How difficult is it (really) to reorganize a Chart-of-Accounts after the fact?

[Patrick Doyle]

Hello Michael,
Thank you for your patience and your gentle instructions.  I'm sorry
to be so dense about this.

It is possible that I may have finally screwed my head on straight
about this.  Thank you for sticking with me.

When I first read the section in the GNUCash manual that describes the
5 different basic account types, it blew my mind.  I understand the
most basic, fundamental concept of double entry bookkeeping -- for
every credit, there must be a corresponding debit.  That made both
intuitive and logical sense to me.

What blew my mind (and I was _sure_ I had found a typo in the
documentation) was the two sentences that read:
" In asset and expense accounts, debits increase the balance and
credits decrease the balance. In liability, equity and income
accounts, credits increase the balance and debits decrease the
balance."

Did that _really_ say that _DEBITS_ _INCREASE_ the balance of _ASSET_
accounts? Huh?  (I cried to myself).

I really expected that sentence to say _liability_ and expense ccounts
would increase with debits and decrease with credits, not _asset_ and
expense accounts.

So I talked it over with the CFO at my company, and he explained that
there was no typo.  That what was described is standard accounting
practice.  Asset and expense accounts are called "debit" accounts, and
that Equity, Income, and Expense accounts are called "credit"
accounts.

I just nodded my head at him, backed slowly away, and thought about
all this for 9 or 10 months.  (Actually, he explained the concepts
quite well, but life got very busy right about then, and I figured the
new year was as good a time as any to switch over to GNC.)

But now I think I finally get it.

My checking account is an asset.  (That I knew).
An asset account is a debit account.  (Still blows my mind, and
perhaps that's what leads to my missing the point, over and over
again).
Double entry accounting requires that the sum of the debits in a
transaction must match the sum of credits in that transaction.  (That
has always made perfect sense to me.)

If I buy groceries with a check, I want to "credit" my Assets:Checking account
That will make the balance go down.  (Ouch -- how long will it take
for that to sink in?  A "credit" will make my checking account go
down!?!? -- That is what has lead to my fundamental disconnect, over
and over again.)

Since I want to track that expense, I must debit my Expenses:Food account
That will make the balance go up.
-- And here is where my view of the universe differs from everybody else's.

I want the balance in my *:Food account to go _down_ when I debit it.

Fundamentally, I think of that *:Food account as a bucket that
contains money.  When I spend Food related money, I want the balance
to go down.

The only way I see to do this is to use a "credit" account to hold
that bucket.  My choices for "credit" accounts (not be be confused
with "credit card accounts") are Equity, Income, and Liability
accounts.  The only one that makes sense here, given my view of the
universe, is for my Food bucket to be an Equity account.

That way, when I _debit_ my Equity:Food account, (to match the
corresponding _credit_ in my checking account) it's balance will go
down.

Whew!
Why am I doing this?  Because I want things to match what I have always done.

I went through a similar experience when I first started using Quicken
-- I couldn't figure out how to make a Food "Expense" account and
track a balance with it that when up when I put money in ( and down
when I took money out.  Actually, I don't think I could even figure
out how to "put money into an "Expense" account way back then.

Way back then, I didn't have a community I could ask.  So I made up my
own system where I used classes to track balances, and gave up on
using categories.

Why do I want to match what I have always done?
Do I _have_ to match what I have always done?
Nope.  But if it works for me, why change?  What benefit would I get
by switching to a different approach?  Yes, its the way all the cool
kids do it, but I've never been a cool kid, so that doesn't work for
me.

What has happened over the past couple of days, through this thread
and my "Old Dog, New Tricks" thread, is that it has forced me to ask
myself the question, "What do I _really_ want my financial management
software to do for me?"  I don't know the answer to that yet.

What I want to do (and will do momentarily in a new thread) is to ask
the community how they (you) use GNUCash to manage your personal
finances.

Perhaps as I read about real world experiences, instead of theoretical
experiences in the manual, the light will finally dawn on my marble
head.

--wpd


On Fri, Jan 2, 2015 at 3:55 PM, Mike or Penny Novack
<stepbystepfarm at mtdata.com> wrote:
> On 1/1/2015 11:14 PM, Patrick Doyle wrote:
>
> I would _not_ have any Income nor Expense accounts.  (I realize this
> is heretical, but bear with me before you cast me out into the
> darkness where there will be wailing and gnashing of teeth).
>
> I would not cast you into the outer darkness, nor insist you don't use
> gnucash any way you want (after all, I do some weird, nonstandard things
> with subsidiary books), but did you read and try to understand my
> description of the history of double entry? Did you get that "income" and
> "expense" type accounts are actually of fundamental type "equity"? Do you
> understand that debits and credits are opposite of sense (sign, there being
> no negative numbers).
>
> Shall I try again? Accounts we term "income" are accounts of type "income or
> expense" and that's actually "equity". Same with accounts of type "expense".
> An "income" account is an account of type "income or expense" whose balance
> is usually on the credit side and an "expense" account is an account of type
> "income or expense" whose balance is usually on the debit side. In other
> words, an account of type income which instead had a debit balance would be
> recording expenses and an account of type "expense" which instead had a
> credit balance would be recording income items.
>
>
>
> On payday, I would put in the following transaction:
>
> 2015-01-01 Wages
>     Debit Assets:Checking $200
>     Credit Equity:Food $100
>     Credit Equity:Books $50
>     Credit Equity:Gas $50
>
> A quick check of my accounts summary screen would show that I have a
> balance of $100 in Equity:Food, etc.
>
> When I buy groceries, I would put in the following transaction:
> 2015-01-02 Weekly Groceries
>     Debit Equity:Food $87.50
>     Credit Assets:Checking $87.50
>
> Stop! To do this slightly more standard, Choose one of "income" or "Expense"
> to use for "Income or expenses". Let's say you chose "expenses" (since that
> seems to be what you care about). Your 2105-01-01 transaction now looks like
> 2015-01-01 Wages
>     Debit Assets:Checking $200
>     Credit Expense:Food $100
>     Credit Expense:Books $50
>     Credit Expense:Gas $50
> In more standard terms, you have established "reserves" for those expenses.
> Those were NOT expenses since on the credit side of the ledger. You now buy
> groceries.
>
> 2015-01-02 Weekly Groceries
>     Debit Expenses:Food $87.50
>     Credit Assets:Checking $87.50
>
> I think you should see that not really going to be all that much different
> than what you are doing, but wait. You have lost categorizing income items.
> Let's see if a slight modification can fix that.
>
> Assume you were using the standard set up (both income and expense). Under
> Income as a parent you have wag allocated and wages unallocated. You get a
> paycheck.
>
> 2015-01-01 Wages
>     Debit Assets:Checking $200
>     Credit Income:Wages Unallocated $200
>
> You want to place that amount into expense reserves.
>      2015-01-01 Reserve to cover expenses
>     Debit Income:Wages Allocated $200
>     Credit Expense:Food $100
>     Credit Expense:Books $50
>     Credit Expense:Gas $50
>
> That could of course have been entered as a single split transactions, but
> transactions split on both sides aren't, in my opinion, for beginners.
>
> What have you gained? Well now, if you want, you get to see all your wage
> transactions, can see the total of all your wages, etc. It's what I was
> describing in the history, why they abandoned immediately recording
> transactions against equity as they came in.
>
> Michael D Novack
>
>
>
>
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