[GNC] How to treat a sale which involves more accounts?

Fri Sep 20 11:02:00 EDT 2024

This IS the way should have started. With the problem descried in 
"business" terms, for the moment leaving gnucash out of it << at this 
level, the answers would app;y equally to old fashioned keeping the 
books pen and ink on paper >>

a) The income or loss from sale of part of your collection is 
incidental/"hobby" income, and note the IRS treats losses from hobbies 
differently than business losses.
b) Also like any other "collectible"/art income or losses.
c) Because of the special treatment of losses (only deductible up to 
gains *from this source*) you are perhaps going to want to treat "cost 
of instruments sold" as a contra account adjacent to "sales"
BUT FOLLOW THE ADVICE OF YOUR TAX PROFESSIONAL -- there are rules 
explaining under what conditions allowed to treat as a business as 
opposed to a hobby. That is advantageous as then losses exceeding gains 
in that category deductible from gains in other categories. I am NOT 
qualified to give this advice. In any case, you need a decision here, 
hobby or business before helping you set up accounts. HINT -- how many 
years do you make a profit selling instruments vs how many a loss? 
That's going to be relevant, and yes I know, you are going to turn 
around and say "but that's what I need books for". Do you at least have 
a good guess?

Michel D Novack

PS -- you are allowed to look at the IRS regs yourself ---- you have a 
key word "hobby" to use in searches. If after reading the IRS rules you 
think you know how should be classed you can get back to us. Relevant is 
your estimate of how much extra you would owe if they overrule you -- 
something you could deal with?

On 9/19/2024 3:52 PM, Boniforti Flavio wrote:
> Hi David and David :-)
> Thanks for your replies.
> I'm not running any business at all. I am a musician who also collects
> (vintage) music instruments. As I also do play them, it happens a couple of
> times a year that I'm not interested anymore in keeping one or the other
> instrument. For this reason, I sell a couple of items a year and given the
> fact that the majority of my items are "vintage" ones, prices are always
> fluctuating. So I want to keep track of how much I've gained (or lost) when
> selling an item.
> Given the above, I think that if I would only use a single "Music
> equipment" account, I could not see how much I made (plus or minus) while
> selling some items - right? This is the reason which led me to think
> about setting up some accounts to "correctly" keep track of this all.
>
> Using this:
> 1. Debit the Checking account for the total amount of the purchase paid by
> the customer;
> 2. Credit the Income:Sales account by the total amount of the purchase;
> 3. Credit the Inventory: MusicEquipment Sales account by the amount of the
> cost of the items sold;
> 4. Debit the Expenses:Cost of Goods Sold account by the amount of the
> cost of the items sold.
>
> I would do the following when selling something for 120 which I bought for
> 100:
> 1. increase the checking account by 120;
> 2. increase the "Income:Sales" account by 120;
> 3. increase the "Inventory:Music Equipment Sales" account by 120;
> 4. decrease the "Expenses:Cost of Goods Sold" account by 100.
>
> (of course previoulsy I'd had increased the "Inventory:Music Equipment
> Purchases" and decreased my "Assets:Checking Account" by 100).
>
> Am I correct with the above?
> TIA,
> F.
>
>
> https://www.instagram.com/boniforti_music
> https://soundcloud.com/boniforti_music
> https://bonny-j.bandcamp.com
>
>
> Am Do., 19. Sept. 2024 um 03:52 Uhr schrieb David Cousens <
> davidcousens49 at gmail.com>:
>
>> Flavio,
>>
>> Why would you need a Music equipment sold account in the first place?
>>
>> If your business is making music then:
>>
>> when you buy equipment you credit your checking account and debit the
>> Music Equipment asset account by the amount of the purchase;
>> when you sell the equipment you debit your checking account and credit
>> the music equipment account.
>>
>> In this case the equipment is not held for the purpose of selling it at
>> a profit. You may however be subject to capital gains type taxes if
>>   they apply in your jurisdiction and the value of the equipment sold
>> exceeds the thresholds for such taxes.
>>
>> The situation may however be slightly different if your business is
>> actually retailing music equipment. In this case the Music Equipment
>> account is essentially an Inventory account - still an asset account.
>>
>> You would normally in these circumstances set up an Inventory asset
>> account which is a placeholder with two sub accounts Inventory:Music
>> Equipment Purchases and Inventory:Music Equipment Sales. Your Income
>> top level account will also need a subaccount Income:Sales and your
>> Expenses top level acoount will need a sub account Expenses:Cost of
>> Goods Sold (GoGS)
>>
>> The basic procedure is the same for purchases of equipment, credit the
>> checking account and debit the Music Equipment Purchases sub account.
>>
>> When you make a sale only the difference between the cost of the
>> equipment sold and the selling price is your income ( neglecting  any
>> sales tax issues which may also apply) so the following will be the
>> basic procedure:
>>
>> Debit the Checking account for the total amount of the purchase paid by
>> the customer;
>> Credit the Income:Sales account by the total amount of the purchase;
>> Credit the Inventory: MusicEquipment Sales account by the amount of the
>> cost of the items sold;
>> Debit the Expenses:Cost of Goods Sold account by the amount of the
>> cosdt of the items sold.
>>
>> Your profit on the transaction is recorde by the difference between the
>> Income:Sales account and the Expenses:Cost of Goods Sold account
>> entries.
>>
>> Dealing with any applicable taxes will add additional steps to the
>> accounting as will making allowances returns of purchases to
>> suppliersof faulty equipment and returns of equipment to you with
>> faults by customers. You should consult an accountant and consumer
>> legislation in your jurisdiction in how to deal with these.
>>
>> David Cousens
>>
>> On Wed, 2024-09-18 at 23:37 +0200, Boniforti Flavio wrote:
>>> Hi.
>>> Still very noob here, so bear with me please.
>>>
>>> I've got the following accounts (among others):
>>>
>>> Music equipment
>>> Music equipment sold
>>> Checking account
>>>
>>> When I buy music equipment, I take the money from my checking account
>>> and
>>> add it to the "music equipment" account.
>>> When I sell music equipment, how should I register it? I thought that
>>> the
>>> account "music equipment" would decrease by the sold value, the
>>> checking
>>> account would increase by the same amount... but what happens with
>>> the
>>> "Music equipment sold" account?
>>> Or am I wrong in separating "music equipment" from "music equipment
>>> sold"?
>>>
>>> Thanks,
>>> F.
>>>
>>> https://www.instagram.com/boniforti_music
>>> https://soundcloud.com/boniforti_music
>>> https://bonny-j.bandcamp.com
>>> _______________________________________________
>>> gnucash-user mailing list
>>> gnucash-user at gnucash.org
>>> To update your subscription preferences or to unsubscribe:
>>> https://lists.gnucash.org/mailman/listinfo/gnucash-user
>>> -----
>>> Please remember to CC this list on all your replies.
>>> You can do this by using Reply-To-List or Reply-All.
>> _______________________________________________
>> gnucash-user mailing list
>> gnucash-user at gnucash.org
>> To update your subscription preferences or to unsubscribe:
>> https://lists.gnucash.org/mailman/listinfo/gnucash-user
>> -----
>> Please remember to CC this list on all your replies.
>> You can do this by using Reply-To-List or Reply-All.
>>
> _______________________________________________
> gnucash-user mailing list
> gnucash-user at gnucash.org
> To update your subscription preferences or to unsubscribe:
> https://lists.gnucash.org/mailman/listinfo/gnucash-user
> -----
> Please remember to CC this list on all your replies.
> You can do this by using Reply-To-List or Reply-All.

-- 
There is no possibility of social justice on a dead planet except the equality of the grave.