Balance sheet

[DaveC49]

seabird,

In accounting the concept of an entity is critical. It is a normal practice
to separate as far as possible what may be regarded as the financial affairs
of  a business and the individual financial affairs of the owners, even in
the case of a single owner business, i.e. one would normally keep separate
books for one's personal life and ones business. The separation is normally
driven by taxation and business legislation and regulation which determines
what can be regarded as legitimate transactions of the business and what are
regarded as personal transactions.

When you own a business and take money out of it for your personal use, you
are reducing your equity in the business and increasing your personal
equity.

The transaction recording the withdrawal of equity of $xxxx  from the
business in its simplest form is normally recorded in an equity account
labelled something like Owners Drawings and the money is withdrawn from the
businesses' bank account, i.e.

Asset:BusinessBankAccount:                                            Cr   
$xxxx
Equity:OwnersDrawings                      Db $xxxx

and in your personal set of books as

Asset:PersonalBankAccount                Db $xxxx
Income:BusinessDrawings                                              Cr    
$xxxx.

Depending upon the business structure (and local legislationn) you may be
taxed as a business on the business income and or personally on your
personal income, and again as many jurisdictions have rules for preventing
double taxation, personal income which has been taxed in the hands of the
business is often eligible for a tax credit for all (or some) of the tax
paid by the business. 

If you maintain this separation in the business and personal books, the
information is more readily available in the form you will need than if it
is in a single set of books. (It is possible to do this in a single set of
books in Gnucash but you would have to be meticulous in maintaining the
separation by appropriate naming of accounts, as as far as I know, it is not
possible to create top level entity placeholders in Gnucash).

Gnucash has a procedure for EoY closure of the accounts - note this is not
the same as closing the file and reopening a new file. It is a series of
transactions carried out at the end of the year after all other business
transactions have been completed for that year within a file which may span
many financial years.  The help manual
(https://www.gnucash.org/docs/v2.6/C/gnucash-help/tool-close-book.html)
details how to do this. This procedure does not remove any data from the
files but effectively sets the balances in the Income and Expense accounts
to zero at the beginning of the next financial year by transferring theand
records the business profit/loss for the current financial year. 

Gnucash reports are generated between or at specific dates selected in the
preferences for the current accounting period and are capable of generating
the required information at any specified date or period. (E.g. Balance
sheet is created as at the closing date of the current accounting period by
default but can be at any required date by using Edit->Report Options from
the menu with the Balance Sheet open  to set the date at which a balance is
required and then Apply in the dialogue to regenerate the balance sheet).
Remember to reset the dates if you require a balance at a different date
however.

I don't understand what you mean by "when I run a balance report it still
lists all previous years in 
equity" as a balance sheet records the current balance at the balance date. 
If you have closed your Income and Expense accounts to an Equity:
Profit/Loss Summary account for each year (a common accounting practice for
a business), then your balance sheet will show the individual year totals,
but the top level Equity placeholder value, will be that at the balance date
as each years profit (or loss) contributes to the equity in the business as
do contributions paid into the business or drawings from the business.

You can also manually perform the closing of the accounts by recording the
appropriate transactions from the ledgers for the accounts. Hope this helps
to make it clearer.

David Cousens



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