Newbie's experience with gnucash

[Eric Schwartz]

At 03:38 PM 10/16/00 -0500, Bill Gribble wrote:
>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.

This must be the bit where I exclaim, "All you accountants are mad!  Mad, I 
tell you!"
(only half :-) )

Just by withdrawing the money from an (equity?) account, that creates it 
(as far as the
accounting system is concerned, I mean-- we can presume that it doesn't 
actually insert
the money in my account!)?  In other words, transferring money out of an 
equity account
adds that amount of money to my net worth?

>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).

Er, what's a, I, and e?  My guesses are: a = equity, I = income, e = 
expense (with a - sign
in front, so you can add)?


> > 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.

I'm at work now; I'l check this when I go home.  So I'd create the account
"Cheque from apt. mgr" (or some such) of type Income, and transfer out the
amount of the cheque from it to my checking account, then?

(I'm really not trying to be an idiot; I want to make sure I understand 
every wee bit of this,
for reasons I'll make clear in a bit.)

>They are different for tax purposes in most places (income is taxable,
>expenses are tax deductions).

Of course, not all income is taxable, nor are all expenses deductable.  Are 
there plans to
add a "tax-related" flag to gnucash accounts?

>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.

Ah.  With the end of the year coming up far too soon for my taste, is there 
any documentation
on how to do this in gnucash?

>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 makes a helluva lot more sense than just saying "Transfer $ out of 
'Retained Earnings'
to create your balance'!  I'm very afraid, but I think I'm beginning to 
understand this.  :)

>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 :)

Er, so wait a sec, I thought I understood this.  From what you said at 
first, I thought that a
negative balance in an Equity account was really a positive balance-- it 
was just negative in
the ledger on account (no pun intended!) of how gnucash kept track of things.

So if it's the case that positive money in my Retained Earnings account 
means that I have positively
increased my net worth, then shouldn't there be a way to seed it with 
however much money I've
earned to that point?  And shouldn't I add money to an Income account 
before transferring it out,
instead of just subtracting from my total and pretending - really is + for 
the purposes of my total
income so far this year?

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

Ah.  It doesn't say that in the documentation for Account Types.

>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,

But I don't see how that requires the level of sophistication that I see 
here, and that's
what I'm arguing against.  Or rather, I'm not arguing that it shouldn't be 
there, but that
there's no point, for the vast majority of users, in exposing it, unless 
and until they
decide they want to keep more complex books.

Anyway (and yes, I know this is a slightly separate topic), how do I know 
how much
interest I can deduct from my taxable income due to mortgage payments as it is?
Searching for "split" in the top-level documentation tree doesn't help 
much, so is
there a way to say, "I have a mortgage loan of $foo that lasts $length 
months, at
bar% interest.", and have gnucash tell that of the $815 I pay, $600 of that is
mortgage interest, $100 is principal, and the rest is taxes and mortgage 
insurance?
Because if not, then there's no way I can keep track of how that changes 
from payment
to payment.

>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.

But if I don't have a separate account for each of these things, then all I 
have to do is
run a database query that takes almost no time at all, and gives me the 
same answer,
without requiring such a painful setup experience.

For what it's worth, the reason I'm asking all these questions is that I 
intend to write a
"Getting Started With Gnucash" document, and I want to be able to give very 
clear task-based
instructions for things like "Setting up an account" (which you very kindly 
did for me above), as
well as things like "How to handle Income" (with subtopics like "paychecks, 
gifts, other") and "How
to track Expenses".  If I don't understand it completely, I'll write bad 
documentation which is worse
than none (IMO, anyway).

-=Eric