[GNC] help to set up equity sub-accounts opening balances

[doncram]

Yikes, i think Adrien should not write that up on the wiki!  This has
gotten crazy.  No one should have to go through complicated gyrations so
that equity subaccounts can awkwardly report amounts that are unusual and
aren't very meaningful.  This gets impossible to follow, so I am not sure,
but I think the amounts that could appear in those accounts would have to
be created based on off-line calculations, say in a spreadsheet....why not
just use the spreadsheet, no value is added and possibly mistakes are
introduced in whatever you are doing trying to make equity accounts report
something.

The only basic application I understand in all of this is about tithing,
where one wants to track amounts of tithing obligations incurred vs.
amounts of tithing paid.  Which is handled extremely simply by considering
the total amount of unpaid tithing obligation as a liability, "Tithing
Payable", and by considering the incurrence of new tithing obligations as
expenses.  Then payments of cash to reduce the tithing payable are just
that.  Whenever you receive salary or otherwise trigger a tithing
obligation, simply recognize the corresponding tithing expense.  You
receive $5,000 salary, for which $500 tithing is due:  enter as Tithing
expense +500, Tithing payable +500.   The tithe might actually be paid to a
church only once a year, at the end of the year, say?  Then the Tithing
payable will gradually increase, say it has accumulated to $8,000 when you
choose to pay it all off from your checking account:  enter as Tithing
payable -8,000, Checking -8,000.  At every point in time, a Balance Sheet
report would show your accumulated unpaid obligation.  For any period of
time, an Income Statement will show your salary earnings and whatever else,
and the corresponding Tithing Expense (which is the increase in tithing
obligation recognized during the period.

I regret seeming to approve, in a previous post, of any use of an equity
subaccount to report something different than what equity is (sum of all
original investments by owner(s) to the business, plus accumulated net
income since then, less dividends or other returns of equity to owners).  I
thought maybe if you have a fixed emergency savings threshold you wanted to
reflect, that it would be okay to do that, so equity is divided between
that and all other, but that doesn't accomplish anything useful, you
already knew what your emergency amount is. This other stuff is crazy, and
is fighting against what the accounting system can do for you, rather than
letting the accounting system help you (keep track of what you owe vs. what
you have paid, in tithing).  Or could anyone explain any sensible purpose
to this?

Don

On Fri, Aug 7, 2020 at 1:41 PM Adrien Monteleone <
adrien.monteleone at lusfiber.net> wrote:

