Balance sheet after using "Close book"?

[Soren Hansen]

On Wed, Jun 23, 2010 at 07:53:49AM -0400, Mike or Penny Novack wrote:
> This is definitely a "terminology" problem plus a problem with your
> expectations of what you expect ONE report to show you.

I'm pretty much proxying a request from my accountant.

> "I just stumbled upon the "Trial Balance" report, which seems to let
> me filter out the transactions from the "Close Book" function. That
> /looks/ like what I need. I need to double check that I've understood
> it correctly, though."
> 
> Need a little bookkeeping/accounting basics?

Probably a lot.

> Not the use of a "trial balance" report.  To be honest, while these
> important in the days of old fashioned pen and ink on paper
> bookkeeping you shouldn't need to very often track down errors when
> you use GnuCash.

I appreciate that this is a term that has some specific meaning to you.
To me, the report might as well be called "gobbledigook". Both names
have very little meaning to me. I don't know what the purpose of a
"trial balance" is (or was, when people still used pen and paper for
their accounts).  To me, it's just the report that seems to give me the
output that I'm being asked to provide.

> What you usually will want (for every accounting period, the time
> interval since you last ran these) are TWO reports.

Very well.

> 1) Balance Sheet --- this report will show you assets, liability,
> equity. Here's where you see "how much do I have in the bank" (as well
> as the value of other assets) and "how much do I owe". A bit of
> history? Hundreds of years ago at the birth of double entry
> bookkeeping income and expense transactions were immediately entered
> against equity. It was then found advantageous to defer that so that
> one could see the totals for each income or expense account and only
> at the end of the accounting period transfer to equity (close the
> books).

That makes sense.

As an aside, all the information I've been able to find about my
end-of-year "summary thing" (I'm crossing my fingers that "summary
thing" doesn't have any unintended connotations) says that my liabilites
are supposed to include my... um...  "balance," I think is the word I'm
looking for. I.e. my income minus my expenses should be tracked as a
liability. I understand that this should make my assets equal my
liabilities, but the "target" accounts for "Close Book" are equity
accounts, and Gnucash refuses to put such an account under Liabilities.

I've always found it weird that the amount of money I've made
(Income-Expenses) turns out to be a liability, but I suppose I'll get
used to that eventually.

> 2) Income Statement (aka Profit and Loss aka Revenue Statement
> depending on what sort of entity the books are for). This shows all
> the income and expense accounts and the net balance as a gain or loss
> for the period not yet entered against equity. So here you see what
> you spent on hotels, etc.

Ok. I see how that makes sense. My accountant (a well-respected,
reasonably big accounting company here in Denmark) just suggested that
it was was normal procedure to have this single summary page with the
totals of all the accounts. Perhaps I misunderstood.

> NOTE -- what you spent on "Hardware" may or may not be an expense
> depending on what sort of entity you are doing the accounting for,
> organizational rules, etc. Technically the purchase of hardware would
> be buying a "fixed asset" and not an immediate expense. The expense is
> entered over time as that asset depreciates through wear and
> obsolescence. The organizations for which I keep books are non-profits
> and so allowed freedom in setting their own rules. Thus if I bought
> and external drive for backup costing $200 I could immediate expense
> it but if I bought a laptop for $600 I could not (since one amount is
> below and one above the organization "de minimis" amount for fixed
> assets).

This particular detail I already know and have accounted for :) Thanks
for the note, though. I appreciate it.

> PS ----- Really need to try to understand "fundamentals of double
> entry bookkeeping". GnuCash is a tool. Like any other tool you need to
> learn both how to use it and what to use it for and those are
> different. Think woodworking and a saw. One thing to learn how to
> handle a saw so that it cuts straight to the line, to learn how to
> keep it sharp, etc. Quite another to learn what sorts of things you
> can construct out of cut pieces of wood.

Yep, I understand there's a learning curve. I don't mean to give the
impression that I believe I have all (or any of) the answers.

I think I've got the day-to-day sort of stuff down pretty well by now,
but I'm lacking in the reporting department. It's pretty complicated
when my accountant (like most professionals, I suppose) use a
particular, technical terminology (which, of course is in Danish in my
case), while you use English terminology, and the translators of Gnucash
have used a third terminology. It's further exacerbated by the fact that
many of the terms that I end up using in my attempts to convey my
questions and clarifications often turn out to be loaded in some way and
have connotations that I did not intend for. :(

-- 
Soren Hansen <soren at linux2go.dk>
Systems Architect, The Rackspace Cloud
Ubuntu Developer