500, Adrien Monteleone wrote: > Edwin, > > Debit/Credit is just Left/Right. > > > > Maybe this will help... > > The Accounting Equation: > > Assets - Liabilities = Equity > > (let's make all terms 'positive') > > Assets = Liabilities + Equity > > (now, we'll split off a subset of Equity) > > Assets = Liabilities + Equity + Retained Earnings > > (now, we'll substitute temporary accounts for Retained Earnings) > > Assets = Liabilities + Equity + (Income - Expenses) > > (now, we'll once again, make all terms 'positive') > > Assets + Expenses = Liabilities + Equity + Income > > > And there, you have the full Accounting Equation with the five major > account types that GnuCash uses. > > ----- > > In double-entry accounting, ALL transactions are in the form of: > > Debit = Credit > > Left = Right > > > The 'Debit' accounts (those that are normally (positive) a Debit > balance, and increase with a Debit, decrease with a Credit) are on the > left of the equation: > > Assets > Expenses > > The 'Credit' accounts (those that are normally (positive) a Credit > balance, and increase with a Credit, decrease with a Debit) are those on > the right of the equation: > > Liabilities > Equity > Income > > A negative balance in any account would indicate either an entry error > or a contra-balance situation. (rare for individuals) > > ----- > You can move funds from the left to the right, or vice versa, or between > any accounts or types on the same side of the equation. (I will use the > abbreviations Dr. and Cr. here) > > Most texts will write transactions Debit first, then Credit as shown > below. The amounts are not shown, because they *must* be equal. > > > Example Left to Right - Asset to Liability (paying down a debt) > > Dr. Liabilities:Loan > Cr. Assets:Cash > > result: decreased Loan owed, decreased Cash on hand, Assets decreased, > Liabilities decreased - equation still in balance > > > > Example Right to Left - Income to Asset (receipt of income) > > Dr. Assets:Cash > Cr. Income:Salary > > result: increased Cash on hand, increased Salary earned, Assets > increased, Income increased - equation still in balance > > > > Example Left to Left(same type) - Asset to Asset (buying land outright) > > Dr. Assets:Land > Cr. Assets:Cash > > result: increased Land owned, decreased Cash on hand, Assets shifted - > equation still in balance > > > > Example Left to Left(different type) - Asset to Expense (buying groceries) > > Dr. Expenses:Food > Cr. Assets:Cash > > result: increased Food expense, decreased Cash on hand, Expenses > increased, Assets decreased - equation still in balance > > > > Example Right to Right(same type) - Liability to Liability (paying down > a loan with a credit card) > > Dr. Liabilities:Loan > Cr. Liabilities:Credit Card > > result: decreased Loan owed, increased Credit Card owed, Liabilities > shifted - equation still in balance > > > > Example Right to Right(different type) - Equity to Liability > (recognition of dividends to be paid - business transaction) > > Dr. Equity:Retained Earnings > Cr. Liabilities:Dividends Payable > > result: decreased Retained Earnings, increased Dividends owed to > shareholders, Equity decreased, Liability increased - equation remains > in balance. > > > > *it is rare and unusualy for an individual to shift Equity to > Liabilities and vice versa. Forgiveness of Debt may in some > jurisdictions be a transfer from Liabilities to Income. > > > Regards, > Adrien > > On 10/20/23 12:02 AM, Edwin Booth via gnucash-user wrote: > > I need to wrap my head around the whole “debit/credit” concept. > > _______________________________________________ > gnucash-user mailing list > gnucash-user@gnucash.org > 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 gnucash-user@gnucash.org 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.
