[GNC] Equity Account "problem"

[Default User]

On Thu, 2023-07-13 at 08:28 +1000, David Cousens wrote:
> The answer is unfortunately it is both. I think Michael has already
> explained
> that Income and Expenses are actually temporary Equity accounts which
> are kept
> separate so that the profit/loss and other parameters of interest in
> running a
> business can be calculated over a shorter term either for management
> and/or tax
> calculation purposes. To get the cuurent equity at any point mid
> period you
> would use the balance of the Equity account + Income balance -
> Expense Balances
> at that date. A standard Balance Sheet report should give you the
> Equity 
> balance and a Income/Expensereport to the same date as the balance
> sheet to get
> the relevant Income and Expense balances for the calculation.
> 
> If your programming skills are up to it, you could create a
> customized net worth
> report .
> 
> David Cousens
> 
> On Wed, 2023-07-12 at 17:35 -0400, Default User wrote:
> > On Wed, 2023-07-12 at 10:21 +1000, David Cousens wrote:
> > > The calculation of Equity is automatic and built into double
> > > entry
> > > accounting
> > > system. This is the purpose to a large extent of the two or more
> > > entries
> > > (referred to as splits in GnuCash documentation) associated with
> > > a
> > > single
> > > transaction. Income and Expenses are Equity accounts that are
> > > split
> > > off from
> > > equity with the primary purpose of measuring the short term loss
> > > or
> > > gain over a
> > > specific period and you will notice if you look through the
> > > examples
> > > in the
> > > GnuCash Help Manual and Tutorial Guide that most transactions
> > > involve
> > > one split
> > > to an asset or liability account and another to either an Income
> > > or
> > > Expense
> > > account except where the transaction is regarded as a capital
> > > purchase which
> > > will produce income over more than a single accounting period
> > > (usually annually
> > > but can be semi annually or monthly). 
> > > 
> > > It can be circumvented by not following the recommended
> > > procedures.
> > > First you
> > > need to understand the double entry accounting system basics and
> > > then
> > > GnuCash's
> > > implementation of it.There are on line resources on double entry
> > > if
> > > the
> > > introduction in the gude and help manual is too brief for your
> > > needs.
> > > 
> > > David Cousens
> > > 
> > >  
> > > On Tue, 2023-07-11 at 18:48 -0400, 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.
> > > > 
> > > > Now make a transaction so that Equity:Opening Balances starts
> > > > with
> > > > $10.00, and Assets:Current Assets:Cash in Wallet starts with
> > > > $10.00. 
> > > > At this point, Equity = $10.00.  All good so far.
> > > > 
> > > > 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 
> > > > $5.00 - $0.00 = $10.00? 
> > > > 
> > > > Thus, Equity does not seem to include the $5.00 Expense
> > > > transaction. 
> > > > [Note: of course, the Balance Sheet in Reports does correctly
> > > > show
> > > > Equity as $5.00.]
> > > > 
> > > > I assume that GnuCash has always been this way, from the
> > > > beginning,
> > > > and
> > > > is not likely to change now!  
> > > > 
> > > > But is there a viable "workaround"?  I am pretty sure I
> > > > understand
> > > > what
> > > > is going on, and maybe why it was done that way (so that the
> > > > account
> > > > ledger tabs show legitimate transactions" only?) 
> > > > 
> > > > But it does bother my sense of "correctness".
> > > > 
> > > > [Note: I did see somewhere online a link to a web page that may
> > > > have at
> > > > one time shown the desired solution, but the web page has since
> > > > been
> > > > 404'd.]
> > > > 
> > > > : (
> > > > 
> > > > 
> > > > 
> > > > 
> > > > _______________________________________________
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> > 
> > 
> > Hi, David!
> > 
> > Thank you for your reply.  Especially the suggestion to "read up"
> > on
> > double-entry accounting.  In that regard, I am reminded of the
> > ancient
> > Greek or Roman commentator who said (approximately):
> > 
> > "Much study is a great weariness, and of writing books there is no
> > end". 
> > 
