2020-06-15 GnuCash IRC logs
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02:06:36 <fell> jralls_afk: "European Privacy Directive" should be "Payment Services Directive2"
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02:47:49 <CDB-Man_> jralls_afk: regardign the "semi-gaap" method of doing all currency exchanges at year-end, i checked one of my slightly more sophisticated clients that uses oracle netsuite, and it turns out that oracle netstuie also does the "semi-gaap" translation at period-end rather than on a per entry basis. it does it monthly. given tha tthe result at the end of the day is equivalent to GAAP, and is way less onerous, in practise this is done more often than my
02:47:49 <CDB-Man_> initial recollection suggested
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06:50:17 <chris> gjanssens: compiling with guile-3.0 for the first time. I used 'sudo apt install guile-3.0-dev'. It compiles with guile-3.0 but runs with guile-2.2.
06:50:28 <chris> Lots of guile-2.2 deprecations.
06:52:18 <chris> More accurately, it runs with guile-3.0 but tries to load .go files from 2.2 cache
06:52:27 <chris> (I have both guile-2.2 and 3.0 installed)
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07:21:31 <gjanssens> If it tries to load 2.2 cache files, that's a bug.
07:21:50 <gjanssens> Does the environment file refer to the 3.0 path ?
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07:25:26 <chris> Don't think so. Should be set in CMakeLists I guess? gtg for evening walk
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08:10:05 <gjanssens> Actually gnucash should do that for you. Are you sure you're building with guile 3 ?
08:10:20 <gjanssens> If you also have guile-2.2-dev installed, it will prefer that during build
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08:24:37 <chris> gjanssens: yes - during ninja it populates .../.../3.0/*.go; when running it looks at /.../2.2/etc
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08:57:29 <warlord> .
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10:22:35 <gjanssens> chris: check what is in etc/gnucash/environment for the guile_compiled_load_path
10:22:56 <gjanssens> if it's built with guile 3 it should have 3.0 in that path
10:23:21 <gjanssens> If you run from the build directory that's <builddir>/gnucash/environment
10:23:46 <gjanssens> If from an installed location that would be <prefix>/gnucash/environment
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10:36:15 <chris> gjanssens: GUILE_LOAD_PATH={GNC_HOME}/share/guile/3.0;{GNC_HOME}/share/guile/site/3.0;{GNC_HOME}/share/guile/site/3.0;{GNC_HOME}/share/guile/site/3.0/gnucash/deprecated;{GNC_HOME}/share/guile;{GUILE_LIBS};{GUILE_LOAD_PATH}
10:36:22 <chris> {GNC_HOME}/lib/x86_64-linux-gnu/guile/3.0/ccache;{GNC_HOME}/lib/x86_64-linux-gnu/guile/3.0/ccache/gnucash/deprecated;{GNC_HOME}/lib/x86_64-linux-gnu/guile/3.0/site-ccache;{GUILE_COMPILED_LIBS};{GUILE_LOAD_COMPILED_PATH}
10:55:11 <CDB-Man_> Chris, so what exactly does average cost do then, if it is something other than a weighted average?
10:56:32 <chris> I think the nabble thread that jralls_afk added explains the difference
10:56:48 <chris> http://gnucash.1415818.n4.nabble.com/Reporting-weighted-average-price-source-td1446540.html
11:01:42 <chris> afaik weighted-average was first -- very intuitive -- then average-cost after 7-july-2008
11:02:26 <chris> https://github.com/Gnucash/gnucash/commit/2acbebe78a52dc874c912592a5ff8def1583c975 is it
11:02:50 <chris> ^ see it for bug id
11:03:31 <chris> https://bugs.gnucash.org/show_bug.cgi?id=521403
11:04:00 <chris> https://bugs.gnucash.org/show_bug.cgi?id=460721
11:04:58 <chris> gtg
11:08:09 <CDB-Man_> Hmm, so average cost also includes zero unit transactions, such as capital gains?
