[GNC] Asset vs Equity accounts?

[Stephen M. Butler]

On 2/14/21 1:29 PM, gnu Gord wrote:
> First off I'll say I have no formal accounting training so I don't really
> understand accounting terminology or how it is represented in GnuCash.
>
> I understand the basic idea that Equity = Assets - Liabilities, but I'm
> unsure how this should be entered in GnuCash.
>
> Specifically, my question is; how do I know if something I have should be
> recorded in an Asset account or an Equity account?
>
> For example, our house. The documentation says an asset is something I own.
> That would mean our house should go in the Asset account, correct?
> But the documentation also says equity is my overall net worth. If I don't
> owe anything on my house, should it be recorded in an equity account
> instead of an asset account?
>
> What about a car, should it be recorded as an asset or equity if I own some
> of it but have a loan on it as well?
>
> Sorry for asking so many dumb questions but my head is about to explode!!
> ;)

I know the feeling.  Though I have had no "formal" training, my wife has 
been trained as an accountant.
So, let me try to simplify things:

1.  Equity -- it happens.  Usually you don't do anything to this except 
in rare instances (such as year end closing of books -- if you need to 
do that).
You will want an "Equity:OpeningBalance" account for the initial 
transaction that sets up all the opening balances.  It will be whatever 
is left over after setting the opening balance for all the Asset and 
Liability accounts.  You may not want or need an 
"Equity:RetainedEarnings" account.  I have one since I like to close the 
books at the end of the year.  It isn't needed and a lot of folks 
don't.  GnC will handle reports properly either way.

2.  Assets -- if you own even a tiny piece of it, it goes here.  If you 
owe a portion then we'll make a second account for it over in Liabilities.
     Group your assets into logical groups -- like all your accounts at 
bank X would go into ASSETS:BANKX:yyyy (where yyyy is Checking, Saving, 
CD, Money Market -- the various accounts that contain your money.
     Remember to track CASH as an asset also.
     House -- it's the purchase price plus any additions you have made 
over the years -- your account will give you better advice.
     Vehicles -- what you paid to buy them.
     If other people owe you money, that would be tracked in an asset 
account (Loan to Cousin Joe)

3. Liabilities -- what you owe.  Car loans.  House Mortgage. Credit Card 
(even when paid off each month), etc.

4.  Income -- any money that comes to you whether you will be taxed on 
it or not.  "But", you say, "My paycheck went into the checking 
account."  Yup, you are right.  But GnC is a "Double Entry" book keeping 
system.  So, the other side of that transaction for the paycheck is 
Income (and most likely some expenses).  The net goes into 
"Assets:BankX:Checking" while the gross is in "Income:MyWorkPlace" and 
any deductions go into "Expense:zzzzz" where zzzz are for the various 
deductions your employer takes out.

5.  Expenses -- money that went out to buy things  (if it went out to 
reduce a liability then it isn't an expense).

Now, I've probably given you too much to think about right now. Feel 
free to ask further and others may jump in to help clarify things.

Don't try to eat the entire elephant at one sitting.

-- 
Stephen M Butler, PMP, PSM
Stephen.M.Butler51 at gmail.com
kg7je at arrl.net
253-350-0166
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