beginning balance of income and expense accounts

[Eric Siegerman]

On Sun, Mar 25, 2018 at 09:34:58AM -0400, Mike or Penny Novack wrote:
> [...] it is usual to start a set of books JUST from the balance sheet
> with income and expense zero.

This is what I was going to suggest -- very tentatively and with
many caveats that I'm not an accountant.  Since Mike (I believe)
is one, I feel on much firmer ground amplifying on what he said:

 1. Start with opening-balance entries for the Balance Sheet
    accounts -- but as of the previous year end, *not* as of the
    cutover date (9-30 in your case) -- and opening balances of
    zero for the Income Statement accounts

This is what your GnuCash books would have looked like on Jan. 1
if you had cut over to it then.

 2. For each Income and Expense account, enter one rolled-up
    summary transaction.  Its date should be the cutover date,
    and its amount should be the account's balance as of that
    date.  All of these should be against some Asset account (see
    below)

At this point, the Income and Expense balances will be correct as
of the cutover date, but the Assets and Liabilities will be
wildly out of whack, because your summary entries won't have even
tried to reflect whether, for example, that widget you bought at
Office Depot on July 15 came out of Petty Cash, from the Bank
account (via debit card), or from a Liability account (via credit
card).  So now:

 3. Make adjusting entries to move money among the Asset
    and Liability accounts to bring them into agreement with
    reality

If I were doing it, I'd probably create a dummy asset account
specifically for this purpose, to make clear that it doesn't
correspond to any real-world store of value.  In particular:
  - the dummy account would start step (2) with a balance of zero
    (no opening balance, and no txn's yet)
  
  - after step (3), its balance should automagically end up back
    at zero because everything just works out -- if that doesn't
    happen, go back and look for errors

  - In between those points, the dummy account's balance doesn't
    signify anything, so if it goes negative, no big deal

My non-accountant-ness means that I can only guess at how Equity
figures into all this.  Rather than do so -- possibly very
wrongly -- I'll leave that piece for someone else to please fill
in.

I also don't know whether the dummy-asset-account idea would
remotely pass muster among real accountants.

  - Eric