Subaccounts [WAS Re: Future allocated money vs Budgets]
Adrien Monteleone
adrien.monteleone at gmail.com
Tue Jan 30 20:10:56 EST 2018
Thanks for the run down Matt,
I wouldn’t say “stupid” at all, but certainly, that method is extra work. And I don’t really see the benefit that makes the work worth the trouble.
I also see that the transactions are more complicated, more cluttered, and if you ever have to go over them to track down an error, they are going to take more brain power to process and get straight.
Do you get any reporting advantage with that extra layer of splits?
This also requires constant reverse-balanced thinking. Something that in my experience is more taxing to make sure you’ve got the entries right.
I was using something similar about a year ago, but abandoned the whole project after a month because of the extra entries required for nearly every purchase. I suppose it isn’t so bad if you only earmark a few expense purposes, but even something like ‘vacation’ can end up with multiple expense accounts affected.
With the method I outlined, other than the simplicity, you also get a little extra discipline push if you divide up the sub-accounts based on the most likely physical account to draw from. (if you have more than one, I don’t) You also get to leverage the Cash Flow report to show you if you are pulling funds that are earmarked for other purposes, which can tell you if you should adjust those earmarks or improve your spending discipline. I suppose you could do the same with your virtual asset accounts, but I’d suspect the amounts would be reversed from what’s expected, making such a report difficult to follow.
I can see the appeal of keeping that tracking separate, but for the present state of GnuCash, I just think it’s not the easiest method, certainly not for new users. (you do get the benefit of deleting those special accounts without affecting your regular asset/expense entries should you abandon the practice and what to clean up your account tree IF those splits are NOT included in the regular transaction, but reside in their own set.)
The reason I suggested using equity accounts for that method was because the normal balance of equity accounts is credit positive. (as are liabilities) Thus if you moved those special accounts to the Equity hierarchy, their balances will look like they are supposed to. That would reduce the reverse-balanced mental gymnastics. (especially if your setting for Reversed Balanced Accounts is ‘Credit’)
If you’re not really segregating funds in their normal asset place, just adding a layer of info, it probably makes more sense to use equity instead of asset. In this case, the allocations aren’t actual physical assets, but just a budgeting category. Equity is YOUR claim against your assets, so saying you have $1000 to spend on vacation makes sense to me to say it in equity. (leaving aside that the actual funds reside in your asset savings account) Since this isn’t ‘extra’ equity (above and beyond your assets less your liabilities) you’d need a single ‘reverse-balanced’ account to fix that. You don’t want your assets or equity to be overstated, so that reverse balanced account should also be an equity account.
You could set it up like this:
Equity:Budgeting:Allocated
Equity:Budgeting:Vacation
Equity:Budgeting:Insurance
Equity:Budgeting:Dining
Equity:Budgeting:Coffe&Tea
Your Allocated account would have a reverse balance, thus a debit. It would show up as negative in GnuCash (with the Credit accounts setting)
Your special purpose accounts would all have a normal credit balance, and show up as positive. When they reach zero, you’ve spent everything you’ve budgeted for that purpose.
The only purpose of the ‘Allocated’ account is to prevent the special purpose accounts from affecting your total equity position. It will cause your Equity:Budgeting account parent to always be zero. (be sure to mark that parent as a placeholder as well) I suppose you could leave it off and just use the parent for balancing. That’s up to you.
As an alternative to making the Allocated account in Equity, you could create a new top level Asset account called ‘Allocated' (or ‘Budgeted’) and still use the special purpose accounts under Equity. This is more of a ‘correct’ situation since you’re using equity accounts to lay claim to assets. The only difference is you’d have to make sure NOT to include ANY of these accounts when you run a balance sheet or both your assets and equity will be overstated. (until you spend everything to zero) I wouldn’t put this under ‘Current Assets’ like I would the sub-account approach, because then Current will always be inflated by the amount allocated/budgeted. The downside is your top level Assets & Equity accounts will always be overstated as long as the balances of those special accounts are not zero.
