[GNC] Equity Account "problem"

[Default User]

On Tue, 2023-07-11 at 16:05 -0700, Stan Brown wrote:
> > 
> > 
> > Stan Brown
> > Tehachapi, CA, USA
> > https://BrownMath.com
> > 
> > On 2023-07-11 15:48, Default User wrote:
> > > > Is there a way to have Gnucash 4.13 (Debian GNU/Linux 12
> > > > Bookworm)
> > > > automatically calculate, and update "Equity" in the main
> > > > accounts
> > > > tab,
> > > > to show the "real" value of total Equity, after any action (or
> > > > at
> > > > least
> > > > transaction) that would affect "real" equity?  
> > 
> > Not in Accounts -- Equity accounts get updated only if you enter
> > transactions to do that, or if you close the books.
> > 
> > But see below for a different approach that will give you what you
> > want.
> > 
> > > > But now, enter a transaction such as Expenses:Auto:Fuel
> > > > (increase
> > > > by
> > > > $5.00), paid by transfer from Assets:Cash in Wallet (decrease
> > > > by
> > > > $5.00). 
> > > > 
> > > > So now: 
> > > > Assets = $5.00 
> > > > Liabilities = $0.00 
> > > > Equity = $10.00
> > > > 
> > > > So . . .  if Assets - Liabilities = Equity, then 
> > 
> > Not quite.
> > 
> > Assets - Liabilities = Equity + (Income - Expenses)
> > 
> > In your example, $5 - $0 = $10 + ($0 - $5)
> > 
> > It's not instantaneous, but an easy way to get very close to what
> > you
> > want is to run a balance sheet report. That shows assets,
> > liabilities,
> > and equity, but a generated item "Retained Earnings" under equity
> > that
> > equals total income minus total expenses. This gives you the sort
> > of
> > balance you're looking for.
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Hi, Stan.

First, "full disclosure". I am not an accountant or even a bookkeeper.
So I do not presume to be conversant with the details of standard
double-entry bookkeeping. 

That being said, I understand that the fundamental accounting equation
is, of course:

Assets - Liabilities = Equity

and that (one) expanded version of the fundamental accounting equation
is, of course:

Assets - Liabilities = Equity + (Income - Expenses).

Now, by default, GnuCash seems to adhere to Assets - Liabilities =
Equity. 

But unless and until the books are "closed", it seems to completely
disregard Assets - Liabilities = Equity + (Income - Expenses), to the
extent that Equity would consist of only entries in the Equity:Opening
Balances sub-account (at least until closing time, when Income and
Expenses are "transferred into" Equity, and thus the Income and Expense
accounts are "zeroed out"). At this point, it would seem that Assets -
Liabilities would then "really" equal Equity.

As you said:
"Equity accounts get updated only if you enter
transactions to do that, or if you close the books."

I could set up two sub-accounts under Equity, such as:
Equity:Transfers form Expense Accounts
Equity:Transfers from Income Accounts
and manually enter transactions to transfer the balances from the
Expenses and Income accounts, respectively. 

Or, I could manually make said transfers directly to the Equity
account, but the Equity account would then seem to become very
cluttered, very fast. 

Or, I could just "close the books" temporarily, to see the "real"
equity amount in Equity, then immediately un-close the books, so as to
not upset the reporting functions.

All of these approaches seem a little clunky.  But the big problem is
that any such manual approach would probably become ridiculously
tedious, very quickly.

If there is no way to get GnuCash to do this automatically, then it 
seems that the only way to get the "real" equity at any arbitrarily 
chosen moment in time is to use the built-in Income Statement report. 

So, why not just run reports as needed?  I can only try to explain by
saying that: 

1) For me, when I am using the ledger accounts as presented in the main
accounts window, suddenly popping up a report tab is visually and
mentally "jarring". The text size and fonts are quite different, as is
the structure and organization of the reports.

2) Perhaps worse, whenever I am using the account ledgers, I have
reserve some of my limited mental capacity to always keep in mind that
there, Gnucash is saying that Assets - Liabilities = Equity, not Assets
- Liabilities = Equity + (Income - Expenses). Please don't snicker or
laugh - the older you get, the more you will understand that mental
capacity is not unlimited, and does inevitably decrease over time. 

Note: it does occur to me that I might be able to re-arrange the
account tree structure so that Expenses and Income, and their sub-
accounts, could be made sub-accounts of Equity, such as:
Equity:Expenses: ...
Equity:Income: ...
This way, Equity would seem to always be "up to date" as:
Assets - Liabilities = Equity + (Income - Expenses).

But unfortunately, that would probably just confuse various built-in
reports so probably not a real solution either. 

<Sigh.>