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It took a second for me because I'm accustomed to people talking about Assets and Liabilities to describe the picture, so the equation in my head is the inverte

It took a second for me because I'm accustomed to people talking about Assets and Liabilities to describe the picture, so the equation in my head is the inverted one: Capital = Assets - Liabilities. I can imagine GP had a similar confusion.

nyrikki 3y ago
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.
- wrycoder 3y ago
  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.
notfed 3y ago
This was exactly why I was confused. And still am, in fact. I guess I don't understand accounting?
- epcoa 3y ago
  Capital = Assets - Liabilities -> Assets = Capital + Liabilities is grade school arithmetic though.
  - notfed 3y ago
    Ah, now it's clear. Some of the other long-winded responses unhinged my thought train into wondering if accounting uses some kind of atypical or asymmetrical equation system. So, no; it's an equation, and it's simple.

nyrikki 3y ago

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.

wrycoder 3y ago
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.

notfed 3y ago

This was exactly why I was confused. And still am, in fact. I guess I don't understand accounting?

epcoa 3y ago
Capital = Assets - Liabilities -> Assets = Capital + Liabilities is grade school arithmetic though.
- notfed 3y ago
  Ah, now it's clear. Some of the other long-winded responses unhinged my thought train into wondering if accounting uses some kind of atypical or asymmetrical equation system. So, no; it's an equation, and it's simple.