Basic concept question on "Basic Accounting Equation"

[Jeff Kletsky]

I'm from a strong math background as well and moved off of personal accounting package /because/ of the robustness of classic accounting. Since everything /has/ to balance, you don't end up with surprises. Everything basically "moves money" from one place to another. For my home accounting, equity is mainly an artifact of the process, and usually not much else. 

I watch assets (bank accounts and cash, mainly), liabilities (loans), income and expenses. 

Some of the accounting bizzareness is that the signs of certain accounts are "backwards" from what you might expect. GNUCash hides most of this in the UI if you keep the defaults for sign-reversed accounts as well as the "friendly" labels for "debits" and "credits."  Words like "deposit" or "spend" hide the arcane accounting terms.

With a sign-reversed UI, my day-to-day equation is more like

assets - liabilities = income - expenses = how well I'm doing

Earn money? I move money into an asset (bank) from income

Spend money? I move money from an asset into an expense.

In both cases, GNUCash keeps track of the signs and makes sure I didn't mess up. If I did, I see an "imbalance" or an "orphan" -- no more wondering where money came from or disappeared to as is often the case in Quicken (or the like) where you can change, delete, or forget to enter "half" a transaction.

Yeah, year-end I mess around with equity, but it usually doesn't get touched for personal accounting except when first starting the books and at the end of each year.

It's "different" than consumer "piles of money" programs, but the robustness of classic accounting makes a little thought shifting a great investment. 

I'll admit that figuring out how to account for every line on my paycheck was a challenge (taxable income, pre-tax spending, S125 account, taxable employer-paid benefits, vacation), but now I just clone an old one each time I get paid and I know my records will match my W-2 when it comes. I tried under Quicken and couldn't even come close -- ended up around $13,000 off, despite what I thought was perfect record keeping.

If you do want to go deeper, I found "Financial Accounting: A Mercifully Brief Introduction" a good balance between understandibility and rigor, for someone with a math background. It's around $10 at Amazon.


----- Original message -----
> On Fri, 26 Feb 2010, Duncan Thomson wrote:
> > Should I give up on gnucash?  Is it worth persevering with what appears to
> > be a rather strange way of tracking things?  I only want to manage my
> > personal finances.
> >
> I manage stuff with Gnucash bother personal and business without any
> understanding of the equations you started with. I pay the accountant to do
> that bit.
>
> --
> Q:    What do you call a boomerang that doesn't come back?
> A:    A stick.
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