> Marilyn,
>
> This does complicate things a bit, but your concept is still doable.
>
> Warning: Long Read Ahead
>
>
>
> If you don't want to create another real-world 3rd (or more) account(s)
> at one of your financial institutions, you can still track this
> virtually, and maintain sanity for reconciliation of both Checking and
> Savings, with a bit of extra work.
>
> The idea is to create a new tree or sub-tree of accounts for your
> Fund(s). The option will be where to put it. The mechanics are the same
> regardless of this choice.
>
> Since you are co-mingling virtual earmarks from separate real accounts,
> you'll need some extra virtual accounts to keep everything balanced.
> This will also necessitate extra transaction splits for each and every
> transaction involved with this virtual tracking.
>
> * — for clarity, I'll be using the proper noun 'Fund' to refer to the
> 'virtual entity' that you want to work with, not just generic 'money'.
>
> You probably don't need sub-accounts of Checking and Savings for each
> Fund in this case, just a single 'Checking:Fund Contribution' /
> 'Savings:Fund Contribution' under each or something similar. This will
> allow you to deduct from the account(s) while retaining the ability to
> see roll-up balances and conduct a reconciliation without mental
> gymnastics. You will be able to see at a glance how much you have
> earmarked from that particular account, as well as the non-earmarked
> balance that remains in the parent available to spend.
>
> As long as this is for personal use (without tax/legal documentation
> requirements) then you can structure your book however you like, but
> there are reasons for 'best practices'. Accounting texts and online
> resources can help here. Find a good personal chart of accounts example
> and try to model that. Look at several examples as some will include
> more detail and explanation than others. (you can of course always get
> professional CPA advice, and if this is for a business, I'd strongly
> recommend it!) Those examples probably won't include 'virtual tracking'
> but they are good for the 'real' accounts you should have.
>
> First, I'll outline the account organization options, then I'll go over
> the entry procedure.
>
> -----
> Option 1: Assets
>
>
> Every new account you create should be of fundamental type 'Asset'.
>
> You'll need to create a new parent account for all of your various
> earmarked Funds, e.g—
>
>    Assets:Current Assets:Earmarks
>
> It should be under Current Assets since it is liquid. (it is technically
> not different than Checking or Savings, which are current assets)
>
> Mark this account as a placeholder.
>
> Create a sub-account, called perhaps 'Funds'. (maybe not the best word,
> because it could be confused with another GnuCash account type, but use
> what works for you) Also mark it as a placeholder.
>
>    Assets:Current Assets:Earmarks:Funds
>
> Now, create sub-accounts for each Fund you want to track.
>
>    Assets:Current Assets:Earmarks:Fund:Fund_1
>    Assets:Current Assets:Earmarks:Fund:Fund_2
>    Assets:Current Assets:Earmarks:Fund:Fund_etc
>
> You'll need one more virtual account for balancing. Make this a
> sub-account of Earmarks.
>
>    Assets:Current Assets:Earmarks:Balancing
>
> (It doesn't really matter what you name this, it is just for
> double-entry. It has no other purpose or meaning really.)
>
> -----
> Option 2: Equity
>
> Same as above in all respects, except make these accounts all of
> fundamental type 'Equity'.
>
> Place them higher up the tree like so:
>
>    Equity:Earmarks
>    Equity:Earmarks:Funds
>    Equity:Earmarks:Funds:Fund_1
>    Equity:Earmarks:Funds:Fund_2
>    Equity:Earmarks:Funds:Fund_etc
>    Equity:Earmarks:Balancing
>
> -----
> Option 3: New Top Level
>
> Same as above, but the fundamental type can be either 'Asset' or 'Equity'.
>
> This would look like:
>
>    Earmarks
>    Earmarks:Funds
>    Earmarks:Funds:Fund_1
>    Earmarks:Funds:Fund_2
>    Earmarks:Funds:Fund_etc
>    Earmarks:Balancing
>
> (some people do this and call the Tree 'Budgeting' or 'Envelopes', etc.)
>
> I suppose this could also be considered (or as Option 4) as type
> 'Liability' as some people may think of these Funds as being something
> they have pledged.
>
> *note — You can have (as far as I know) as many 'Top Level' accounts as
> you like and name them whatever you like. But they *should* be one of
> the fundamental types (Asset, Liability, Equity) and definitely *not*
> one of the special business types. (Accounts Receivable/Payable) Some of
> the other special GnuCash types (Cash, Bank, Fund[Mutual Fund], Credit
> Card, Stock, etc.) might be possible, but I've never tried them or seen
> if that is at all recommended.
>
> -----
> Entry Procedure
> ===============
>
> Step 1: Earmarking
> ------------------
>
> As noted before, as you calculate the contribution(s) you want to
> earmark, make a transaction between the source account and Fund
> Contribution sub-account like so:
>
> Dr. Checking/Savings:Fund Contribution
> Cr. Checking/Savings
>
> This will now show the 'available' (to you) money left in the respective
> parent, as well as how much you've earmarked from each.
>
> Here's the virtual part:
>
> Now either as part of the same transaction (recommended) or separately,
> you need to involve the Fund(s) and then the Balancing account.
>
> So as an all-in-one:
>
> Dr. Checking/Savings:Fund Contribution
> Dr. Fund_1
> Dr. Fund_etc.
> Cr. Balancing
> Cr. Checking/Savings
>
> Or separately:
>
> Dr. Fund_1
> Dr. Fund_etc.
> Cr. Balancing
>
> Putting all the splits in a single transaction will clearly show you
> what money was earmarked to where, from where, and when. Doing separate
> transactions can still show the same info, just not in one place as it
> all occurred. (remember what I mentioned about 'modeling the
> real-world'?) The earmarking is occuring all at once and that is the
> entire purpose of the original transaction, the extra Fund splits are to
> facilitate your tracking. They aren't a separate event.
>
> Now, in the Earmarks part of your tree (wherever you put it):
