Asked • 05/15/19

What is the difference between equity and assets?

I am (going to be) using GNU Cash, which uses the double-entry method; I use it for personal finance. Reading various tutorials for GNU cash, it lists 5 types of accounts: income, expense, assets, liabilities, and equity, followed by various examples. For assets, it gives stuff likes houses and cars, but it doesn't give an examples for equity. Couldn't all those things also be put under an equity account (and, mathematically, liabilities could also be put under equity accounts too.) Here is my guess: Equity represent various "organizations." For example, if I had three ice cream divisions, chocolate, strawberry, and vanilla, they would be examples of "equities." If strawberry uses $100 of advertising using the company bank account, the company would incur $100 of advertising expenses, loss $100 of from the asset of the bank account, and the equity of strawberry would go down $100. This doesn't seem to satisfy the accounting equation though. If my above assumption is correct, a household would only have on equity account (you aren't going to tell your kids after they graduate how negative their equity has been to the family.) I suppose I am having trouble seeing the point of the equity category. How can I determine whether to categorize something as equity or income.

1 Expert Answer

By:

Cathy B. answered • 05/23/19

Managerial Accounting Professor

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