> > Anyway, may I just say by way of explanation, that I think the
> > fundamental basis of my frustration is that the definition of
> > Equity
> > seems to be inconsistent and even contradictory. 
> > 
> > It seems that one can say: 
> > Assets - liabilities = Equity
> > 
> > But in the next breath, they can say:
> > Assets - liabilities = Equity + (Income - Expenses)
> > 
> > Well, which is it?  Does Equity include (Income - Expenses) or not?
> > 
> > The cognitive dissonance here is astounding!  
> > 
> > It would seem to me that the only times [Assets - liabilities =
> > Equity]
> > and [Assets - liabilities = Equity + (Income - Expenses)] are in
> > synchronization are when Equity consists of, perhaps, only the
> > opening
> > balances of its component accounts, OR when the balances of Expense
> > and
> > Income accounts are at some specific point in time, transferred to
> > Equity, in which case both definitions of Equity are true.
> > 
> > May I suggest that such transfers are usually only done, say, every
> > fiscal year (or quarter, or whatever), normally when the "books are
> > closed", at the end of a designated accounting period. 
> > 
> > May I further postulate that such behavior was because
> > historically, in
> > an ink pen and paper world, this was a real chore, not to be done
> > every
> > day (let alone every hour, minute or second!).  Once upon a time,
> > it
> > made sense.  
> > 
> > But that was then.  This is now.  In the modern computerized,
> > networked, split-second world, Perhaps the concept of the Balance
> > sheet
> > being for an instant frozen in time, connected to another balance
> > sheet
> > , for another instant frozen in time, connected only by Income
> > Statements explaining how we got from the earlier Balance Sheet to
> > the
> > later Balance sheet, is at best a quaint anachronism, that may no
> > longer be necessary.  
> > 
> > Now, I am not saying that Income Statements are not of value. 
> > Indeed,
> > they are of the greatest value, showing trends and the how and why
> > we
> > got from one arbitrarily chosen point in time to any other
> > arbitrarily
> > chosen point in time.  
> > 
> > So, Why NOT have Balance sheets update instantly in time with every
> > transaction, so that [Assets - liabilities = Equity] ALWAYS =
> > [Assets -
> > liabilities = Equity + (Income - Expenses)]?  It would seem to be
> > more
> > immediately useful, and of course, more rationally consistent. 
> > 
> > SO, why not?  Well, for the sake of argument, let me suggest a few
> > possible reasons:
> > 
> > 1) Resistance to change.  The movements of physical objects in
> > space
> > are not the only things subject to inertia.  Human behavior is, of
> > course, subject to inertia as well.  Consider: nothing changes
> > unless
> > something makes it change. One form of this is known as "appeal to
> > tradition.  ("We've always done it this way, why change")?  Also
> > sometimes expressed as the (sometimes valid), "If it ain't broke,
> > don't
> > fix it"!
> > 
> > 2) Vested Interests.  There are people who have a vested interest
> > in
> > the promulgation of, and the enforcement of the promulgation of,
> > the
> > status quo, as do many others, further down the "food chain".  To
> > quote
> > from the movie "The Sand Pebbles", "It's his rice cup!".  
> > 
> > 3) Desire to conform.  "Everyone else is doing things a certain
> > way, so
> > I should, too".  For many people, conformity to existing norms is
> > not
> > just a survival mechanism, but is so deeply inculcated that they
> > may
> > not even be aware of it.  And pardon me for suggesting that the
> > quintessential stereotype of the conformist is the accountant.  (In
> > evidence: the "Accountancy" skit from the comedy television show
> > "Monty
> > Python's Flying Circus".
> > 
> > I didn't mean to run so long, but when I get going, I get going.
> > (Remember "inertia"?) 
> > 
> > Well, that's my story, and I'm sticking to it.  Comments are
> > welcome,
> > but No Bully, please!  
> > 
> > Have a good day!
> > 
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Hi, David!

Unfortunately, I am not a programmer.  So I guess I will just have to
work with what is available to me. 

Thanks anyway!