[GNC] Equity Account "problem"

[Default User]

On Wed, 2023-07-12 at 16:38 -0400, Michael or Penny Novack wrote:
> On 7/11/2023 6:48 PM, Default User wrote:
> > Hi!
> > 
> > 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?
> > 
> > Example:
> > Start with the GnuCash "Common Accounts", as in gcashdata_1.gnucash
> > from the Tutorial and Concepts Guide, with all accounts set to
> > $0.00.
> 
> Stop -- I understand your example. Your problem is that you do not 
> understand what accounts of type "income" and "expense" are. They are
> in 
> fact, "temporary" accounts of fundamental type "equity". They are
> being 
> kept separate so that they may be viewed. It is the "close the books"
> operation that would close them out to equity.
> 
> Look at a Balance Sheet report. Do you see a "retained earnings" of 
> "retained losses". Those aren't accounts but the net of all income
> and 
> expense accounts whose balances have not been transferred to equity
> (by 
> a close the books). So if you want to see your actual equity, you can
> run this report and add/subtract. Or of course, do a "close the
> books" 
> << trust me, you probably won't ever bother* >>
> 
> History -- In the early days of double entry bookkeeping there were
> no 
> income/expense accounts and income or expense transactions WERE
> written 
> to equity. That meant you could immediately see "what is my equity 
> today?" but would have to look through the journal to answer a
> question 
> like :how many ducats of interest did we get last month?". That's how
> the temporary accounts of type income and expense came about.
> 
> But more important, why do you want to know instantaneous equity?
> Having 
> lots of equity, having increasing equity, might not save you if
> having a 
> "cash flow" problem. In other words, lots of things determine
> economic 
> well being.
> 
> 
> Michael D Novack
> 
> * Not bother because gnucash can produce the report you would get
> during 
> a traditional "close the books" without closing the books.
> 
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Hi, Michael!
Thank you for your thoughtful reply.

Regarding:
'Your problem is that you do not understand what accounts of type
"income" and "expense" are. They are in fact, "temporary" accounts of
fundamental type "equity". They are being kept separate so that they
may be viewed. It is the "close the books" operation that would close
them out to equity.'  

I will freely admit that I do not fully understand the formal
definitions and usage of income and expense accounts.  Indeed, I am not
an accountant, or even a bookkeeper.  But I do think I know enough to
understand how closing the books includes transferring income and
equity balances (or at least "income - expenses") to equity.  

Regarding: 
'Do you see a "retained earnings" or "retained losses". Those aren't
accounts but the net of all income and expense accounts whose balances
have not been transferred to equity (by a close the books).'

So, "retained earnings" of "retained losses" would not be actual
accounts, with actual transactions, but instead just calculated sums
that appear in a Balance Sheet report?  

Perhaps that is similar to how I have always thought of equity - not as
an actual account, but (very simplified, of course) the result of the
calculated result of Assets - Liabilities. "Take what you own, subtract
what you owe. What's left is your net worth (equity)". 

Regarding:
'So if you want to see your actual equity, you can run [a Balance
Sheet] report and add/subtract. Or of course, do a "close the books"'

Yes, I know how to temporarily close the books using the GnuCash "Close
Book" tool, and then un-close the books. Or, as you said, better
(faster and easier), is to just run a balance sheet report.  Which is
what I will just continue to do. 

Regarding:
'History -- In the early days of double entry bookkeeping there were
no 
income/expense accounts and income or expense transactions WERE
written 
to equity. That meant you could immediately see "what is my equity 
today?" but would have to look through the journal to answer a
question 
like :how many ducats of interest did we get last month?". That's how
the temporary accounts of type income and expense came about.'

I did not know that.  I thought that equity was normally only
calculated at book closing time, as it would seem to be a chore to do
it frequently.  I got it wrong. I stand corrected.

Regarding:
'But more important, why do you want to know instantaneous equity?
Having lots of equity, having increasing equity, might not save you if
having a "cash flow" problem. In other words, lots of things determine
economic well being.' 

Do I NEED to know "real" equity instantaneously? 
Not usually.  And when I do, I can always create a Balance Sheet
report.  Of course, I don't NEED to win the lottery, either. But I
would certainly PREFER to do so!  Please understand, I am not trying to
be sarcastic or  flippant. That's just my best response, for now.

Final point: 
There is an old saying in Zen Buddhism that says "Do not confuse the
moon with the finger that points at it."  Just as the finger is not the
moon, the "rules" of accounting are just a model, that attempts to
explain and help us relate to something else. Yet is not that thing
which it "points at".  Let us always strive to not confuse the model
with what it models.