The big advantage of this approach, other than being technically correct from an accounting standpoint is that each allocation would be a proper debit to an asset and credit to equity, (increasing both) and each expenditure would be a credit to the asset and debit to equity. (decreasing both) If you combined your splits in a single expense transaction, you’d be debiting expenses and equity while crediting assets. That route is even less mental gymnastics since it doesn’t require the use of any reverse-balanced account.
If on the other hand, you want to segregate funds within their physical location, and save the extra work of additional splits, and not have to worry about inflated top level accounts, or making sure not to include your special accounts in Balance Sheet reports, then I’d just opt to use asset sub-accounts as I already outlined.
Best of luck to you.
Regards,
Adrien
> On Jan 30, 2018, at 5:05 PM, Matt Graham <matt_graham2001 at hotmail.com> wrote:
>
> Again, thank you Adrien for being patient with me. I’m probably getting myself confused too, but I’m starting to get more and more clear on it all. I know I’m definitely weird, and whilst I think the purpose I have is common, the way I use it probably isn’t.
>
> We have some different assumptions going on.
>
> Lets start with sub-accounts. Sub-accounts are a great way to do it – if you spend from that sub-account at least most of the time. We have discussed how to handle the splits when you spend from a different account and want to record it against that allocation, so it works, and probably works well (although would be very confusing for beginners to get their head around initially).
>
> But instead of using a sub-account to record the money that has been segmented, what if I use a completely separate account? Why? Because I don’t want to touch the balances of my core asset accounts – the ones that correspond to bank accounts or physical cash. Maybe this is my silly desire of mine. There is nothing wrong (or difficult) with adding virtual sub-accounts, because gnucash is really good at handling sub-accounts (with the reconciliation stuff we talked about). So now I need a new location in the hierarchy to store my allocated money – best done as an asset, and since it isn’t a sub-account, it needs to be balanced with another account (also best done as an asset). We’ll get to your example in a minute.
>
> Assumption 2: That I only (or mainly) segment cash when I receive it. Probably true for most people, and I’m glad you mentioned it because I should use that for most of the examples when I write something up for the tutorials and concepts guide. That isn’t how I work. I plan everything out in advance to make sure I have the cash flow. I allocate to various purposes on the first day of the month, rather than allocating by pay. I do this so that I get a regular and measureable allocation to things I want to spend on (restaurants & Cafes, spending money, etc). I can afford to do this because I am very (very very very) good with sticking to a budget and savings in general. So I just make sure I have more money in my account than I plan to spend that month (transferring the rest away to investments or to reduce my loans), and I have no cashflow problems. So for me, I want to do an allocation on the start of every month, that doesn’t correspond to income. No real problem. Still, lets carry on with your example of allocating out of pay:
>
> If, rather than a sub-account, I use a separate asset account then there is no balancing Cr to an asset to increase the allocation. In your example, you had a balancing Cr on the parent when you allocated the money. So, we receive a $1000 pay check, and want to allocate $500 to the four accounts:
> Cr Income: Salary $1000
> Dr Asset:Current:Checking $1000
> Cr Asset:Current:AllocatedCash $500
> Dr. Assets:Allocated:Vacation $250
> Dr. Assets:Allocated:Insurance $150
> Dr. Assets:Allocated:Dining $ 50
> Dr. Assets:Allocated:Coffee&Tea $ 50
>
> So at the end of this, the income and Checking accounts haven’t been touched by the allocation process. They are the same as they would be if we didn’t use any allocation, $1000 each and balanced. The “Asset:Current:Allocated Cash” account that started at $0 has been reduced by $500, and now is negative. Since this is a current asset, I can see in the current assets total exactly how much total money I have that can be spent. The negative shows me that I have $500 allocated away, so I shouldn’t spend the full $1000 in Checking. The Assets:Allocated accounts all have the amounts that can be allocated.
