[GNC] two lines for every entry

[Cricket Onebit]

One additional point:

When the bank or credit card company gives you money and issues a Debit
Memo, they name from their perspective, giving instructions to their
clerks. They say they are debiting you.

You, however, are on the other side of the transaction. In your books, you
credit them -- even though the paper clearly says debit.

Always look at which direction the money flows.

My trick is to ask which line in the transaction makes me happy, and debit
it. I'm happy to debit (increase) cash, bank account, number of chocolate
bars. I'm not happy to credit them.

I'm happy to get groceries (debit), but sad (credit) to pay for them (cash,
card, bank account).

I'm happy to reduce what I owe on my credit card (debit), but sad to take
money out of my bank to do it (credit).

That trick only works with simple things like cash, physical assets, credit
cards, and mortgages. For fancier things (like drawings, retained earnings,
and other things only accountants understand), usually one side is a simple
asset, so I do that first, and the fancy account gets the other side.




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On Thu, 11 Apr 2019 at 03:41, Adrien Monteleone <
adrien.monteleone at lusfiber.net> wrote:

> I don’t recommend using that method in the documentation. (it even says it
> has a major drawback) Use the more formal method of assigning expenses to
> separate expense accounts and set up the credit card as a liability or
> credit card type account. (done for you if you used the account wizard at
> startup)
>
> I’ll give you a brief overview, but please, read the Help and Guide
> documents. They are going to help tremendously.
>
> Also, consider the View options I mentioned earlier. Switch to Transaction
> Journal view. (Double Line is optional, but useful as noted)
>
> Finally, I highly recommend you change the Preference to ‘Use Formal
> Accounting Labels’.
>
> The informal labels can be very confusing, and so far, they seem to be
> tripping you up. Debits and Credit will make much more sense in the long
> run.
>
> -----------
>
> Now, for how double entry works:
>
> Money does not appear or disappear. It moves from one place to another.
> This is accomplished by each transaction having two entry ’splits’, one
> debit, one credit. (don’t think of them as increase/decrease just yet, but
> merely, ‘left column’ and ‘right column’)
>
> Each transaction must balance with an equal amount (value, not quantity)
> of debits and credits. (abbreviated Dr. and Cr. respectively)
>
> I’ll keep these transactions simple.
>
> Example of spending cash on a snowcone:
>
> Dr. Expenses:Snacks                             $5
> Cr. Assets:Current Assets:Cash                          $5
>
>
> Example of that same purchase on a credit card:
>
> Dr. Expenses:Snacks                             $5
> Cr. Liabilities:Credit Cards:VISA-1234                  $5
>
> (naming your card accounts with the last 4 digits is a good way to quickly
> tell them apart if you have more than one)
>
> Making the monthly payment to your credit card company:
>
> Dr. Liabilities:Credit Cards:VISA-1234          $250
> Cr. Assets:Current Assets:Checking                      $250
>
>
> As you can see, each transaction has at least 2 ’splits’ or entries
> (double-entry accounting) and the sum of the debits equal the sum of the
> credits. (simple in this case)
>
> I find it a good habit to always enter transactions into the register
> where the money is coming from, and then the other split(s) will always be
> where the money is going to. So most of my transactions are entered from my
> asset accounts and the other splits are either expense accounts or
> liability accounts. (paying them off)
>
> I don’t use a credit card, but if I did, I’d enter expenses charged on the
> card in the card register since that is where the money is coming from to
> pay the expense and assign the other splits to the relevant expense
> accounts.
>
> Following this practice will help ensure you don’t get mixed up as to what
> is coming and going account-wise.
>
> If you are not using the Transaction Journal view as recommended, then the
> ’transfer’ account will be the one that isn’t the account you are in.
> GnuCash will auto-create the split entry for the current register in that
> case. (what you were seeing as you commented in an earlier reply about
> seeing a payment and charge for each transaction)
>
> As you can see from the above examples, if you kept using the
> ‘payment/charge’ labels instead of the formal debit/credit labels, things
> could get confusing really fast, because those ‘friendly informal’ labels
> cease making sense.
>
> ---------
>
> So that’s the gist of double-entry accounting.
>
> You don’t need two credit card accounts. (unless you are tracking two
> separate cards)
>
> One of the entries is for the card, the other for either an expense
> account or an asset account. (likely, ‘checking’ when you make a payment)
