Tracking Money in Savings Account

Wayne Bird wrbird at hotmail.com
Wed Dec 15 15:08:43 EST 2010 

If a liability account is used in such cases, wouldn't that screw up your net worth report?  Since this "liability" really isn't owed yet, your net worth is not correct.  Or am I not understanding this?

Wayne

> To: derek at ihtfp.com; wrbird at hotmail.com
> CC: warlord at mit.edu; gnucash-user at gnucash.org
> Subject: Re: Tracking Money in Savings Account
> Date: Wed, 15 Dec 2010 14:43:02 -0500
> From: adardis at gmail.com
> 
> 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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