>
>    *The balance of Earmarks will be zero. (Funds - Balancing)
>
>    *The balance of Funds will be the sum of the child Funds (the total
> amount earmarked from both Checking and Savings)
>
>    *The balance of each child-account Fund will be the amount you've
> earmarked there.
>
>    *The balance of Balancing will be the same as Funds but negative.
>
>
> There are no 'Opening Balance' entries in this method. Each amount
> earmarked needs to also have a corresponding activity between the
> Checking/Savings and Contribution accounts. If you already have some
> funds earmarked, you should have those original transfers from
> Checking/Savings to Contribution accounts and then you can add-in the
> Fund_etc/Balancing splits.
>
>
> Step 2: Spending
> ----------------
>
> Again, for future sanity, try to model the real-world.
>
> Since the funds are coming from either Checking or Savings, that's what
> the core transaction needs to look like:
>
> Dr. Expenses:(whatever relevant)
> Cr. Checking/Savings
>
> But you took those funds out, so they need to be put back in first
> (ideally):
>
> Dr. Checking/Savings
> Dr. Expenses:(whatever relevant)
> Cr. Checking/Savings
> Cr. Checking/Savings:Fund Contribution
>
> You *could* spend directly from the virtual Contribution accounts for
> less typing:
>
> Dr. Expenses:(whatever relevant)
> Cr. Checking/Savings:Fund Contribution
>
> Now you also need to reduce your Earmark accounts:
>
> Dr. Balancing
> Cr. Fund_(whatever relevant to match the expense)
>
> As with Step 1 above, I'd probably include those Earmark splits as part
> of the original transaction.
>
> Dr. Checking/Savings
> Dr. Expenses:(whatever relevant)
> Dr. Balancing
> Cr. Fund_(whatever relevant to match the expense)
> Cr. Checking/Savings
> Cr. Checking/Savings:Fund Contribution
>
>
> -----
> Reconciliation
> ==============
>
> If you spend directly from the Contribution accounts, when reconciling
> the Checking or Savings accounts, tick the box to 'include sub-accounts'
> proceed as normal. If you instead first return the money to the main
> accounts, you do not need to do this, just reconcile as normal as all
> real transactions are in the parent account.
>
> -----
> Reporting
> =========
>
> The P&L (Income Statement) and Balance Sheet should all operate as
> normal. For the Balance Sheet, be sure to *not* include any virtual
> accounts (earmarks) but *do* include the Contribution accounts as
> otherwise your assets will be understated. The P&L only involve Income &
> Expense accounts and since you only touched those in real transactions,
> that report should still look as if you didn't do any virtual tracking
> at all.
>
> You can now craft interesting Transaction reports on the Contribution
> and Earmark accounts as desired.
>
> If your Earmark tree is of type Asset or Liability, you can involve
> those reports. (like various Charts) If you choose type Equity, you
> won't be able to do those reports without exporting something like a
> Transaction Report to a spreadsheet and creating charts or custom layouts.
>
>
> -----
> Advanced Entry
> ==============
>
> If you earmark money regularly(like weekly or monthly), and you do so
> according to a set formula (10% to Fund_1, 13% to Fund_2, etc.) then you
> can set up a Scheduled Transaction(SX) using a custom variable.
>
> For the template of this SX, put the splits between source and
> contribution accounts as 'n*profit' or something similar, e.g—
>
>    Dr. Checking:Fund Contribution       0.65*profit
>    Dr. Savings:Fund Contribution                0.35*profit
>      Cr. Checking                                       0.65*profit
>      Cr. Savings                                                0.35*profit
>
>
> Then each Fund would be, e.g.—
>
>    Dr. Fund_1                           0.10*profit
>    Dr. Fund_2                           0.13*profit
>    Dr. Fund_etc.                                0.77*profit
>      Cr. Balancing                                      1*profit
>
> But this would all be one big transaction.
>
> Set the SX to remind you and auto-create as desired. When the SX fires
> on the scheduled date, it will prompt you for the value of the 'profit'
> variable and do the math accordingly, entering the earmarking
> transaction with all splits for you. Be sure to also check the option to
> review the transaction before it is created. This way, you can tweak
> amounts as desired.
>
> *tip – Do the Earmarking manually once or twice though to fully grasp
> the process, then you can right-click one of those transactions and turn
> it into a Scheduled Transaction and adjust with your formulas.
>
> *hint — I've used this to auto-allocate a paycheck to budgeting
> 'envelope' accounts.
>
> -----
> Hope that helps!
>
> Regards,
> Adrien
>
> p.s. — yes to anyone wondering, I do plan to write this up on the Wiki
> (more generally as 'virtual tracking') but I have some other Wiki
> projects pending at the moment. I'll post back to the list when it is up.
>
> On 8/7/20 6:11 AM, Marilyn Graves Kimple via gnucash-user wrote:
>
> > I thank you all for your suggestions, and this sounds like the simplest.
> These are indeed "virtual" accounts; the only problem is that they include
> funds from both my checking & savings "real-world" accounts. Maybe I could
> set them all up under savings and show a 'virtual deficit' which would
> represent funds that are actually in checking?
> > I tried making sub-accounts under the Equity>Opening Balance and
> entering initial amounts for my virtual accounts backwards so they would
> show up as negatives (part of the opening balance), but of course I could
> not write a check and credit the amount to both checking (asset) and a
> virtual account, so that did not work.
> > I miss my old (ancient) program, where I could set up equity accounts as
> "funds", allowing me to post to them as I would income or expense accounts.
> > How do others use Equity sub-accounts? Do they have to correspond to a
> "real-world" account?
>
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