Tracking Money in Savings Account

Anthony Dardis adardis at gmail.com
Wed Dec 15 14:43:02 EST 2010 

You could treat these envelopes as liabilities: something you "owe" to the  
anticipated purchase, and you make the purchase by transferring funds from  
that liability to the expense account.

(You could think of your "New Car" as a kind of credit card: every month,  
you borrow money from it and deposit it in a savings account, and then  
when you buy the car, you spend what's in the savings account on the  
actual car, and record it as a transaction reducing your liability.)

I just handled a security deposit that way: when the renters gave me the  
deposit, I recorded it as a transaction which increased the liability  
account Liabilities:Security Deposit by way of a deposit to a savings  
account where the money actually resides. When I returned the deposit, I  
transferred money from the savings account to checking, then transferred  
 from checking to the liability account to indicate the actual return of  
funds to them.

The disadvantage of all this for the purpose of the "envelope" system is  
that you have to make more transfers; also, at least to my mind, this is  
conceptually kinda harder to follow, although it all makes sense, I think.

Derek may well be right that you really shouldn't think of it as a  
liability -- as I've learned to say here, IANAA (I am not an accountant)  
-- and the subaccount approach really is cleaner and simpler.


On Wed, 15 Dec 2010 14:12:46 -0500, Wayne Bird <wrbird at hotmail.com> wrote:

