Can Gnucash Be Used As Single Entry?

Mon Jan 25 04:43:07 EST 2016

On 01/25/2016 11:30 AM, JL Marcos ENDO wrote:
> This is an impressive and helpful amount of information, DaveC49. I
> appreciate very much that you took the time to help me.
> It will take me a couple of more reads to understand the main points.
>
> For now, I'd like to ask you these two questions:
>
> you said in your second paragraph:
>> if a business or entity has a large number of transactions
> my business is 1 income transaction a month and about 40 expense
> transaction a year total that I pay immediately as soon as they are due,
> with no loans or mortgages or inventory; credit card balance is paid off
> as soon as statement is ready
>
> Q1. would you say it'd be safe to bookkeep my business with the
> single-entry method if I continue to find double-entry daunting (and
> unintuitive)?
That is a hard question to answer as it may depend on your IRS 
requirements for record keeping which are jurisdiction dependent. I'm in 
Australia and for a small business using cash accounting using 
spreadsheets would be fine. I suspect most accounting packages, although 
they may appear in the interface as single entry are actually double 
entry internally. After all you have to decide where the money is coming 
from and in which category you are going to place the expense.
The advantage of GnuCash is that both these are accessible so you are 
not relying on recorded data you can check.

The double entry is not onerous in Gnucash, if you create the 
transaction in the account the money is coming from (for a purchase)and 
enter the amount in the credit column (you are decreasing the balance of 
the asset account hence a credit) , the second line opens automatically 
and all you have to do is select the expense account it is to be 
recorded against and GnuCash will create the corresponding debit entry 
for this account automatically. There are more complicated transactions 
, e.g. those dealing with tax on purchases and sales which you should 
find illustrated in the tutorials.

The major difference to some other accounting packages is that they are 
often organised around the work flow of business transactions whereas 
GnuCash is account/register oriented although the business features menu 
does introduce some work flow orientation. The work flow orientation of 
some software is OK if your business conforms with the designed workflow 
but can be problematical if it does not.
>
> Q2. I was all along thinking I'd use the "cash method" of accounting
> (instead of the "accrual method") for IRS purposes:
> are the cash method and double-entry accounting compatible? (I realize
> that, for all I know, the two may be total opposites, and that this
> question itself reveals how much I still do not know ;-)

Cash and accrual accounting primarily differ in when a transaction is 
recorded in your. In cash accounting, this is normally at the time when 
the money exchanges hands. In accrual accounting income is considered 
earned when you perform the work i.e. when you accrue the income, not 
necessarily when you are paid for the work and for purchases normally 
recorded at the time the agreement to purchase is entered into, not 
necessarily when you pay the money over to the vendor.

Prepaid expenses (e.g . insurance, sometimes rent, may also be paid in 
advance for a period but in accrual accounting the expense is required 
to be recorded weekly or monthly rather than as a single expenseat one 
point in the year, again recording at the time the expense actually 
accrues a benefit to the business.

Whether you are using an apparent single entry or a double entry system 
is irrelevant and a program like GnuCash can be used for either accrual 
or cash accounting. The rules allowing cash accounting are usually 
jurisdiction dependant as the are determined by local 
legislation/regulation, usually tax related but reporting requirements 
to any regulating authority may also impose rules. You need to check 
with a local accountant/lawyer to make sure you are going to be compliant.

