Accountant's comments on GNUcash

Thu Oct 22 06:13:02 EDT 2009

John

I have the experience of producing several years of business accounts 
for a limited liability retail company operating in multi currencies, in 
my case seven.  I have had to jump through a few hoops to get my 
accounts to balance but I have persevered up to now because Gnucash 
offers other advantages, particularly in its ease of getting data in and 
out.

Without the opportunity of examining your accounts, my comments are 
speculation, but I suspect you have three problems to resolve should you 
wish to continue with Gnucash:

First, I have never experienced your problem of debits and credits being 
confused.  I wonder if you have an account created with the wrong 
'Account Type' set, ie asset instead of liability or vice versa.

Second,  your foreign currency  transactions cause your Trial Balance to 
fail.   This is because Gnucash does not recognise 'Realised 
Losses/Gains' and can mistakenly report 'Realised Gains/Losses' as 
'Unrealised Gains/Losses'.   Looking at the situation you reported in 
your earlier post, your Trial Balance failed because the USD100,000 you 
transferred had a different GBP value when it was deposited to its GBP 
value when withdrawn, you made (and realised) a currency gain.  However, 
so  far as Gnucash is concerned there is no 'double entry' transaction 
to account for this gain, so your account does not balance.  Moreover, 
as it would require an unbalanced transaction to correct the imbalance, 
there is no trivial way to resolve this. 

So long as you have some funds in the foreign account, Gnucash will see 
the imbalance and add an extra line to the Trial Balance called 
'Unrealised Gains', with the imbalance amount, in a sense artificially 
causing the Trial Balance to succeed.  As soon as the foreign account is 
reduced to a zero balance it no longer adds this line (no balance to 
have a potential unrealised gain/loss) and the Trial Balance fails.  
This is why your 50% transfer appeared to work, until duplicated.   
However, it is still wrong -- as in this case half the amount it is 
reporting in the Trial Balance (and Balance Sheet) as an unrealised gain 
is in fact a realised gain, which should be reported as income.

The only way to solve this is to get into the middle of the imbalanced 
transaction.  I achieve this by using currency trading accounts as 
proposed by Peter Selinger in his article at 
<http://www.mathstat.dal.ca/~selinger/accounting/gnucash.html 
<http://www.mathstat.dal.ca/%7Eselinger/accounting/gnucash.html>>.   
This both results in a balanced Trial Balance and allows me to create 
transactions to assign realised losses to expenses or realised gains to 
income, as required by my auditor.  I would be happy to talk you through 
this if required.

Mike Alexander has created a patch which has '...partially implemented 
these changes (enough to be useful) ...'  However, as a win32 user I 
have not yet had the opportunity of trying it out.  It should make 
setting up and using trading accounts easier, but I do not know if it 
resolves the business issue below.

Third, your business accounts may not correctly balance.  It is possible 
to adjust Gnucash settings to ignore unrealised losses/gains and 
therefore hide the imbalance from you.  However, your limited liability 
company has a legal obligation to produce audited accurate accounts, and 
hiding currency losses / gains may not survive a tax audit.  The 
business problem arises if you operate an A/P or A/R account in a 
foreign currency.

Take the following example:  You bill a client USD1000 and the posting 
of the invoice to the foreign A/R account is balanced by a posting to 
'Sales Income' of GBP 500 calculated using the exchange rate on that 
day.  Thirty days later (I wish) your customer pays his bill with a bank 
transfer.  Let's be generous and assume he has instructed his bank to 
deduct charges from his account.   However, forex has drifted and that 
USD1000 is now only worth GBP475.  What's more, your bank has charged 
you GBP25 for receiving the transfer.  Your bank account now shows 
income of GBP450 that had been booked as Sales Income of GBP500.  Even 
using currency trading accounts your transactions will balance but your 
accounts will not.  However, currency trading accounts will allow 
balancing transactions to be added.

Summing up, without possibly considerable extra effort, Gnucash is not 
at present suitable for use by a limited liability company operating in 
a multicurrency environment, as that company will have a legal 
responsibility, as well as a tax liability or benefit,  to report losses 
and gains that Gnucash does not handle.  With the internet leading more 
and more businesses  into international markets, I think it is a great 
shame that Gnucash is potentially shutting itself off from this market.

Tim Wight.

John M Collins wrote:
> Here is what my accountant says about GNUcash - would anyone like to
> comment?
>
>
>   
>> After several days of pulling my hair out I have managed to get the 
>> trial balance to balance.
>>
>> The reporting in Gnu is very poor.  I have had to run a general
>> ledger 
>> report on screen, cut and paste this to Excel and then work on the
>> data 
>> from there.  On the general ledger report in many accounts the
>> credits 
>> are randomly reported in the debit column (see accounts for VAT
>> outputs 
>> or credit card) and so I have had to go through and pull them into
>> the 
>> right column.
>>
>> However the main thing is that it still cannot cope with foreign 
>> currency.  In particular when amounts are transferred from Ruesch to 
>> HSBC current, the credit in Ruesch does not equal the debit in
>> current 
>> account (see MEI on 24/11/08 - it has debit 6,413.16 and credit 
>> 6,823.24).  To identify this I have needed to go through the whole 
>> ledger and literally match each debit to a credit.  It is just
>> fortunate 
>> that there are not that many foreign transactions - otherwise it
>> would 
>> be completely unmanageable.
>>
>> Executive summary: you urgently need to ditch this software and get 
>> something that works.
>>     
>
>
> John Collins jmc at xisl.com Skype: toadwarbler
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