How useful is "cash in wallet"

[Kevin Broderick]

On 19 Mar 2006, at 10:14 AM, Pete wrote:

> New gnucash user...
>
> It seems like there's really two broad class of
> accounts in gnucash:
>
> 1. Accounts I really care about, like my checking or
> savings account.  I want to reconcile these accounts
> and am keenly interested in what's inside of them.

It seems like these fall into the category of "asset accounts held by  
others", i.e. accounts where someone else is holding your assets.   
There are certainly ones that you'd want to reconcile.

> 2. Accounts that are really nothing more than place
> holders for the double entry system, like
> Expenses:Phone or Income:Salary.  I have no intention
> of reconciling my telco's books, and this account
> serves nothing more than to provide a place for my
> money to go.  Like an infinite sink.  Or an infinite
> source.  To really boil it down, these accounts serve
> as a glorified "description" field for where money
> goes or comes from in the accounts I really care
> about.

Quite frankly, I have no intention of ever reconciling my telco's  
books, either.  However, I'd suggest that income is an entirely  
different ball of wax.  I've had employers get W2 data wrong on more  
than one occasion since I started keeping track, and that was only a  
couple of years ago.  However, since I do keep track of all money  
coming in and I do reconcile my bank account, I knew that there was  
no way in hell I'd been given an extra week's pay without noticing it  
and was able to get the W2 corrected.  (Or, in another case, if you  
trust your employer(s) to get them right but to take too long, you  
can file your income tax statements prior to receiving W2s...not that  
I'd recommend it, of course).  Even if you only have one income  
source now, it's helpful to keep track of income from different  
employers separately and to likewise track any side-income separately.

> So I'm curious about the "cash in wallet" account.  It
> seems rather granular.  Does anybody really keep track
> of the money in their wallet?  It seems pretty
> compulsive -- you'd need a "money found on the street"
>  or "money given by friend to help pay for french
> fries" account to reconcile it.

I do have an Income:Other Income:Pocket Change account, and I'll use  
the Income:Other Income account as necessary (e.g. for the $5 I found  
in the hall about a week ago).  If I give cash to a friend to cover  
his/her French Fries, I account for it into Expenses:Gifts.

> Do people really reconcile this account?  Or is it
> mainly used as a placeholder account (type 2)?

I do reconcile it (and often end adding adjusting transactions with a  
note that I actually had $x in my wallet at a given point in time).

> Also, suppose I'm going to lunch with some friends.  I
> go to the ATM and take out $20.  Walk to the
> restaurant and make my purchase.  How would this look
> *for most people* in gnucash?
>
> 1. $20 from Asset:Checking to Asset:Cash in wallet.
> 2. $20 from Asset:Cash In Wallet to Expense:Food.
>
> or
>
> 1. $20 from Asset:Checking to Asset:Cash in wallet.
>
> and leave it at that?
>

It would definitely look like the former to me, but I may not be  
"most people."

> I realize the _real_ answer to this question is
> "whatever suits your needs".  But I'm a basic average
> working Joe and would like to know what, nominally,
> other basic average Joes _tend_ to do.
>
> I've never used Quicken or gnucash before.  In fact,
> I've never really managed my money at all.  When my
> accounts look like they can handle my expenses, I
> bought stuff.  When they felt low, I saved money.
>
> I'd like to change all that, and gnucash is my first
> stab at this.

I'd suggest trying to follow GAAP as much as possible, even though it  
may be somewhat compulsive for personal accounts; IME, you learn more  
about standard financial concepts that way and it will thus be easier  
to deal with more complicated situations (e.g. if you suddenly end up  
with roommates who are repaying your for portions of utilities or you  
start up a side business).

I'd also suggest that you actually track cash in wallet as close to  
reality as reasonably possible; the first year of accounts i had in  
gnucash were done retroactively based on saved charge receipts and  
credit card statements, and I was able to account for just about  
everything *except* cash spending, which added up to more than I'd  
expect (given that I use plastic of one variety or another most of  
the time).  Granted, I still don't deal with fractions of a dollar in  
cash transactions--I either round up to the nearest dollar (so a  
$5.65 sandwich costs $6 if I'm paying cash) or I chip in money from  
the Income:other:Pocket Change account (so that a $5.65 sandwich  
costs $5.65 and *not* $5).  I realize this is a little unbalanced,  
but it matches my life reasonably well (as pocket change ends up  
going either into a jar on the dresser or off to La-La Land in some  
undefined ratio), and it avoids understating cash expenses and then  
wondering why they suddenly went up the next month when I didn't have  
the change in my pocket.

Kevin Broderick
gnucash at kevinbroderick.com