Paying myself a distribution caused a negative Owner's Equity account balance? Is this normal?
"It's not abnormal for a company that is as young as yours seems to be. It seems (based on what little I know), that you have debts, or accounts payable that were formerly covered by the $200 cash, but now aren't, because you paid it to yourself. For now, you're ""entitled"" to pay yourself a draw or a salary. But if you continue to do so without earning money to cover it, your company will fail."
"From your question, I believe that you are looking for what these mean in accounting terms and not the difference between a debit and a credit card. I'll deal with purchase and sale first as this is easier. They are the same thing seen from different points of view. If I sell something to you then I have made a sale and you have made a purchase. Every sale is a purchase and every purchase is a sale. Debits and Credits are accounting terms and refer to double column accounting (the most common accounting system used). The way a set of accounts works is, accounts are set up under the following broad headings: The first 3 appear on the Balance Sheet, so called because the accounts balance (Assets = Liabilities + Equity). This is always a ""point-in-time"" snapshot of the accounts (1 June 2015). That last 3 appear on the Profit and Loss sheet, Profit (or loss) = Income - Cost of Goods Sold - Expenses. This is always an interval measure (1 July 2014 to 30 June 2015). Changes in these accounts flow through to the Equity part of the Balance Sheet. When you enter a transaction the Debits always equal the Credits, they are simply applied to different accounts. Debits increase Assets, Cost of Goods Sold and Expenses and decrease Liabilities, Equity and Income. Credits do the reverse For your examples: 1. a customer buy something from me, what is the debit and credit? I will assume they pay $1,000 and the thing cost you $500 Your cash (asset) goes up by $1,000 (Debit), your inventory (asset) goes down by $500 (Credit), your Sales revenue (income) goes up by $500 (credit). This gives you a profit of $500. 2. a customer buy something of worth 1000 but gives me 500 what is     debit and credit Your cash (asset) goes up by $500 (Debit), your debtors (asset) goes up by $500, your inventory (asset) goes down by $500 (Credit), your Sales revenue (income) goes up by $500 (credit). This also gives you a profit of $500. 3. if I buy a product from supplier worth 1000 and pay equally what is credit and debit I assume you mean pay cash: Your cash (asset) goes down by $1000 (Credit), your inventory (asset) goes up by $1000 (Debit). There is no profit or loss here - you have swapped one asset (cash) for another (inventory). 4. if I buy a product from supplier worth 1000 and don't pay what is credit and debit Your creditors (liability) goes up by $1000 (Credit), your inventory (asset) goes up by $1000 (Debit). There is no profit or loss here - you have gained an asset (inventory) but incurred a liability (creditors). The reason for confusion is that most people only see Debits and Credits in one place - their bank statement. Your bank statement is a journal of one of the banks liability accounts - its their liability because they owe the money to you (even loan accounts adopt this convention). Credits happen when you give money to the bank, they credit  your account (increase a liability) and debit their cash balance (increase an asset). Debits are when they give money to you, they debit your account (decrease a liability) and credit their cash balance (decrease an asset) . If at the end of the period, you have a credit balance then they owe money to you, a debit balance means you owe money to them. If you were keeping a book of accounts then your record of the transactions would be a mirror image of the bank's because you would be looking at it from your point of view." Typically in GnuCash, account balances that exist at the beginning of the time you're keeping records for are balanced by entries in an Equity account “Equity:Opening Balances”, which is part of the default set of accounts created for you. This account is really just a placeholder so that everything balances, and that's perfectly normal. So, just enter “Equity:Opening Balances” as the “other entry” when entering the first, opening balance, transaction in your Liability account for the loan. If you have not already created the liability account, then just use the “Opening Balance” tab of the New Account window to enter the initial balance as you create the account.  (Disclaimer: I have no formal knowledge of accounting; I just use GnuCash and read the users' mailing list.) "&gt;I think you mean: 60% of all mortgages on homes in Nevada are underwater. Not every home has a mortgage, so it's not 60% of the homes, it's 60% of the mortgages.  Spot on. In the US typically somewhere around 30% to 40% of homes have no mortgage at all (i.e. 100% equity by the owners).  So... *IF Nevada follows the US average* (which it may not, having a lot of new developments) then 60% of 60%/70% would be somewhere between 36% to 42% of homes.  That of course, is still HUGE -- if even 10% of homes in a locale are ""distressed"" sales, it is enough to drive prices down.  But another caveat is that just because a place is ""underwater"" does not mean that it has a HIGH negative equity -- point of fact is that ANY home bought with an LTV mortgage or a really low down payment (i.e. 0% to 10% down payment) is probably underwater from day one and remains pretty close to that for the first couple of years.   Why? Because typical realtor fees are around 6%, and closing costs are easily another couple of percent, add in that with a self-amortizing loan that very little equity is built up in the first few years, and any loss for aging and owner ""cash out"" equity can easily be near zero or negative.  (That's one of the reasons you shouldn't buy unless you are planning on living somewhere for at least 5 years, because it takes that long to ""recoup"" the realtor &amp; closing costs -- ergo the whole ""flipping"" phenom is in and of itself a sign that a market is in a speculative bubble.)" "First, to clear up your misconceptions: The balance is not merely made up of deductible and non-deductible contributions.  There are also earnings implied in the balance .. i.e. the whole reason you invest in the first place is to realize some return on investment.  That return, a.k.a. the earnings, are included in the balance of the account.  The balance is the sum total of everything in the account, the ""bottom line"". Generally speaking, basis for an account is all of the money that has been contributed (deposited) to the account.  In the context of an IRA as described in the article, however, they are using basis to refer to only the non-deductible contributions.  Of note, however, is that basis specifically excludes earnings.  If you have deposited, say, $5000 one year and $5000 the next, then your basis is $10,000, even if the balance has grown to, say, $12,000 (which includes the earnings). As may be evident by now, earnings are not equivalent to deductible contributions.  Earnings may arise from such contributions but they are not the same.  Rather, earnings are the net positive investment results from all contributions.  Again, if you had contributed $5000 one year and $5000 the next and the balance has grown to $12,000, then the earnings portion is $2000. So to interpret what happened in the specific example provided: Over the years, the account holder contributed (deposited) a total of $15,000 into his account.  These must have been non-deductible contributions in the case of the IRA in order to arrive at basis of $15,000. Over time (and coincident with the deposits), that $15,000 grew to $24,000 .. i.e. earned $9,000 in earnings. Then, the nearly 50% drop caused the balance to decay to $13,000.  This means all $9,000 of his earnings were wiped out, plus $2000 of the original basis. The remaining $13,000 is all basis .. that is, considered to be original money deposited to the account, no earnings. In effect, the account has lost $2000 of basis, because $15,000 was deposited and only $13,000 remains.  Simplistic way of looking at it:  A $15,000 investment resulted in a final $13,000 sale, i.e. a net loss of $2000. It doesn't matter that it hit $24,000 in the meanwhile .. it could have hit $250,000 in value and then dropped to $13,000 and the net result would be the same: a loss of $2000 in basis. Traditional IRA earnings are always tax-deferred .. i.e. whether earnings arise from deductible or else non-deductible contributions, when one takes a distribution (withdraws) from an IRA and the distribution includes earnings, the earnings portion is always taxable income.  Doesn't matter if the earnings arose from one kind of contribution or the other. I don't think in this example there were any deductible contributions whatsoever. Does that make sense / help?" Paying out dividends and financing new projects with debt also lessens the agency problem. The consequences of a failed project are greater when debt is used, so the manager now has a greater incentive to see that the project is a success. This, in addition to the paid divided is a benefit to the shareholder. If equity wasn't paid out and instead used for the project then the manager may not be so interested in its success. And if it's a failure then the shareholders are worse off. We don't pay interest, we have credit ratings of 800+.  I wouldn't be surprised at a drop from selling your house as you now have no installment debt and thus your debt mix doesn't look at good as it did.  (This assumes you don't have something like a car loan but from what you say I don't think you do.)  I am very surprised at the size of the drop, though.  Is it possible that something went wrong and you ended up with some sort of ding from the sale or related events?  Have you checked your report for anything that could have caused it? You're welcome, good questions on a confusing topic! Let me see if I can unpack it a bit, try to clear up the way accrual accounting jukes and jives...  &gt;  I buy an airline today. I get to recognize the revenue from any pre-sold tickets starting tomorrow and reduce my deferred revenue liability...  Hmm... Are you sure that's the case? Does purchasing the business somehow cause those future events to resolve?  I could be way off base here so let me know if I'm missing something, but whenever an airline ticket is purchased in advance, it's a balance sheet issue. Cash is increased and there is a liability created for Deferred Revenue. The revenue hits the income statement only when the flight takes place. As you noted, this would be accompanied with the usual trappings of costs and expenses, etc.  &gt;  However, I don't get that cash as it has already been paid to the previous owner.  Sure you do! Their bank account is now yours, right? I imagine that buying an airline company would be a matter of transferring ownership rather than to resolve any underlying uncertainty in the recognition of earnings, yeah?  As for valuation, it may depend on if you're looking at the income statement in isolation and relying on EPS or if you're using a more integrated approach with the balance sheet, which would bring these sorts of developments to light.  Does that help? Any part still clear as mud?  EDIT: words Could be misunderstanding your context. But ev = equity + debt - cash. So don't think it makes sense for an equity holder to have an individual ev/ebitda different from the company's.   Are you asking in context of valuing equity and debt from an ev/ebitda multiple?