> Assets= liabilities + capital
Lol, that'd be nice! I think you'll want to edit that.
Lol, that'd be nice! I think you'll want to edit that.
Assets = Liabilities + Equity
Or net assets = equity.
The corollary for an accounting period
Assets + Expenses = Liabilities + Equity + Income
is more interesting. We say that the left side has a debit balance and the right side has a credit balance. It's easy to see how a few transactions work.
Pay a bill from checking, debit Expenses, credit Assets.
Buy something on credit card, debit Expenses, credit Liabilities.
Pay credit card, credit Assets, debit Liabilities.
Receive a payment for services, debit Assets, credit Income.
To close the accounts for the period, credit total Expenses to 0, debit Equity by that amount, and debit total Income to 0 and credit Equity by that amount.
Naturally, things are kept in subaccounts but this is the overall effect on the accounting equation.
Because the accounting equation has been the same for centuries.
Assets = Capital + Liabilities
https://www.accaglobal.com/gb/en/student/exam-support-resour....
Capital = Assets - Liabilities.
I can imagine GP had a similar confusion.
A - L = P
We put it on the right side to say that was the Owners value.
I never knew why they insisted on that but now I do.
So, the usual accounting equation is written:
assets = liabilities + capital
Yes, capital is similar to liabilities. It is owed to the investors (which may just be an individual).
The full equation prior to closing the books for a period is:
assets + expenses = liabilities + income + capital
For an individual, 'capital' is usually called 'net worth'.
Once the books close, (income - expenses) is moved to capital as 'retained earnings'.
In traditional, hand entered debit/credit accounting, the left hand side adds up to the same number as the right hand side. The books are balanced - the accounts on the left 'weigh' the same as the ones on the right.
In computerized accounting, the left hand side (debit) accounts are normally positive and the right hand side (credit) accounts are normally negative. There is no equation - all the accounts add up to zero, and every double entry transaction adds up to zero.