>
> The very first transaction for liabilities and assets is called an
> ‘Opening Balance’ entry, and is usually asked when you first create the
> account. (not necessary to enter in that window if you don’t know it at the
> time)
>
> To make/edit an opening balance entry, simple create a transaction in the
> respective account (credit card in your case) and give it the description
> “Opening Balance”.
>
> Enter the amount owed on the card that you are carrying forward as a
> credit. Then balance this with a debit to an account called Equity:Opening
> Balances.
>
> Dr. Equity:Opening Balances
> Cr. Liabilities:Credit Cards:VISA-1234
>
> Now, as I recall from one of your other threads, the card company owed you
> at the end of the last period. So you’d enter the credit and debit reversed:
>
> Dr. Liabilities:Credit Cards:VISA-1234
> Cr. Equity:Opening Balances
>
> ---------------
>
> Now I’ll answer the inevitable question, “How do I know when to use
> debit/credit and do these mean increase/decrease?”
>
> The answer is, “It depends on the type of account.”
>
> A debit (left column entry) means an increase to the following account
> types:
>
> Asset
> Expense
>
> (a credit to these accounts will decrease them)
>
> A credit (right column entry) means an increase to:
>
> Liability
> Income
> Equity
>
> (a debit to these accounts will decrease them)
>
> To picture why this is the case, I’ll refer you to the Accounting Equation:
>
> Assets = Liabilities + Equity
>
> This equation must ALWAYS be in balance. (achieved with equal debits and
> credits)
>
> This simple equation can be expanded a bit since for the *current period:
>
> Equity = Income - Expenses
>
> thus:
>
> Assets = Liabilities + (Income - Expenses)
>
> If you want to get fancy and factor this, you get:
>
> Assets + Expenses = Liabilities + Income + Equity
>
> *Equity is included again because we have to carry over the result of
> Income-Expenses from previous periods. (usually known as ‘Retained
> Earnings’)
>
>
> Notice something about that final expanded equation?
>
> The left side accounts are increased by debits and decreased by credits.
>
> The right side account are increased by credits and decreased by debits.
>
> This allows all numbers to be entered as positive amounts, and everything
> balances.
>
> --------
>
> As a final note, some people at this point usually get their
> ‘debits/credits’ backwards because they reference statements by their bank
> or credit card company ‘crediting their account’ which they know to be
> increasing it. (putting money back into it)
>
> This is correct terminology, but from the OTHER set of books. (for the
> bank or credit card company)
>
> For them, your account lies on the opposite side of the accounting
> equation than from your books. (your asset is their liability and vice
> versa)
>
> Hope that helps, lots to digest, I know...
>
> Regards,
> Adrien
>
>
>
> > On Apr 11, 2019, at 1:48 AM, ToddAndMargo via gnucash-user <
> gnucash-user at gnucash.org> wrote:
> >
> > On 4/10/19 11:18 PM, Adrien Monteleone wrote:
> >> Read my other replies.
> >> Every transaction has entries in two accounts (hence ‘double entry
> accounting’)
> >> The first few chapters of the guide won’t take long and will alleviate
> much potential frustration that would ensue if you try to wing it.
> >> GnuCash is not so complicated to use that you need to take a
> bookkeeping course, but you do have to abide its workflow, just like any
> other app. (including spreadsheets)
> >> (knowledge of accounting doesn’t hurt, but you can just pay a CPA for
> that part if you like)
> >> Regards,
> >> Adrien
> >
> > Hi Adrian,
> >
> > Do you have a link?
> >
> > So, do I set up two account for every credit card?  Will
> > the link cover this?
> >
> > Is this what you are talking about?
> > https://www.gnucash.org/docs/v3/C/gnucash-guide/cc-accounts1.html
> >
> >     7.2.1. Simple Setup
> >     If you do not want to track each expense made on the credit
> >     card, you can set up a simple account hierarchy like this:
> >
> >     -Assets
> >        -Bank
> >     -Liabilities
> >        -Credit Card
> >     -Expenses
> >        -Credit Card
> >
> >     In this example, if you enter your total amount charged
> >     per month as a transaction between Liabilities:Credit Card
> >     and Expenses:Credit Card. When you make a payment, you
> >     would enter transaction between Assets:Bank and
> >     Liabilities:Credit Card.
> >
> >     The obvious limitation of this simple credit card setup is
> >     that you cannot see where your money is going. All you
> >     credit card expenses are being entered in the Credit Card
> >     expense account. This is, however, very simple to set up
> >     and maintain.
> >
> >
> > "Liabilities:Credit Card" and "Expenses:Credit Card".  Huh.
> > Which one is charges I make and which one is payments I make?
> > And which one get the opening and closing balances?
> >
> > -T
>
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