Re: [GNC] Asset vs Equity accounts? (Stan Brown)
On 2021-02-15 14:12, Larry Long wrote: > Stan, > You gave an excellent intro into the fundamentals of accounting (and GnuCash)! > I would like to follow up with a basic question of my own. > Let's say that I have added my new car's value to Assets and my auto loan to > Liabilities.After a year, I log the car's depreciation as a reduction to it's > account in Assets.Where is the account for the offsetting depreciation > amount?Is that an expense? Yes, the two splits for a record of depreciation are a minus to Asset:Car and an equal and opposite plus to Expense:Car Depreciation -- or perhaps Expense:Transportation. Of course you can set whatever account titles you wish, and you can also decide how finely you want to subdivide things. Don't know if you've set up your GC to use standard accounting terminology, but if you have then it would be a credit to the asset (which decreases it) and a debit to the expense (which increases that). -- Stan Brown Tehachapi, CA, USA https://BrownMath.com https://OakRoadSystems.com ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] Asset vs Equity accounts? (Stan Brown)
Thank you very much to all that replied. There are, obviously, a lot of people out there with a much deeper understanding of this than I currently have (or probably ever will) and I thank you for sharing your knowledge and experience. I am slowly getting a handle on the overall concepts and believe the point here is to 'account' for all movement of funds. In a perfect world, every transaction would have a source and a destination (my terminology) and every account would start at zero but if we start with something we need to record where it came from so we can use 'opening balance' in Equity. I'm not completely sure if this is all correct (or close to correct) but it's kind of the way I understand it so far... I believe for my purposes, now, I will record only 'opening balances' in the Equity account. That should get me by until I realize it's completely wrong. ;) Thanks again. On Mon, Feb 15, 2021 at 2:22 PM Adrien Monteleone < adrien.montele...@lusfiber.net> wrote: > Generally yes, but that usually is not done for a personal vehicle > unless you are allowed to do so for some type of credit or deduction on > taxes. Businesses routinely depreciate their fleets however. The rules > are varied and myriad as to what you are allowed to do. > > Regards, > Adrien > > On 2/15/21 4:12 PM, Larry Long wrote: > > Stan, > > You gave an excellent intro into the fundamentals of accounting (and > GnuCash)!I would like to follow up with a basic question of my own. > > Let's say that I have added my new car's value to Assets and my auto > loan to Liabilities.After a year, I log the car's depreciation as a > reduction to it's account in Assets.Where is the account for the offsetting > depreciation amount?Is that an expense? > > ___ > gnucash-user mailing list > gnucash-user@gnucash.org > To update your subscription preferences or to unsubscribe: > https://lists.gnucash.org/mailman/listinfo/gnucash-user > If you are using Nabble or Gmane, please see > https://wiki.gnucash.org/wiki/Mailing_Lists for more information. > - > 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@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] Asset vs Equity accounts? (Stan Brown)
Generally yes, but that usually is not done for a personal vehicle unless you are allowed to do so for some type of credit or deduction on taxes. Businesses routinely depreciate their fleets however. The rules are varied and myriad as to what you are allowed to do. Regards, Adrien On 2/15/21 4:12 PM, Larry Long wrote: Stan, You gave an excellent intro into the fundamentals of accounting (and GnuCash)!I would like to follow up with a basic question of my own. Let's say that I have added my new car's value to Assets and my auto loan to Liabilities.After a year, I log the car's depreciation as a reduction to it's account in Assets.Where is the account for the offsetting depreciation amount?Is that an expense? ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: [GNC] Asset vs Equity accounts? (Stan Brown)
Stan, You gave an excellent intro into the fundamentals of accounting (and GnuCash)!I would like to follow up with a basic question of my own. Let's say that I have added my new car's value to Assets and my auto loan to Liabilities.After a year, I log the car's depreciation as a reduction to it's account in Assets.Where is the account for the offsetting depreciation amount?Is that an expense? Thank you. Larry Long On Monday, February 15, 2021, 12:30:19 AM EST, gnucash-user-requ...@gnucash.org wrote: ... Date: Sun, 14 Feb 2021 17:08:02 -0800 From: Stan Brown To: gnucash-user@gnucash.org Subject: Re: [GNC] Asset vs Equity accounts? Message-ID: <167aeb21-5037-b157-34fe-85173c33a...@fastmail.fm> Content-Type: text/plain; charset=utf-8 ... Hi, Gord. Welcome to GnuCash! I think you may have missed a fundamental concept, and that's giving you all of the questions you mentioned above. The fundamental concept is: Every transaction, without exception, comprises two or more sub-entries, called "splits" in Gnucash. The splits in any give transaction must balance; if they don't, GC automatically creates an "imbalance" split to tell you the amount they're out of balance. What do I mean by "the splits must balance"? To answer that, let's first rearrange and expand that accounting equation you mentioned. You stated correctly: Equity = Assets - Liabilities That's correct as far as it goes, but it leaves out two other categories of accounts: Income and Expense. You can think of Income and Expense as adjustments to Equity from your day-to-day operations, but for a beginner it's probably easier to just think of them as independent types of accounts. That expands the basic equation in this way: Equity + Income - Expenses = Assets - Liabilities "Equity" is accountant-speak for your net worth. Income increases your net worth, and expenses reduce it. But from the equation, since everything must balance, you can see other possibilities too. Here's an example. Suppose you go to the grocery store and charge $120 worth of groceries to your Visa card. Then your transaction has two splits: Expense:Groceries +120 Liability:Visa +120 Expenses (left side of the equation) and liabilities (right side) both increase by $120, so your transaction is in balance. Now let's take your car question. Your car is an asset. Let's suppose you just bought it for $20,000. You paid $2500 down and financed $17,500. The transaction would be recorded in three splits: Assets:Car +20,000 Liability:Car loan +17,500 Assets:Bank Acct - 2,500 How does that work in terms of the accounting equation? Assets are increasing by 20,000 for the car but decreasing by 2,500 from bank account, for a net increase of 17,500; liabilities are increasing by 17,400. So each side of the equation is increasing by 17,500, and once again your transaction balances. Most types of transactions will increase both sides of the equation or decrease both sides, but some are a plus and a minus on one side that net out to not changing the equation. For instance, you get your Visa bill for $1822 and pay it. Here's your transaction: Liability:Visa -1822 Asset:Bank Acct -1822 The right side of the equation is Assets - Liabilities. If an asset moves up or down, and a liability moves up or down by the same amount, there is no net change on that side of the equation. The details have changed, but not the totals, because of that minus sign in "Assets - Liabilities". Once again, your transaction is in balance. Now let's take your house. Suppose it's worth $300,000, or at least that's what you paid for it, and your current mortgage balance is $170,000. There are three splits in the transaction that records this. Two of them are easy to see: Asset:House 300,000 Liability:Mortgage 170,000 But this is out of balance. How should the 130,000 difference be recorded to keep things in balance? As you suspected, that's part of your net worth, so the third split in this transaction is Equity:Net Worth 130,000 (If you own your house free and clear, you record the full value in Asset:House and also in Equity:Net Worth. Again, the equation balances because each side is increased by $300,000.) Hopefully from this you get the idea. It's not a question of which one account you should record something in, but which two (or more) accounts, to keep every transaction in balance. -- Stan Brown Tehachapi, CA, USA https://BrownMath.com https://OakRoadSystems.com * ___ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. - Please remember to CC this list on all your replies. You can do this by using Reply-To-List