11:09:49 <CDB-Man_> Because if so, that does not make sense
11:10:02 <CDB-Man_> Cost basis definition does not include capital gain
11:10:15 <CDB-Man_> Regarding commission, cost basis should include that
11:10:31 <CDB-Man_> Though it seems people are recording that incorrectly to an expense account
11:10:44 <CDB-Man_> Rather than into the asset with a zero unit split
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11:18:59 <CDB-Man_> Hmm, so this cost function attempts to track only current holdings
11:19:43 <CDB-Man_> And it probably doesn't do the greatest job at that
11:20:10 <CDB-Man_> chris: I will share into the ticket how cost ought to be calculated
11:20:19 <CDB-Man_> And let you figure out how to do it programmatically
11:20:45 <CDB-Man_> After I fiddle with and simplify my currently massively complex cost basis calculator that I use myself
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12:50:09 <dtux> do retained earnings ever leave equity (e.g. are there typical "opening" transactions analogous to closing transactions)?
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12:57:12 <CDB-Man_> Retained earnings leave equity if you pay a dividend, redeem shares, etc
12:57:47 <CDB-Man_> Retrospective accounting adjustments as well
13:08:41 <dtux> CDB-Man_: ty... would those literally be taken from the Retained Earnings account, or just some/any equity account?
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13:20:17 <fell> dtux: think of equity = opening blance + retained earnings[Year]
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13:23:30 <fell> If the entity is no person there can be -withdrawals like dividends, ... or +contributions
13:27:48 <CDB-Man_> Dividends are Dr retained earnings, CR cash
13:28:58 <CDB-Man_> Share dividends are Dr retained earnings, CR common shares
13:29:41 <dtux> got it, ty both!
13:29:52 <CDB-Man_> There's also contributed surplus in excess of stated value
13:30:11 <CDB-Man_> Dr cash, CR common shares, CR contributed surplus
13:30:26 <CDB-Man_> And a whole myriad of other exotic transactions involving equity
13:34:16 <CDB-Man_> Hmm, does replying to a bug email add my response to the ticket?
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13:49:41 <jralls_afk> CDB-Work, Alphavantage has historical quotes but our code only knows how to get the latest quote. I'd have to go digging to find out what would need to change.
13:56:59 <jralls_afk> Oh, you're not at work. CDB-Man_, I think the BZ email gateway is enabled. Try it, the worst that can happen is it will bounce.
13:57:35 <CDB-Man_> I flip between work and non work, given that we are all at home anyways
13:57:53 <CDB-Man_> Non work has the benefit of the bouncer
13:58:09 <jralls_afk> You live in a bar? ;-)
13:58:40 <CDB-Man_> Your reply makes sense, though I'm not certain that average cost is creating a correct view of net holdings after removal of dispositions
13:59:04 <CDB-Man_> So I intend to post an illustrative Excel file for Chris to consume
13:59:24 <CDB-Man_> Heh, I wish I had access to the liquor selection at a bar right about now
14:00:03 <CDB-Man_> And even if it was a correct view, we can still see it falls flat with multiple currency, as your simple example uploaded still shows
14:00:32 <CDB-Man_> Due to technically realizing a gain when you dispense USD to buy SPY
14:00:54 <jralls_afk> Right. But I wonder if that's more because the way multiple currency is handled than the fault of the average cost calculation.
14:01:07 <CDB-Man_> Indeed, or both, or neither
14:01:35 <CDB-Man_> In any case, when I finish with my illustrative example, hopefully that will help
14:01:51 <CDB-Man_> Along with semi GAAP 3
14:03:35 <jralls_afk> Recapping yesterday a bit, if the buy of SPY happens entirely between a USD account pair it's a bit much for the average cost function to know that there's a hidden transfer in and out of CAD.
