Newbie's experience with gnucash

[Bill Gribble]

On Mon, Oct 16, 2000 at 02:07:02PM -0600, Eric Schwartz wrote:
> So, if I want to say, "somebody just gave me $", I have to deposit
> that $ in an Equity account (as opposed to a normal Bank account),
> and then I can do with it as I feel?

Sort of.  You don't have to explicitly "deposit" it in the Equity
account, you just withdraw it from the Equity account to make the bank
deposit.

Here's a complete scenario for an opening bank balance: 
  - create an Equity account called "Retained Earnings".
  - create a Bank account called "Bank".
  - double click on the "Bank" account to open its register
  - enter "opening balance" in Description, "Retained Earnings" in 
    Transfer, and the opening balance amount in the Deposit column.

You are now done.  If you used $1000 as your opening balance, you'll
see that Bank has 1000 and Retained Earnings has -1000.  That's not
exactly what I told you before (a = l + e); gnucash is using a
slightly different form that gives Equity the opposite sign 
(a - l + e = 0).

> As an example, I just got a cheque back from my former apartment
> manager for my security deposit.  So I'd create a "Payments
> Recieved" account of type Equity (perhaps as a subaccount of a
> general Equity account that would sum up all this stuff).  I'd
> record the amount of the cheque in that, and then transfer it to the
> bank account in which I just deposited it.  Is that the right idea?

Close.  Payments and income are special subtypes of equity, and have
their own account types.  They are different for tax purposes in most
places (income is taxable, expenses are tax deductions).  Accountants
call them something like "temporary equity", since you roll up your
expense and income balances into your Retained Earnings account at the
end of the year.  That's why it's "retained earnings"... it's your
"earnings" (income) minus "expenses", therefore it's the part of your
earnings that you retain.  Which is why Opening Balances come out of
Retained Earnings: you didn't just print the money on your laser
printer, you had retained it from previous earned and unearned income.
It doesn't matter that you have a weird negative balance in retained
earnings at first.  You just want it to steadily get more positive
over time :)

> >It's easy.  You have an Income account called "Income from my job".
> >You transfer money from it to your bank account.  Done.
> 
> And how does money get into this Income account, then?  Do I have to
> transfer it from an Equity account?

See above... Income and Expense accounts *are* equity.

> >It's called Accounting because you have to Account for your money,
> >where it goes, and where it comes from.
> 
> I feel like I'm beating my head against the wall, sometimes (and I'm
> sure it can't be much easier for you!)  Why is it Accounting for my
> money when I create an Income account and transfer money from it to
> my bank account, and it's not when I just add $X to my account, with
> a label saying, "Paycheck"?  I'm really not trying to be a prat
> here-- I honestly don't understand the difference.

The two approaches are just different in sophistication.  If you just
keep track of the checks you write and their amounts, you cannot
easily produce a report that shows how much money you made from work
income during the year, how much tax you have paid, how much interest
you can deduct from your taxable income from your mortgage payments,
how much equity you have in your house, whether you can afford to buy
a new car, etc etc.  If you have a separate account/category for each
of these things, you can just look at the program's main window and
see the answers to almost all of these questions.

Bill Gribble