personal financing: how to record receiving of a gift (not fixed asset)

[Derrick Hudson]

On Wed, Feb 20, 2008 at 06:58:25PM +0800, Zhang Weiwu wrote:
| Stupid question: I received a gift from a friend, I know exactly how
| much it cost because I wished to buy it in first place. I wish to record
| this. This gift is not a fixed asset (Let's say if it's wine), so
| actually after I had it my net value didn't increase. I think, rather
| instead my expense should increase, thus I created a transaction from
| Income -> Gift account, to Spense -> Wine.
| 
| Is this the correct way to do? Or should I make transaction from gift to
| assets and from assets to expense? I think that way doesn't make much sense.

Both ways are correct.

The real question is what do you want to do?  The whole purpose of
accounting is to have a record, and to use that record (summarized by
reports) to make decisions.

Depending on what you want reflected in your reports (which is
determined by what you want to base your decisions on) you could:

A)  Income / Asset / Expense
You can consider the gift as income since you received it.  You can
keep track of how much you have (asset) and when you consume it
(expense).  For most items in personal finances this is overkill, but
for some things it is useful.
Sample Transactions:
    1) Debit asset, Credit income  <= record receipt of gift
    2) Debit expense, Credit asset <= record consumption/depreciation of item


B)  Income / Expense
You can consider the gift as income since you received it, and
subsequently consider it completely consumed.  This is how cash-basis
accounting works.  Your records will not be able to tell you how much
you have or when to replace/replenish it.
Sample Transaction:
    1) Debit expense, Credit income


C)  Liability / Expense
As Wouter suggests, you can treat the receipt of the item as a
liability instead of income, and immediately expense the item as
above.  The transactions will look idential to buying lunch with a
credit card (liability, immediate expense).
Sample Transaction:
    1) Debit expense, Credit liability

D)  Liability / Asset / Expense
Similarly, you can treat the receipt of the item as a liability and
track the remaining value as an asset.  The transactions will look
idential to a credit card purchase.
Sample Transactions:
    1) Debit asset, Credit liability <= record receipt of gift
    2) Debit expense, Credit asset   <= record consumption/depreciation of item


As for the tax implications, if the gift is not taxable, then use
income and asset accounts that you marked as -not- tax-related.  If it
is taxable, as some gifts are in some areas, then record it in an
income account that is marked tax-related.  If owning/consuming the
item is not taxable, then use a not tax-related asset/expense account
and use a tax-related account if it is.



On Fri, Feb 22, 2008 at 10:10:49AM +0800, Wouter van Marle wrote:

| It may be a typical Chinese thing to do (living in Hong Kong I know the
| culture a bit): balancing gifts is an issue here. It is not in the West.
| In this conversation I see a small cultural difference arise. Quite
| interesting. But totally off-topic in this forum of course, but I think
| it's worth pointing out.

Thank you for sharing this background information.  It is highly
relevant since it forms the basis for evaluating the usefulness of the
accounting reports.

| Anyway, I would guess maybe a suitable way to handle this is to create a
| liability account for those gifts. You receive the gift, which you could
| treat as an income (record the cash value of the bottle in e.g.
| Income:Gifts account), balancing it with a liability: you say basically

Actually, this wouldn't work because both income and liability
accounts have a normal credit balance.  However, receiving a gift
could be considered a liability and would make sense given the
cultural background you provided.


-Derrick

-- 
Be sure of this:  The wicked will not go unpunished,
but those who are righteous will go free.
        Proverbs 11:21
 
www: http://dman13.dyndns.org/~dman/            jabber: dman at dman13.dyndns.org
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