[GNC] Newby questions opening accounts

[David Cousens]

peter

A pretty fair summary.

On Q2. It is not so much a question of what GnuCash likes as one of standard
accounting practice. Not sure where your finance guy learned his accounting.
GnuCash implements what is known as a double entry accounting system. Every
transaction debits one account and credits another and the system of
accounts in general obeys a set of rules about the sums of debits and
credits in a transaction (among others) that satisfy what is known as the
accounting equation which defines the relationships between the different
types of accounts.  

Section 4.63 of the Conceptual Framework of the IFRS (International
Accounting Standards) defines Equity as the residual interest in Assets
after subtracting any Liabilities against those assets. This is the same
definition as in GAAP (Generally Accepted Accounting Practice) which will be
found in the standards of most countries, even those who have not adopted 
the IFRS formally at this stage (US for example).  

If Equity accounts are held under Liabilities the balances of Assets and
Liabilities and Equity will no longer reflect the relationship Assets -
Liabilities  = Equity. This is usually expressed as Assets = Liabilities +
Equity +Income -Expenses. Income(or Revenue) and Expenses are both also
equity accounts but only record transactions for the current period ( and
are called temporary accounts for this reason) in traditional accounting
practice and are closed to Equity at the end of the accounting period in
manual pen/paper bookkeeping. 

GnuCash however does not require a formal closing in the traditional manner,
although it can be done if required, as its reporting system performs the
necessary calculations  in constructing the reports for a given period.

David



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David Cousens
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