GnuCash Income - How to manage?

[David Cousens]

Hi Samuel,

The recording of income in double entry accounting is as follows and 
involves two accounts" an Asset account (usually a bank account but can 
be a Cash in Wallet if you are paid in cash for example) and an Income 
account. (If you have more than one source of income you would normally 
have a sub account for each income source and the main income account 
would be a place holder which records the total income from all sources.)

An increase in the amount in an Asset account is recorded as a debit to 
that account while a decrease in the amount is recorded as a credit to 
the account.

Conversely, an increase in the amount of an Income account is recorded 
as a credit and a decrease is recorded as a debit to that account.  this 
is standard accounting practice and if the reason for this is not clear 
I would consult a financial accounting textbook.

(You might notice that debits and credits are swapped from how they 
would appear on your bank statement - this is because the bank is 
recording transactions from their perspective and not the customers, 
i.e. a debit is an increase in their assets not the customers and a 
credit is a reduction in their assets.)

You will notice that these are complementary and the transaction 
recording of the receipt of income either from an employer (or from a 
customer cash sale if you are in a business) consists of a debit of the 
amount received to the Asset:Bank account and a credit of the amount to 
the appropriate Income:Source sub account ( e.g. where Source is 
substituted with an appropriate source name e.g. employer name). The 
combination of the debit and corresponding credit should eliminate the 
Imbalance account entry you have been getting.

The following description assumes you have the 
Edit->Preferences->Accounts->Labels->Use formal accounting labels 
checked and have set up an Asset:Bank account and an Income:Pay account
(or other appropriate names for the sub accounts appropriate to your 
situation).

To perform this in GnuCash you could open the Asset:Bank account ledger. 
In the View Menu you make sure the Auto-Split Ledger option is checked. 
This will show the two components of the transaction referred to above 
and described below.

In the Date column enter the date you received the payment. the line 
should be highlighted.

In the description column enter a description of the transaction.
You will see a line below this (usually in a different colour). If you 
click somewhere in this line you will see Assets:Bank appear in the 
Account column next to the description (followed by an "n" in the 
reconciliation column. Enter the amount of the payment you have received 
in the Tot Debit column on that line. The next line will now appear as 
highlighted. If you click in the Account field in that line
a symbol like a rounded square with a "-" sign in the middle will 
appear. Click on that and you should get a popup list of all the 
accounts. Scroll down through it until you find the Income:Pay account 
and select it (click on it). It will then appear in the Account column 
and the amount you entered in the Debit column should appear in the 
credit column ( automatically calculated by Gnucash). You can copy the 
description field into the lines for the debit and credit part of the 
transaction. The 4th -7th columns should appear as follows

          Account     | R |     Debit      |    Credit     |

          Asset:Bank  | n |     100.00     |               |
          Income:Pay  | n |                |     100.00    |  .

If you now click anywhere else on the Account page you should get a pop 
up dialog asking whether you wish to save the changed transaction. If 
you then click the Record Changes button in that pop-up the transaction 
will be recorded and only one line will be displayed showing only the 
debit portion of the transaction to the Asset Bank account.

If you click on that line again, the transaction will be opened for 
editing again and you will see the lines with the debit to the 
Asset:Bank account and the credit to the Income:Pay account. These are 
referred to as  splits in Gnucash parlance and the two splits form the 
double entry recording of the transaction.

If  you then open the Income:Pay account you will see that the same 
transaction also appears there with the amount in the credit column and 
if you click on it you should see the same debit and credit entries 
displayed there as well.

You could also have created this whole transaction starting in the 
Income:Pay account ledger. Here you would enter the credit to the Income 
Pay account then select the Asset:Bank account on the second split line 
and the amount would appear in the Debit column (Gnucash does this 
automatically).

Hope this makes it a bit clearer.

David