The Accounting Equation does not seem to hold

Derek Atkins warlord at MIT.EDU
Sat Nov 11 19:38:48 EST 2006


Quoting Leo Breebaart <leo at lspace.org>:

> I am quite clueless about accounting and keeping books, but I
> thought I had learned from the GnuCash docs that the Accounting
> Equation (Assets - Liabilities = Equity + (Income - Expenses)) is
> invariant and should by definition hold, no matter what the
> actual contents of your GnuCash account file are.
>
> Assuming this is indeed true (please don't hesitate to tell me if
> I got that wrong!), I am having trouble understanding the
> following two things:

Yes, the equation is correct...

> 1) If I create a Balance Sheet report, the numbers reported for
> "Total Assets" and "Total Liabilities & Equity" are not the same
> -- there's a EUR 0.92 difference between the two. Quite marginal,
> but still it seems odd.
>
> I played around a bit with the 'Balance Sheet Date' General
> option, and it would appear the until 21/08/2006 the numbers were
> indeed the same, with the first discrepancy showing up on
> 22/08/2006.
>
> If I 'Find...' all my transactions for the 22nd, I see only
> matching numbers in the 'Tot Funds In' and 'Tot Funds Out'
> column. BUT, one of the transactions was to a cash account in a
> different currency. Can it be the case that what I am seeing is
> some sort of rounding error or artifact?

This is a "capital gain/loss" problem.  Whenever you exchange commodities
you need to handle the gain/loss back to your main currency.  E.g.
if I buy 100EUR for $125 and then later sell those 100EUR for $130,
I've got a "gain" of $5 that I have to account for..  I bet you're not
accounting for your gain (or loss, if it's in the other direction).

> 2) If I go to the central 'Accounts' tab, and I manually try to
> calculate "Equity = Assets - Profits" as per the status bar, I
> get a difference of more than EUR 900 with respect to what's
> actually listed in the 'Total' Column for the Equity account.

The status bar only shows you amounts in the actuall commidity chosen.
It doesn't perform any commodity conversion.

> I did make sure that I am looking at the entire period for which
> I have entered data. I don't *think* that rounding errors on my
> foreign currency or stock accounts would add up to 900 Euros
> worth -- but as I said: I have very little idea what it is in
> fact reasonable for me to expect.
>
> Does anybody here have some words of wisdom for me? I am using
> GnuCash 2.0.2 (r14936) on Debian/unstable. Many thanks in
> advance,

Good Luck,

-derek

-- 
       Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory
       Member, MIT Student Information Processing Board  (SIPB)
       URL: http://web.mit.edu/warlord/    PP-ASEL-IA     N1NWH
       warlord at MIT.EDU                        PGP key available



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