how to view total for expenses subaccount

[Donald Allen]

On Thu, Oct 30, 2008 at 9:13 AM, Donald Allen <donaldcallen at gmail.com> wrote:
> On Thu, Oct 30, 2008 at 9:01 AM, Mike or Penny Novack
> <stepbystepfarm at mtdata.com> wrote:
>>
>>> Correct me if I'm wrong, but I believe this is not necessarily true.
>>> For example, if income > expenses during an accounting period, but the
>>> value of your assets decreases during that period by an amount greater
>>> than income-expenses (as many of us have experienced during the recent
>>> stock market turmoil), your net worth decreases, contrary to what you
>>> said above.
>>>
>>
>>  No --- if income > expenses for a period then the net worth is increasing.
>> But you have to do your books entirely "cash" or entirely "accrual", can't
>> mix the two together. We'll use your examples.
>>
>> At start of period
>>  Assets     = 30,000
>>  Liabilities = 25,000
>>   (net worth is 5000)
>> At end of period
>>  Assets    = 15,000
>>  Liabilities = 5,000
>>    (net worth is 10,000)
>> Income for the period was 5000 > than expenses. Net worth has increased by
>> 5000 even though the amount of assets has decreased, the amount of
>> liabilities decreased by a larger amount.
>>
>> The stock market turmoil example to which you refer is the confusion that
>> results when you try to combine "cash" and "accrual" accounting in the same
>> set of books. You can't do that. If you are strictly on the cash basis then
>> those stocks haven't changed their asset value (yet). If you are on the
>> accrual basis and so taking into account their decrease in market value then
>> you also have the expense "unrealized losses in investments".
>>
>> You might find it useful, perhaps necessary, to maintain two sets of books,
>> one on the "cash basis" and one on the "accrual basis". Possibly even more
>> sets of book., For example one on a "personal basis" (sorry, but for tax
>> purposes, the "expense" of the food you eat is not an expense for tax
>> purposes). One instance of the application GnuCash can be used for all of
>> the sets of books, those are simply separate files perhaps even kept in
>> separate directories (file folders). What books you keep depends upon your
>> needs for information, financial planning, tax reporting, etc.
>
> I understand -- thanks. This is why I'm not an accountant.

In my own (feeble) defense, I will note that in Gnucash, when you
update stock prices, your net worth changes accordingly, without any
change in income-expense (this is what prompted my comment). But I
understand that Gnucash (or the way I'm using it) is doing neither
strict cash nor accrual accounting, thus Mike's (and Phil's) point.

/Don

>
> /Don
>
>>
>