[GNC] Is it reasonable to have sub-accounts under Equity:Fixed Assets?

[Michael or Penny Novack]

On 1/16/2023 7:29 AM, Dr. David Kirkby wrote:
> Apologies if this is too much an accounting question, but I'm stuck, and am
> trying to work out how GnuCash will handle this.

It is accounting, as opposed to gnucash, but I will help. But please do 
note that perhaps more basis in double  entry accounting needed than 
just the tutorial if doing for a business.


>
> I'm trying to enter into GnuCash my company accounts for this financial
> year only - I'm not going to bother trying to enter every transaction since
> the company started. So the opening balances should reflect the company's
> financial position on 28/2/2022, and transactions from 1/3/22 being
> recorded.
>
> I have the account
>
> Assets:Fixed Assets
>
> All that contains is test equipment and computer equipment, all of which
> will be depreciated - there's no land, or other things that don't
> depreciate.
>
> I initially set Assets:Fixed Assets to have an opening balance of £x, as
> that's what my accountant told me the total of all thef fixed assets was
> worth. I see that is reflected in the account
>
> Equity:Opening Balances
>
> However, after I asked him, my accountant gave me a breakdown of the net
> value of the individual fixed assets, which have obviously depreciated over
> time.  I thought it would be useful to have their individual net values on
> 28/2/2022 recorded in GnuCash

OK, I will describe what you SHOULD have done and how to get from where 
you are to there.

Ideally under fixed assets you have sub accounts, perhaps first by 
acquisition year and under that for the individual things (or group of 
same type). All of these accounts should have two sub accounts, one for 
basis (cost of acquisition) and one for depreciation taken, the 
difference being the current net book value. Note that USUALLY 
depreciation is adjusted annually, as you are not required to do 
monthly, AND this is to your advantage if/when any are disposed of (will 
decrease any gain and increase any loss if you are allowed to use as net 
value remaining that of the previous year end)

Getting there from where you are should not require you changing 
anything in equity. You would just be "transferring" from your initial 
structure of fixed assets to this new one. The "credit side" is account 
in the old structure as you debit into the new structure. Thus, you can 
rename (for now) you existing account "fixed assets" (in which nothing 
broken down to something like "xfixed assets" and create your new fixed 
assets tree with all the accounts in it zero. You then populate the new 
tree using transactions that put in the values using the old structure 
(single account) as the other side of these transactions. When you are 
all done, the remaining balance in xfixed assets should be zero and you 
can HIDE it.

Each year as you depreciate (part of end of fiscal year processing) the 
other side of the transaction will be an account under expenses named 
"depreciation of fixed assets. You could set up to do monthly but WHY? 
(what benefit do you gain vs what does this cost you). Remember, 
depreciation is an expense but does not represent any money flowing in 
or out. The money went out when you acquired the fixed asset (but you 
weren't allowed to treat that as an expense at the time).

Michael D Novack

PS: Whether you break down (within year) to particular fixed assets 
depends mainly on the likelihood of individual items being disposed of 
for gain or loss. If this is unlikely (far more likely to be all of 
none) then no need to bother.