how to automatically update equity account as each transaction is entered?

[Michael Wagner]

>
> ---------- Forwarded message ----------
> From: Francis Gerund <ranrund at gmail.com>
> To: gnucash-user at gnucash.org
> Cc:
> Date: Tue, 12 Apr 2016 20:30:15 -0400
> Subject: Re: how to automatically update equity account as each
> transaction is entered?
> On Tue, Apr 12, 2016 at 12:49 AM, Dean Gibson <gnucash.stuff at mailpen.com>
> wrote:
>
> > On 2016-04-11 19:47, DaveC49 wrote:
> >
> >> Hi Francis,
> >>
> >> I don't think accounting is irrational ...
> >>
> >
> > I agree.
> >
> > ... it just has no immutable laws of nature that we can appeal
> >> to constrain the practice ...
> >>
> >
> > Only one:  Since accounting tracks where items of value (eg, money,
> > assets, liabilities) has come from (credits), and gone to (debits), the
> sum
> > must always be zero.  My accounting knowledge is entirely self-taught,
> and
> > I have found the following model helpful:
> >
> > I view double-entry accounting as a small one-room house with five
> > windows, where items of value come in one window and out the other.
> Anytime
> > something crosses a window threshold, it is recorded.  Since nothing ever
> > stays in the one-room house, the balance of debits and credits is always
> > equal (eg, sums to zero).  I don't view this so much as a check on the
> > accuracy of the system, but rather a way of tracking the purpose of all
> > transactions.
> >
> > Where accounting gets complicated, is in philosophical decisions about
> > that purpose:  Eg, is the purchase of an item an expense or an asset?
> > That's the hard part to learn;  the math is easy. :)  I tend to be
> pedantic
> > about some of it, because that helps me learn.  Eg, when I record income
> > received, I enter the income tax withheld as an asset (that the Federal
> > Gov't holds for me), and then adjust that when I compute my actual tax
> owed
> > each year.  Ie, it's not an expense until you know how much it is.  Of
> > course, I could just record each withholding as an expense, and then
> adjust
> > it when the actual tax is computed, but I like the view of the pre-paid
> tax
> > balance as a running asset.
> >
> > ...  I am not so sure that one can think ones
> >> way through science. Aristotle tried that and ...
> >>
> >
> > In the same way, I often see accounting newcomers try to shoe-horn
> GnuCash
> > (and occasionally, accounting principles) into their accounting needs.
> > That's almost always a disaster that comes back to visit them later in an
> > audit (their own, their organization's, or the government's).  Millions
> of
> > people around the world have refined AND AGREED ON an accounting
> > "philosophy" that's based on plenty of experience and wisdom, and bucking
> > the trend is usually a waste of time.  Accounting (as used by most
> people)
> > is not going to change.
> >
> >
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>
>
> Thanks for your input.  I do not disagree with your statement.  I do not
> want to stretch out this thread any further,
> but I just have to say:
>
> 1)  As has been noted, double-entry accounting was devised centuries ago,
> to reduce human data errors, in a time when a "computer" was a human that
> could do arithmetic computations.
>
> 2)  It was a great advance for its time, but so was the horse-drawn plow.
> Although both technically still "work", both may be increasingly obsolete.
>
> I do think that, if we can put people on the moon (multiple times) and
> return them to Earth safely, we can surely come up with something better
> than double-entry accounting, if we put our mind to it.
>
> Something easier.
> Something simpler.
> Something less complex.
> Something useful to all, not just the few.
> Something less tedious and cumbersome.
> Something more intuitive and accessible to the numerically challenged.
> Something that did not require long, agonizing formal or at least informal
> study to learn.
>
> WE DESERVE BETTER!
>
> Thank you all for your patience and indulgence.
>
>
I have to tell you that - as a complete neophyte who learned something
about double entry bookkeeping to be able to use gncash a year ago - I am
pretty amazed at the ease simplicity, and elegance of double entry
bookkeeping.

To my mind, the computer (mediated by the gnucash developers) relieves all
the tedium and handle my numerical challenges.

The hardest thing for me was to let go of the political definition of
"debit" as "debt, something bad".

Here's the way I think of, and it's really the simplest algebra:

Assets = Liabilities + Equiity

Equity = Capital + Income - Expenses

Since no one invested (financially) in me, for me:

Assets = Liabilities + (Income - Expenses)

Now I add Expenses to both sides - that's the only algebra required:

Assets + Expenses = Liabilities + Income

The hard part is just letting go of my intuitive definition of "debit" as
"debt, something bad". If I look at the equation and think "everything on
the left side of equation is increased by a debut, and everything on the
right side of the equation is increased by a credit", I'm done. That's all
the "long, agonizing formal or at least informal study" to use gnuscash
(and I don't think that I really even needed to know that).

I will grant you that applying those concepts in more advanced transactions
might be conceptually challenging. But it makes sense to me that if I was
accounting for more advances transactions, I might be motivated to learn a
little more.

The problem that made me understand the elegance and simplicity of double
entry bookkeeping was a pretty simple problem: like a lot of people (in the
US), I have a tax advantaged account called a "529 plan" that I use to save
for my daughter's education. Since she was born, I have written checks to
the 529 plan, and now that she's in college, I take transfer money from the
529 plan to my checking account, and write out a check for her college.

Believe it or not, it's pretty hard to capture that flow in Quicken - or
even in a spreadsheet. I've tried. The core of flow is that money is really
moving from my checking account to educational expenses - the 529 plan is
in essence only an intermediary.

With double entry bookkeeping, it's simple, elegant and crystal clear.
Forget which is a debit and which is a credit right now - gnucash worries
about that.

1) "Write a check to the 529 plan" means "Decrease checking account balance
- Increase 529 plan balance."
2) "Transfer money from the 529 plan to my checking account" means
 "Increase checking account balance, decrease 529 plan balance."
3) "Write out check to college" means " "Decrease checking account balance,
increase educational expenses balance."

This seems to me to be amazingly simple and elegant. Trying to trace the
money flow with something like Quicken which really just decorates deposits
and withdrawals with "categories" is hard - it doesn't preserve the
relationships between the accounts.

As a non-accountant, I am pretty amazed at the simplicity and elegance of
double entry bookkeeping.

Mike

-- 
“The bassoon is one of my favorite instruments. It has a medieval aroma,
like the days when everything used to sound like that. Some people crave
baseball...I find this unfathomable, but I can easily understand why a
person could get excited about playing the bassoon.” - Frank Zappa