>
> Thanks Derek, I'll skip that suggestion!
>
>> Date: Wed, 15 Dec 2010 13:14:50 -0500
>> Subject: RE: Tracking Money in Savings Account
>> From: derek at ihtfp.com
>> To: wrbird at hotmail.com
>> CC: daniel3ub at gmail.com; warlord at mit.edu; gnucash-user at gnucash.org
>>
>> Hi,
>>
>> On Wed, December 15, 2010 1:00 pm, Wayne Bird wrote:
>> >
>> > Hello Daniel,
>> >
>> > Ah, this seems to be a bit different then what Derek was saying.  If I
>> > understood Derek correctly (the big "if"), he has two accounts for the
>> > same item; Asset:Bank:Movies and Liability:Expense:Movies.  So
>> > transactions would go something like this: Add paycheck to
>> > Income:Paycheck; transfer Income:Paycheck to Asset:Bank:Movies.   
>> Purchase
>> > movie, transfer Asset:Bank:Movies to Liability:Expense:Movies
>>
>> Not quite.  For one thing there's no such thing as "Add paycheck to
>> Income:Paycheck".  The first step is purely "Transfer from  
>> Income:Paycheck
>> to Assets:Bank".  Also, there is no such account as
>> "Liability:Expense:Movies".  It's purely "Expense:Movies".
>>
>> > If I understand what you're saying, there is only one account,
>> > Liability:Expense:Movies.  So transactions would be as follows: Add
>> > paycheck to Income:Paycheck; transfer Income:Paycheck to
>> > Liability:Expense:Movies.  Now when I purchase a movie what do I do?   
>> I
>> > can't transfer from Liability:Expense:Movies to  
>> Liability:Expense:Movies.
>> > I'm sorry if am a bit dense (or a lot), please hang with me and I'll  
>> get
>> > it.  And I've read a lot of the documentation before I started this
>> > thread.  So I guess that proves how dense I am:(
>>
>> This is absolutely the WRONG way to do it.  There is no Liability here.
>>
>> > Wayne
>>
>> -derek
>>
>> > From: daniel3ub at gmail.com
>> > Date: Wed, 15 Dec 2010 14:43:43 -0200
>> > Subject: Re: Tracking Money in Savings Account
>> > To: wrbird at hotmail.com
>> > CC: warlord at mit.edu; gnucash-user at gnucash.org
>> >
>> > Hi, Wayne.
>> >
>> > Actually, you are working with Income and Expenses accounts, but you
>> > didn´t know it :)
>> >
>> > What I´d do:
>> > Create a Liability account for every category you have. These will be  
>> your
>> > envelopes.
>> > In your paycheck transaction, create a split for each category you  
>> have,
>> > pointing towards the corresponding Liability account.
>> >
>> >
>> >
>> > Every time you expend some money, create a transaction in the
>> > corresponding liability account, with the split pointing towards the
>> > corresponding Expense account.
>> >
>> > Also, reading the docs Derek suggested is aways a good idea ;)
>> >
>> >
>> >
>> > Good Luck!=====
>> > Daniel Trezub
>> > http://www.gameblogs.com.br
>> >
>> >
>> >
>> > On 15 December 2010 14:07, Wayne Bird <wrbird at hotmail.com> wrote:
>> >
>> >
>> >
>> >
>> > Thanks Derek for your reply!
>> >
>> >
>> >
>> > Yes, define "standard accounting method" -- good question:)  Granted,
>> > everyone has their own way of doing things, however it appears the  
>> most
>> > common method is tracking assets, income, expense, etc. where income  
>> is
>> > viewed separately from expenses.  For example, my paycheck would just  
>> go
>> > into an income account and that's it.  Then I would track all my  
>> expenses
>> > through various expense accounts.  On the other hand,  I have always  
>> used
>> > the envelope system, divvying out my paycheck into these various
>> > categories.  So these categories (or accounts) can be seen as both  
>> income
>> > (because I'm splitting my paycheck/income into these categories) and
>> > expense (because I'm purchasing items from these categories).  This is
>> > what makes the most sense to my little brain:) and that's why I'm  
>> having
>> > difficulty with "standard" accounting methods because they have to be
>> > separate.
>> >
>> >
>> >
>> >
>> >
>> > I'm sure I'm making this more difficult than it should be, so if you
>> > please continue to with me I'll use the suggestion of subaccounts that
>> > each of you made and go from there.  I haven't had a chance yet to  
>> look
>> > into this, but I will soon.  So as Derek, as John Mason stated, is  
>> your
>> > checking account just a placeholder for all the subaccounts?  What  
>> John
>> > stated made sense to me and this is what I'll try first.
>> >
>> >
>> >
>> >
>> >
>> > Again, thanks all of you for holding my hand through this!!  I greatly
>> > appreciate your help.  As I continue down this road I'm sure I'll have
>> > more questions.
>> >
>> >
>> >
>> > Wayne
>> >
>> >
>> >
>> >
>> >
>> >> From: warlord at MIT.EDU
>> >
>> >> To: wrbird at hotmail.com
>> >
>> >> CC: adardis at gmail.com; jmason at masondrywall.com;  
>> gnucash-user at gnucash.org
>> >
>> >> Subject: Re: Tracking Money in Savings Account
>> >
>> >> Date: Wed, 15 Dec 2010 10:09:24 -0500
>> >
>> >>
>> >
>> >> Wayne Bird <wrbird at hotmail.com> writes:
>> >
>> >>
>> >
>> >> > Thanks so much for your help!  I will continue to play around, and  
>> I'm
>> >> sure I'll be back with more questions.
>> >
>> >> >
>> >
>> >> > Though I used the envelope system in the past, it seems that's not  
>> the
>> >
>> >> > standard accounting method.  I tweaked MSMoney for years in order  
>> to
>> >
>> >> > make it "act" like an envelope system and I don't want to tweak
>> >
>> >> > GnuCash to do this, I'd rather just learn how GnuCash is designed  
>> to
>> >
>> >> > be used and use it accordingly.
>> >
>> >>
>> >
>> >> Define "standard accounting method"?  It's certainly one way that  
>> many
>> >
>> >> people do it.  GnuCash doesn't need to be tweaked to do this.  In  
>> fact
>> >
>> >> it's somewhat designed to support this!  See, for example, the "Open
>> >
>> >> Subaccounts" option on the reconcile dialog.  This lets you reconcile
>> >
>> >> a Bank Account with subaccounts.
>> >
>> >>
>> >
>> >> You can also look at the Budget features of GnuCash, but I've never  
>> used
>> >
>> >> them myself so I cannot comment on them.
>> >
>> >>
>> >
>> >> > Please remember to CC this list on all your replies.
>> >
>> >> > You can do this by using Reply-To-List or Reply-All.
>> >
>> >>
>> >
>> >> -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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>> >
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>> >
>>
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