beginning balance of income and expense accounts

Buddha Buck blaisepascal at gmail.com
Sat Mar 24 16:56:02 EDT 2018


In general, I wouldn't bother entering starting balances for income and
expense accounts from before the period I am accounting for. Traditionally,
those accounts were temporary, and at the end of the accounting period the
balances would be reset to zero, being transferred to equity. That isn't
necessary in GnuCash (because for reporting purposes GnuCash can calculate
what would have been transferred and include that in the reports), but it's
a good way to think of it in terms of fundamentals.

But to understand the situation you have, consider what happens when you
get income or pay expenses.

Normally, when you receive income (a credit), you also increase an asset (a
debit) by the same amount. My salary is direct-deposited, and my bank
balance goes up. If I put in a starting balance into an income account
(say, I'm starting using GnuCash on April 1st, and I'm putting in my YTD
salary), but don't increase an asset, then the money from that income no
longer exists, and it has to go somewhere. In your case, it's decreasing
your equity. It's effectively the same as getting a $100 bill and losing it
on the street. You record you got $100, but you don't have it anymore, so
your equity goes down by $100.

Expenses work just the opposite: when you pay an expense (a debit), you
also decrease an asset (a credit) by the same amount. I buy breakfast at
the local cafe by debit card, and my bank balance goes down. If I put in a
starting balance into an expense account (say, I'm starting using GnuCash
on April 1st, and I'm putting in my YTD breakfast payments), but don't
decrease an asset, then the money I spent never existed,and it has to come
from somewhere. In your case, it's increasing your equity. It's effectively
the same as eating a $100 dinner and having it comped by the restaurant.
You record you spend $100, but you didn't actually spend the money, so your
equity goes up by $100.

In the end, it all comes out as a wash: The reports will add your income
starting balance and subtract your expense starting balance as part of
computing your "retained earnings", which will be added to your equity. So
the income starting balance transaction will cancel itself out, as will the
expense starting balance transaction.



On Sat, Mar 24, 2018 at 4:10 PM Lori Norden <lnorden at mchsi.com> wrote:

> I am starting Gnucash in the beginning of the year.  As I’m entering the
> beginning balance for each income and expense account, a transfer is being
> made to my Equity Opening Balance account.
>
> For income beginning balance entries – credits income; debits Equity
> Opening Balance
> For expense beginning balance entries – debits expense, credits Equity
> Opening Balance
>
> The problem is my Equity is reduced by the amount of net income I made as
> of the beginning date, but should be increased.
>
> Should I be offsetting the beginning balances for income and expense to
> something other than Equity Opening Balance?  That’s what I thought the
> instructions indicated I should do.
>
> Thanks for your help
>
> Sent from Mail for Windows 10
>
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