>
> Now I want to go out to lunch and spend $20 out of checking:
> Dr. Expenses:Dining $20
> Cr. Assets:Current:Checking:Dining $20
> Cr Assets:Allocated:Dining $20
> Dr Assets:Current:AllocatedCash $20
>
> So after this transaction, the amounts in checking and the expense are as you’d expect (again, no change from if you didn’t use allocations). The Current assets have been increased – become less negative, because I have $20 less now allocated to Dining out. So there is now less money that I am telling myself “can’t be spent”, but of course I haven’t gained more cash to spend – this gain is offset by the reduce in cash from actually spending it. My amount of cash allocated to Dining has been Dr (reduced) by $20 as you expect. So I am left with $980 in my checking, $30 in my Allocated:Dining, -$480 in my overall AllocatedCash.
>
> You are probably thinking “That is stupid. Why bother?”.
> You’re right – it is probably extra entries for little benefit. Hence why I’m going to try it for a few weeks before recommending before/against it in the tutorials and concepts guide and/or attempting/requesting features in GNUCash to support it.
> The main advantage here is that it separates the allocation of money from the account you are going to spend it from. The spending transaction would be the same size and type if I was using a sub-account and didn’t spend from that sub account:
> Dr Expenses:Dining $20
> Cr Assets:MyCash $20
> Cr Assets:Checking:Dining $20
> Dr Assets:Checking $20
>
> So if I (foolishly) chose a sub-account for allocation that I never spent from, doing it the separated way is no extra work – still similar four splits. But as you say, if you use a sub-account and spend from it most of the time, the messy four line transaction becomes a simple
> Cr Checking:Dining $20
> Dr Expenses:Dining $20
>
> Does this make sense?
>
> Thanks and regards,
>
> Matt
>
> From: Adrien Monteleone <mailto:adrien.monteleone at gmail.com>
> Sent: Tuesday, 30 January 2018 6:45 PM
> To: gnucash-user at gnucash.org <mailto:gnucash-user at gnucash.org>
> Subject: Re: Subaccounts [WAS Re: Future allocated money vs Budgets]
>
> Matt,
>
> You lost me again.
>
> I don’t understand why you’d have a negative 'segmented spending money' asset.
>
> You receive a paycheck, say $1000.
>
> You earmark 50% of that into various sub-accounts.
>
> You still have $1000.
>
> There’s no negative balance on any asset account.
>
> Perhaps your checking account holds $500 of that money, and each of four sub-accounts hold $250, $150, $50 & $50 respectively. That all adds up to $1000.
>
> The act of earmarking funds moves you from one account with a single positive $1000 balance to 5 accounts totaling a positive $1000 balance NONE of which are negative.
>
> Where’s the ‘negative segmented money account?’
>
> Please describe with debits and credits. I don’t see it. What I see is this:
>
> Receipt of money with segregation:
>
> Dr. Assets:Checking $500
> Dr. Assets:Checking:Vacation $250
> Dr. Assets:Checking:Insurance $150
> Dr. Assets:Checking:Dining $ 50
> Dr. Assets:Checking:Coffee&Tea $ 50
> Cr. Income:Salary $1000
>
> When you go out for lunch I see this:
>
> Dr. Expenses:Dining $20
> Cr. Assets:Checking:Dining $20
>
> How does recording an expense INCREASE the allocated cash for Dining as you describe? (making it less negative) How was it negative in the first place? What transaction did you record to make it so? Note, for an asset to be ‘negative’ it has to have a ‘credit’ balance, that is, credits have to be greater than debits. Making an asset account ‘less negative’ is a debit transaction. (since asset accounts are usually debit positive balanced) Debits don’t decrease an asset, they increase it. Spending money never gives you more to spend, it means you have less. Spending money is always (eventually) a credit to assets, never a debit.
>
> I can’t see any scenario where that above example of going out for lunch looks like this:
>
> Dr. Expenses:Dining $20
> Dr. Assets:Checking:Dining $20
> Cr. ???? $40
>
> If that would even begin to make any sense why $40 is moving somewhere instead of just $20.
>
> Note, doing this:
>
> Dr. Assets:Checking:Dining $20
> Cr. Expenses:Dining $20
>
> Is an incorrect transaction if you SPENT the money. (as opposed to receiving a refund, or correcting a prior error) Crediting an expense is a refund/reversing condition, not a normal expenditure.
