Changing net worth

Some transactions change the net asset value of the company, and some don’t. In order to succinctly state the distinction, the accounting equation is stated again, in a somewhat awkward form:

Equity + Revenue - Expenses = Assets - Liabilities.

This says that the “Closing the Books” action above merely recognized what revenue and expenses were doing to equity.

How can we tell if a transaction affects net worth? Does it affect accounts on both sides of the equation? If so, it changes net worth. If it involves only accounts on one side of the equation, it does not change net worth.

The remainder of this chapter is designed for random access. While the transactions in the table do relate to each other, each one can stand alone.