Hope this helps to make the options clearer

> Thank you very much again,
>
> JL Marcos
>
> -----Original Message----- From: DaveC49
> Sent: Sunday, 24 January, 2016 17:01
> To: gnucash-user at gnucash.org
> Subject: RE: Can Gnucash Be Used As Single Entry?
>
> Hi JL Marcos,
>
> You can think of double entry accounting as a generalisation of your
> spreadsheet system. In your single spreadsheet which is presumably for your
> bank account and/or credit card you are specifying the source account which
> in your spreadsheet is fixed at one of the above. You are also specifying
> the destination account ( the category of expenditure). In your spreadsheet
> if you want to know how much you spent on a particular category of
> expenditure, you would have to find all entries with that category as the
> destination and sum up the totals.
>
> Accountants are basically lazy and this is too much trouble if a
> business or
> entity has a large number of transactions so they derived a procedure in
> which an "account" is maintained for each source of funds for expenditure
> and an "account" is maintained for each category of expenditure.
>
> When you spend money on an item, the transaction then consists of recording
> that you have taken money from a source of funds ( asset - bank account  or
> a liability-credit card) and that you have spent the money on a particular
> category of expenditure. In the days of paper and pencil books a separate
> book was kept for each "account" and a corresponding entry was made in each
> book (hence double entry).  The running total of the amount in each book is
> the balance of the account.
>
> Bookkeepers also manually maintained a third book called a journal which
> cross referenced the entries in the separate "account" books allowing the
> corresponding entries to be easily found .
>
> Money coming into a business is income and a separate set of income
> accounts
> also cross referenced to the "bank accounts" are used to record income from
> one or more sources. Again an increase in the bank account is recorded in
> the "bank account" book and a corresponding entry is recorded in the income
> account book.
>
> Why do all this? Anyone operating a business needs to know what money they
> have coming in, what they have available to spend, and where they have
> spent
> money in order to decide whether their allocation of resources is
> appropriate (generally in terms of whether they have increased profit or at
> worst decreased their loss).
>
> You also need to know how much of the business is yours - hence equity
> accounts - and how much is the bank's (or other creditors) - hence
> liability
> accounts. They also need to know that their records are correct, especially
> when the tax man is involved as in past times they sometimes literally took
> an arm and a leg if they weren't.
>
> A business or person also needs to know this on a regular basis so they can
> judge how they are going at any point in time. This introduces the concept
> of an accounting period ( which may commonly be weekly, fortnightly,
> monthly, quarterly, semiannually or annually). Income and expenses are
> regarded as extensions of the business owners equity as their difference is
> the increase or decrease in the owners equity and they are normally
> regarded
> as temporary accounts for the accounting period and at the end of the
> period
> their difference is transferred to equity as a profit or loss, the income
> and expense account balances are zeroed and the process is repeated for the
> next accounting period.
>
> Asset, Liability and Equity accounts record the ongoing resources of the
> business and can include land , equipment and property as well as bank
> accounts and credit cards.
>
> the structure of your accounts reflects the amount of detail in which you
> need to be able to understand your business or personal expenditure.
>
> GnuCash computerizes this process, implements "accounts' as registers and
> transactions as coupled entries to two or more registers just as described
> above. You will find these coupled entries in the registers described as
> splits in discussions of GnuCash.
>
> When you open an account tab in GnuCash normally only the entry affecting
> the account displayed is shown in the list of transactions affecting that
> account but if you click on the line, it will open to display the
> corresponding entry affecting another account or accounts as well as the
> entry affecting the account you are displaying (the split of the
> transaction).
>
> The process of debits and credits to accounts appears quite arcane to the
> uninitiated so I will not address its complexities here.
>
> The advantages of double entry accounting and of GnuCash in particular is
> that it usually makes an error fairly obvious as there are rules about how
> the splits of a transaction behave (primarily the debits and credits of a
> transaction must sum to 0). Secondly it embodies the general principles of
> accounting implemented in most national and international standards and is
> sufficiently flexible that it can be adapted for most general accounting
> functions. Information you generally need about your expenditure is readily
> accessible using the available reports and if they don't suit they can be
> customized.The major con is as with any computer system you have to invest
> some time to familiarize yourself with how it operates.
>
> Most of the above is addressed fairly well in the Wikipedia entries on
> Accounting which are reasonably well referenced to the professional
> accounting literature and explain the accounting jargon fairly simply. I
> hope the above is of help in introducing enough of the accounting
> lingo/jargon as that is usually the first barrier to understanding in any
> field.
>
>
>
>
>
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>
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-- 
*Dr David R Cousens* B.Sc.(Physics), M. Prof. Acc., Ph.D. (Physics),
Grad.Cert. Ed.