>
> When you record the receipt of money, that goes to an income/revenue account, split with the physical asset account for the form you received the payment in. Generally, this will be a credit to ‘income’ and a debit to ‘cash.’ Where and how do you record the receipt of money as a credit to an asset instead and how does that balance against your credit to your income account?
>
> i.e.—
>
> Dr. ???? $1000
> Cr. Income:Salary $1000
> Cr. Assets:????? ?????
>
> Regards,
> Adrien
>
>
> > On Jan 29, 2018, at 11:25 PM, Matt Graham <matt_graham2001 at hotmail.com <mailto:matt_graham2001 at hotmail.com>> wrote:
> >
> > Ah, true. I guess this is why I favored "triggered transactions " rather than "template transactions".
> >
> > I want a transaction involving expense account "spending money" to automatically add two more splits to reduce the asset account "segmented spending money" balanced by increasing the value of "allocated cash" asset acct (increase = make it less negative).
> >
> > For saving up for something expensive, I would still set up the above, but I would need to manually change the numbers if I wanted to return the allocation to zero.
> >
> > So when I enter:
> >
> > Cr account I used to pay insurance 1150
> > Dr expense account for insurance (with the trigger attached) 1150
> >
> > I would want gnucash to automatically add the splits
> >
> > Cr account I am using to segment insurance money 1150
> > Dr account showing allocated cash 1150.
> >
> > I would the (during my reconciling/budget review) need to amend that transaction (or create a new one to return the insurance allocation to zero.
> >
> > For many of my other money allocations (eg restaurants/cafe) I wouldnt change it - underspending means the money is available for later.
> >
> > Am I understanding you right?
> >
> >
> > Thanks and regards,
> > Matt
> >
> >
> > -------- Original message --------
> > From: Mike or Penny Novack <stepbystepfarm at dialup4less.com <mailto:stepbystepfarm at dialup4less.com>>
> > Date: 30/1/18 09:31 (GMT+10:00)
> > To: Matt Graham <matt_graham2001 at hotmail.com <mailto:matt_graham2001 at hotmail.com>>
> > Cc: gnucash-user at gnucash.org <mailto:gnucash-user at gnucash.org>
> > Subject: Re: Subaccounts [WAS Re: Future allocated money vs Budgets]
> >
> > On 1/28/2018 8:11 PM, Matt Graham wrote:
> > ........ When you look at what liabilities really are, Adrien and I concluded on this thread that this situation (segmenting money for future) is really using a separate asset account. After all - creating a liability INCREASES your cash available. .......
> > Yes, the problem precisely, we aren't assigning the same meaning to "available" and "liability"
> >
> > But your example of what you would like to see:
> >
> > Template transactions (I'd probably call them "Triggerred transactions", but it doesn'tmatter) sound awesome. As someone else highlighted, there are implementation difficulties to consider, but I dont think that it would be too onerous.
> >
> > In terms of spending from another account but recording against a sub-account, its easy:
> > Dr Exp whatever account
> > Cr Cash I pay for something awesome
> > Dr Parent account the amount I paid
> > Cr sub-account the amount I paid
> >
> > SPECIAL CASE of a GENERAL requirement. The special case might be easy to implement BUT in general the amounts are NOT going to be the same.
> >
> > This is actually a fairly common situation for me, say one of the organizations SELLS a tee shirt (fundraising, but tee shirts might also be being given away to volunteers).
> > Db Cash
> > Cr Sales
> > Db Cost of goods sold
> > Cr Tee shirt inventory
> > << the shirts might be being sold for $20 but cost the organization $7 >>
> >
> > Or, and though this is common with our restricted funds (not exactly matching) I will give an example precisely for your situation. You socked away into this reserve $100/mo toward the annual renewal of your car insurance based on your ESTIMATE of what that annual bill will be. But when the bill arrives it is for $1150 or $1250. In both cases you pay the bill and release the restriction, yes? << in one case, you had more in the fund than needed but it still can be released to general purposes, in the other you used all of the fund AND had to add some general funds >>
> >
> > Michael D Novack
> >
> >
> >
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>
> Regards,
> Adrien
>
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