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Thanks for that explanation, Thinking about it. I was taught to call that proprietorship. Which was probably meant to remove that ambiguity.

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.

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It's standard for accounts that normally maintain a debit balance be on the left side, and accounts that maintain a credit balance be on the right.

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.

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