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

[Dr. David Kirkby]

On Mon, 16 Jan 2023 at 16:27, Michael or Penny Novack <
stepbystepfarm at comcast.net> wrote:

> 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.
>
>
Thank you. I do have a couple of books on accounting, but admit to not
reading them in full. I thought this was an equity issue, so read the
sections about that, and was not convinced that using equity was correct.

>
> 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)
>

Thank you. I'm surprised the business accounts in GnuCash don't have
anything resembling this. I realise the accounts are supposed to be
tweaked, but this is *significantly* different to the business accounts in
Gnucash.  Maybe they should be altered to have 5-10 years, and some items
that people are likely to buy.

>
> 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.
>

Interesting.  It's actually tempting to put *all *the assets the company
has ever purchased, including those written off. It means adding 55 more
assets, which is not a huge number.  Although not strictly accurate, it
would not seem unreasonable to write them off after 5 years in one go,
rather than each year, given their net value is zero. If one writes of X in
one year, Y in 4 subsequent years, and Z in another year, it does not seem
unreasonable to write off X + 4 Y + Z in one go, if the result is the same
- the net value is zero.

However, although entering 55 new transactions would not be too
time-consuming, it would if I had to set up 55 new vendors for items that
have no value. As I remarked in another email, I wonder if buying from a
vendor called "Written Off" or something similar would be sensible. A
vendor report of Written Off would be interesting reading, despite it has
no significance. I do have information on the vendors these things are
purchased from, and need to keep them for 7-year. But I don't want the
hassle of importing every transaction into GnuCash for 7-years.

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).
>

I thought monthly might work better with trying to automate what will be a
tedious process. The GnuCash Scheduled Transactions could possibly be
useful there.


> Michael D Novack
>

I don't think I will bother with that.