On 5/11/2021 3:39 PM, Troy Spindler wrote:
Hey all.
Does anyone know what's the difference between an Equity account with vs.
without having "Opening balance" checked off? From what I can tell, they do
the same thing.
I have a new business with its own Gnu Cash file, and I'm trying to record
my transfers from my personal accounts as equity rather than income. It
seems right to use an "Opening balance" account to record my initial
investments I made in the company, but should I treat all future transfers
from personal the same way? If so, what would a Equity account that isn't
an Opening balance account be used for?
Thank you,
Troy
Sad but true, using an application like gnucash to partially automate
the processes of bookkeeping do not mean you don't have to take the time
to learn the fundamentals of double entry bookkeeping.
a) "Opening balance" is a shortcut you ca use when beginning a set of
books instead of using an explicit opening transaction or transactions
(using two means not having to enter a transaction split on BOTH the
debit and credit side)
b) Yes, in the future, putting money into your business or taking money
out would be transactions where the other side is an equity account.
Keep in mind, in the general case the business might not have a sole
owner (so partner shares need to be tracked, further investments and
drawings).
c) With gnucash, you don't have to explicitly "close the books" (close
the temporary equity accounts of type "income" and "expense" to equity).
Gnucash can produce the P&L report without that. But in this report, you
do get to see a virtual (equity) account for net gain or loss. This is
the amount that would have been transferred to equity (an equity
account) had you done a "close the books". That amount will also show up
when you run a Balance Sheet report as a (virtual) equity account
"retained gains" (or losses).
d) If you do use "opening balance" when opening the books, that account
is usually never changed. Especially if, as is likely, you will both be
putting money in and taking money out, and you want to see "owner's
equity" in one place, that is an argument for not using the "opening
balance tool". Thus, personally, I would create the (new) set of books
with all accounts 0 (in other words, no opening balance) and under
equity I would put an account with a name like "owner's equity". I would
then, using your balance sheet from before gnucash to enter two
transactions, spits, one for all the asset accounts (credit side
"owner's equity) and one for all the liability accounts (debit side
"owner's equity) with description "opening the books" dated as of the
date the books are being opened for. Then, when in the future, you are
making additional investments in the business or taking money out, your
net equity will always be available at a glance.
Michael D Novack
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