The Flow of Assets Through a Business Enterprise and the Accounting Flow Equation Based Thereon.

Abstract The recording part of elementary accounting is a record of the flow of assets through a business enterprise. That is the asset history recorded in the general ledger in summarized and conventionalized form. The accounts tell four things about the assets, namely: the sources of all assets received by the business: the kinds of assets received by the business; the conversion of some assets into other assets; and finally, the reasons why some assets passed out of the business. Assets are the things being accounted for, and all accounts reflect some aspect of the above life history of assets as they pass through the business for which the accounting system has been designed. That is complete accounting for assets: that (not "all assets are owned by someone") is the basis of double entry bookkeeping. The legal relationship between the proprietor and the revenue sources (sales to customers) and between the proprietor and certain dispositions of assets (expenses, cost of sales, and losses) which leads to an income calculation is another story. It is an interpretative calculation based upon the laws of contracts and private property. It should be delayed until the flow story is understood. The flow story exists without the income calculation; as it does in simple estate and fund accounting. To mix the two at the start of accounting instruction is considered to be an undesirable complication.