Budget reports show current income as negative value

[Adrien Monteleone]

Marcin,

One of the hardest things for people to grasp when first learning double-entry accounting is which types of accounts are increased or decreased by debits and credits. Part of this struggle has to do with how they have heard the terminology used from the perspective of someone else’s books, namely banks and credit card companies. This is because from the perspective of the other side of the transaction, the entries ARE reversed. Try not to think of how your bank or credit card company refers to transactions with this terminology and focus just on your books. You can determine which accounts should be affected in which way by looking at the accounting equation:

Assets = Liabilities + Equity

The expanded equation:

Assets = Liabilities + Equity + (Income - Expenses)

Technically, Income & Expenses are temporary equity accounts, which with paper books are closed out periodically to Equity, but the math works out if you list them like so. Everything on the left side of the equation will be increased if you debit the account. Everything on the right will increase if you credit the account, the exception being the Expenses accounts because they have a negative sign already in front of them, they are a "contra-equity” account, and so their sign is reversed, thus to increase an expense would be the reverse of a normal right-side account, you would debit, not credit it.

If I were to re-write the equation showing debits and credits it would look like this:

Assets(debit) = Liabilities(credit) + Equity(credit) + [Income(credit) - Expenses(debit)]

Every transaction must keep this equation in balance. Debit = Credit. Thus you must have both a debit and a credit for every transaction. Generally, when you receive money, you will be debiting an asset (increasing it) and crediting an income account (increasing it as well). Because the debits and credits are equal and are on opposite sides of the equation, the equation is still balanced and true.

Generally, when you spend money, you credit an asset (decrease it) and debit an expense account (increase it). While that doesn’t sound right, remember you are really increasing a contra-equity account, thus you are decreasing equity, so it all works out. A negative debit, the reverse of a debit, IS a credit, that is why to increase expenses, you debit them because their sign is already reversed.

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Now, with that out of the way, let’s tackle your balance sign issues one step at a time.

First, open your income account register. (or one of the sub-accounts if you have created more than one)

Second, in the View menu, click “Transaction Journal.” This will show all splits for all transactions. I use this view at all times so nothing is hidden from me. If you’d like to do the same, you can set that under Preferences > Register Defaults > Default Style.

Now, look at your transactions in the income register you opened. Each one should have at least two splits, one being a debit to an asset account, say checking, and the other being a credit to the income account you have open. Here’s a simple example:

Account					Debit	Credit
Assets:Current Assets:Checking		450.00
Income:Salary					450.00

If the spacing doesn’t translate correctly for you in my e-mail reply, note that debits are the first column in GnuCash and credits are the second.

If that looks correct, we can proceed. If not, and the values for the Income account are in the first column in the GnuCash register, then your transactions are entered backwards and need to be fixed.

Do this for all income accounts you have created.

Let us know what you find and we can then proceed to the next step.

Regards,

Adrien


> On Apr 7, 2017, at 10:03 AM, gnucash-user-request at gnucash.org wrote:
> 
> ------------------------------
> 
> Message: 9
> Date: Fri, 07 Apr 2017 08:12:23 -0400
> From: Mike or Penny Novack <stepbystepfarm at dialup4less.com>
> To: gnucash-user at gnucash.org
> Subject: Re: Budget reports show current income as negative value
> Message-ID: <58E78227.7080109 at dialup4less.com>
> Content-Type: text/plain; charset=ISO-8859-1; format=flowed
> 
> On 4/6/2017 7:27 PM, marcin wrote:
>> Adrien,
>> 
>> Thank you for your meticulous approach........ I could even make my
>> budget report graphs showing positive value for a new (test) income. But to
>> get that result I had to make my income as spending and reduce my balance in
>> account registry.
>> 
>> I also realised that when entering income into bank account registry it also
>> comes up as income in my income account (category). I think it should be
>> debit not an income (If money goes from income account (category) to my bank
>> account registry).
>> 
>> It seems to be very confusing. I think this is a bug.
>> 
> No, almost certainly that you are new to double entry bookkeeping and 
> having trouble with the fundamental concepts. For example:
> 
> You receive a paycheck which you deposit into your bank account:
>    That would be a debit to your bank account and a credit to your 
> income account and BOTH of those are increases to those accounts because 
> for an account of type asset, debit is an increase, while for an account 
> of type income, credit is an increase. The net effect on your books 
> (total debits vs total credits) is zero as it should be.
> 
> Is that understood or not understood? We have to be clear about THAT 
> before we can discuss whether some behavior you observe is a bug.
> 
> Michael D Novack