Re: Double-entry explanation (fwd)

classic Classic list List threaded Threaded
1 message Options
Reply | Threaded
Open this post in threaded view
|

Re: Double-entry explanation (fwd)

Beth Leonard
[Forgot to CC the list again.  --Beth]

----- Forwarded message from beth -----

To: Maxwell Moyo <[hidden email]>
Subject: Re: Double-entry explanation

On Sat, Sep 09, 2006 at 03:45:10PM +0200, Maxwell Moyo wrote:
> explain the use of double entry concept in the preparation of Balance
> sheet.

The basic idea is that money is neither created nor destroyed, it
only changes accounts.  

It changes accounts according to the equation:

        Assets - Liabilities = Equity

And the advanced form of that equation:

        Assets - Liabilities = Equity + (Income - Expenses)

So when you first start tracking your money in Gnucash or other
double-entry system, you do not add money to the system, you
merely make a transaction from your "Equity:Opening Balances" account
to your "Assets:Current Assets:Checking" account.  Money is neither
created nor destroyed, it just changes accounts.  Now instead of:

        Assets: 0
        Liabilities: 0
        Equity: 0

for your balances, you will have:

        Assets: $1000
        Liabilities: 0
        Equity: $1000

If you earn some money from your employer, say $100 and deposit the
money in your checking account, you make a transaction from
"Income:Salary" to "Assets:Current Assets:Checking".  Both your
assets and your income have increased.

The GnuCash concepts guide is another good source of documentation:
http://gnucash.org/docs/v1.8/C/gnucash-guide/basics_accounting1.html

--Beth
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+                             Beth Leonard                          +
+       O say, does that star-spangled banner yet wave              +
+       O'er the land of the free and the home of the brave?        +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

----- End forwarded message -----

--
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+                             Beth Leonard                          +
+       O say, does that star-spangled banner yet wave              +
+       O'er the land of the free and the home of the brave?        +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
_______________________________________________
gnucash-user mailing list
[hidden email]
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.