Understanding the basic accounting equation

The one idea that keeps your books balanced.

Everything in Accountant rests on one equation:

Total assets = Total liabilities + Net worth

Assets are what you own: cash, bank balances, e-wallets, money others owe you (receivables), investments and property.
Liabilities are what you owe: credit card balances, loans, mortgages and bills you haven't paid yet (payables).
Net worth is what's left over: assets minus liabilities. Accountants call it equity.

Your net worth changes in only two ways: you earn income, which raises it, or you incur expenses, which lower it. So the equation can also be written as:

Total assets = Total liabilities + Opening net worth + Income − Expenses

That is why Accountant has exactly four kinds of accounts: Asset, Liability, Income and Expense. See Setting up accounts.

Every transaction has two sides

Because the equation must always balance, every transaction changes at least two accounts. Bookkeepers call the two sides debit (DR) and credit (CR). You'll see these labels in the Transactions list.

What happened	One side	The other side	Effect on net worth
You buy groceries with cash	Groceries (expense) goes up	Cash (asset) goes down	Down
Your salary arrives in the bank	Bank (asset) goes up	Salary (income) goes up	Up
You buy shoes with a credit card	Clothing (expense) goes up	Credit card (liability) goes up	Down
You pay the credit card bill	Credit card (liability) goes down	Bank (asset) goes down	No change
You move money to savings	Savings (asset) goes up	Checking (asset) goes down	No change

Look at the last two rows. Money left your bank account, but your net worth didn't change, because you only moved value from one place to another. This is the most common mistake in simple expense trackers, and the main reason Accountant uses double entry. Read more in Money spent isn't always an expense.

You don't have to write debits and credits

Accountant chooses the debit and credit for you. You pick what happened, such as Pay money, Receive money, Buy on credit or Transfer money, then choose the accounts and the amount. The transaction editor shows Balanced when both sides agree, and it won't post a transaction that is Out of balance.

See The six transaction types.

Where you see the equation

Reports › Net worth lists your assets and liabilities, and their difference, on any date.
Reports › Profit & loss lists income and expenses for a period: the part of the net worth change you earned or spent.
Home › Net worth charts how the difference changes over time.