how to automatically update equity account as each transaction is entered?

Wed Apr 13 19:02:33 EDT 2016

On Wed, Apr 13, 2016 at 12:45 PM, Michael Wagner <
mikepwagner at mikepwagner.net> wrote:

> >
> > ---------- Forwarded message ----------
> > From: Francis Gerund <ranrund at gmail.com>
> > To: gnucash-user at gnucash.org
> > Cc:
> > Date: Tue, 12 Apr 2016 20:30:15 -0400
> > Subject: Re: how to automatically update equity account as each
> > transaction is entered?
> > On Tue, Apr 12, 2016 at 12:49 AM, Dean Gibson <gnucash.stuff at mailpen.com
> >
> > wrote:
> >
> > > On 2016-04-11 19:47, DaveC49 wrote:
> > >
> > >> Hi Francis,
> > >>
> > >> I don't think accounting is irrational ...
> > >>
> > >
> > > I agree.
> > >
> > > ... it just has no immutable laws of nature that we can appeal
> > >> to constrain the practice ...
> > >>
> > >
> > > Only one:  Since accounting tracks where items of value (eg, money,
> > > assets, liabilities) has come from (credits), and gone to (debits), the
> > sum
> > > must always be zero.  My accounting knowledge is entirely self-taught,
> > and
> > > I have found the following model helpful:
> > >
> > > I view double-entry accounting as a small one-room house with five
> > > windows, where items of value come in one window and out the other.
> > Anytime
> > > something crosses a window threshold, it is recorded.  Since nothing
> ever
> > > stays in the one-room house, the balance of debits and credits is
> always
> > > equal (eg, sums to zero).  I don't view this so much as a check on the
> > > accuracy of the system, but rather a way of tracking the purpose of all
> > > transactions.
> > >
> > > Where accounting gets complicated, is in philosophical decisions about
> > > that purpose:  Eg, is the purchase of an item an expense or an asset?
> > > That's the hard part to learn;  the math is easy. :)  I tend to be
> > pedantic
> > > about some of it, because that helps me learn.  Eg, when I record
> income
> > > received, I enter the income tax withheld as an asset (that the Federal
> > > Gov't holds for me), and then adjust that when I compute my actual tax
> > owed
> > > each year.  Ie, it's not an expense until you know how much it is.  Of
> > > course, I could just record each withholding as an expense, and then
> > adjust
> > > it when the actual tax is computed, but I like the view of the pre-paid
> > tax
> > > balance as a running asset.
> > >
> > > ...  I am not so sure that one can think ones
> > >> way through science. Aristotle tried that and ...
> > >>
> > >
> > > In the same way, I often see accounting newcomers try to shoe-horn
> > GnuCash
> > > (and occasionally, accounting principles) into their accounting needs.
> > > That's almost always a disaster that comes back to visit them later in
> an
> > > audit (their own, their organization's, or the government's).  Millions
> > of
> > > people around the world have refined AND AGREED ON an accounting
> > > "philosophy" that's based on plenty of experience and wisdom, and
> bucking
> > > the trend is usually a waste of time.  Accounting (as used by most
> > people)
> > > is not going to change.
> > >
> > >
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> > >
> >
> >
> > Thanks for your input.  I do not disagree with your statement.  I do not
> > want to stretch out this thread any further,
> > but I just have to say:
> >
> > 1)  As has been noted, double-entry accounting was devised centuries ago,
> > to reduce human data errors, in a time when a "computer" was a human that
> > could do arithmetic computations.
> >
> > 2)  It was a great advance for its time, but so was the horse-drawn plow.
> > Although both technically still "work", both may be increasingly
> obsolete.
> >
> > I do think that, if we can put people on the moon (multiple times) and
> > return them to Earth safely, we can surely come up with something better
> > than double-entry accounting, if we put our mind to it.
> >
> > Something easier.
> > Something simpler.
> > Something less complex.
> > Something useful to all, not just the few.
> > Something less tedious and cumbersome.
> > Something more intuitive and accessible to the numerically challenged.
> > Something that did not require long, agonizing formal or at least
> informal
> > study to learn.
> >
> > WE DESERVE BETTER!
> >
> > Thank you all for your patience and indulgence.
> >
> >
> I have to tell you that - as a complete neophyte who learned something
> about double entry bookkeeping to be able to use gncash a year ago - I am
> pretty amazed at the ease simplicity, and elegance of double entry
> bookkeeping.
>
> To my mind, the computer (mediated by the gnucash developers) relieves all
> the tedium and handle my numerical challenges.
>
> The hardest thing for me was to let go of the political definition of
> "debit" as "debt, something bad".
>
> Here's the way I think of, and it's really the simplest algebra:
>
> Assets = Liabilities + Equiity
>
> Equity = Capital + Income - Expenses
>
> Since no one invested (financially) in me, for me:
>
> Assets = Liabilities + (Income - Expenses)
>
> Now I add Expenses to both sides - that's the only algebra required:
>
> Assets + Expenses = Liabilities + Income
>
> The hard part is just letting go of my intuitive definition of "debit" as
> "debt, something bad". If I look at the equation and think "everything on
> the left side of equation is increased by a debut, and everything on the
> right side of the equation is increased by a credit", I'm done. That's all
> the "long, agonizing formal or at least informal study" to use gnuscash
> (and I don't think that I really even needed to know that).
>
> I will grant you that applying those concepts in more advanced transactions
> might be conceptually challenging. But it makes sense to me that if I was
> accounting for more advances transactions, I might be motivated to learn a
> little more.
>
> The problem that made me understand the elegance and simplicity of double
> entry bookkeeping was a pretty simple problem: like a lot of people (in the
> US), I have a tax advantaged account called a "529 plan" that I use to save
> for my daughter's education. Since she was born, I have written checks to
> the 529 plan, and now that she's in college, I take transfer money from the
> 529 plan to my checking account, and write out a check for her college.
>
> Believe it or not, it's pretty hard to capture that flow in Quicken - or
> even in a spreadsheet. I've tried. The core of flow is that money is really
> moving from my checking account to educational expenses - the 529 plan is
> in essence only an intermediary.
>
> With double entry bookkeeping, it's simple, elegant and crystal clear.
> Forget which is a debit and which is a credit right now - gnucash worries
> about that.
>
> 1) "Write a check to the 529 plan" means "Decrease checking account balance
> - Increase 529 plan balance."
> 2) "Transfer money from the 529 plan to my checking account" means
>  "Increase checking account balance, decrease 529 plan balance."
> 3) "Write out check to college" means " "Decrease checking account balance,
> increase educational expenses balance."
>
> This seems to me to be amazingly simple and elegant. Trying to trace the
> money flow with something like Quicken which really just decorates deposits
> and withdrawals with "categories" is hard - it doesn't preserve the
> relationships between the accounts.
>
> As a non-accountant, I am pretty amazed at the simplicity and elegance of
> double entry bookkeeping.
>
> Mike
>
> --
> “The bassoon is one of my favorite instruments. It has a medieval aroma,
> like the days when everything used to sound like that. Some people crave
> baseball...I find this unfathomable, but I can easily understand why a
> person could get excited about playing the bassoon.” - Frank Zappa
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>

Michael, thank you for your reply.

Now I guess I just have to find the time and energy to learn double-entry
accounting, and to do so in a dialect that GnuCash would allow.

BTW, for me the GnuCash documentation just doesn't seem to get the job
done.  Nice try, but . . .