14:04:27 <CDB-Man_> Indeed, and you would need a conscious year end realization transaction to clean it up as seen on the semi GAAP example
14:05:07 <CDB-Man_> When I finish example 3, it will hopefully be more illustrative, as I will include a spy purchase and sale, and also some P&L items, all with trading accounts
14:05:56 <CDB-Man_> Semi GAAP 4 will further layer on spy units and trading account for spy. Example 3 will stick to just trading for CAD and USD
14:06:21 <CDB-Man_> With spy recorded on a vanilla asset account
14:08:31 <CDB-Man_> Regarding reply via email, I realize my BZ handle has +GNUCash on the Gmail, and you can't actually reply with that handle, so even if it works, it won't show as me
14:09:01 <CDB-Man_> Presumably spell out the email without link to the username
14:09:05 <CDB-Man_> Oh well
14:09:32 <CDB-Man_> I'll just wait to the return to the laptop to reply on the web
14:10:25 <jralls_afk> You can log into BZ from more than one computer. I'm logged in now on my laptop, my desktop, and at least 2 VMs.
14:10:57 <CDB-Man_> It's not the multi session aspect
14:11:10 <CDB-Man_> But rather typing that password on the phone is annoying
14:12:02 <CDB-Man_> And typing in general on a phone
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14:25:30 <jralls_afk> Don't you have a password manager?
14:30:20 <CDB-Work> would rather not keep anything like that on a phone that is much more likely to be lost
14:30:20 <jralls_afk> I just tried creating two USD-only buy transactions starting in a CAD account so that the transaction currency would be CAD. It looks like it behaves as it should, at least on the account summary report. The only issue is that in the stock register the price and value are in CAD, and of course that's going to break automatic price retrieval.
14:31:04 <CDB-Work> i think the solution is more likely going to be to properly book a year end gains adjustment
14:33:03 <jralls_afk> Let's say "periodic" instead, but that's the user's job. The goal for GnuCash is for the TB report to show if that adjustment has been booked correctly.
14:39:46 <CDB-Work> https://bugs.gnucash.org/show_bug.cgi?id=797796 there we go
14:39:57 <CDB-Work> changed year-end references to instead sya period-end
14:40:39 <CDB-Work> also, from that nibble thread that chris linked , that you had brought up earlier at some point
14:40:49 <CDB-Work> i see in the chatter that they talk about commissions... being expensed
14:41:08 <CDB-Work> as in booked Dr to an expense account (on purchase), rather than into the asset account
14:41:32 <CDB-Work> if the existing formulas make some funky assumptions about this, that may also be an issue
14:42:06 <CDB-Work> i see it talks about splits containing a value (in CAD, USD, etc) but not an amount (as in an amount of SPY share units, for example)
14:42:56 <CDB-Work> and how these are factored in or not factored in... and i couldnt follow if it ended up being yes included in the totals, or no excluded from the totals, for either of the average cost or weighted average reports
14:44:58 <jralls_afk> The average cost and weighted average computations deal with splits, not whole transactions, so they can't see expensed commissions.
14:45:20 <CDB-Work> first of all, these should all be Dr to the stock account itselfsecondly, from a cost basis perspective they should be included on purchase as in increase in value without a unit amount. on sale, commissions reduce gross proceeds and do not affect cost basis
14:45:26 <CDB-Work> ... run on sentence
14:47:01 <jralls_afk> That's in the US and Canada. Apparently some countries don't allow commissions to be included in the basis nor deducted from the proceeds; they're separately expensed and may or may not be deductible.
14:47:33 <CDB-Work> yeah, it varies by jurisdiction, and sadly can also vary within jurisdiction as well
14:47:37 <CDB-Work> between tax vs accounting
14:48:21 <CDB-Work> the point is, do not automatically include or exclude, on a hard coded basis, anything that is a split without unit
14:50:04 <CDB-Work> re-stating the earlier run-on:
14:50:04 <CDB-Work> first of all, these should all be Dr to the stock account itself
14:50:04 <CDB-Work> secondly, from a cost basis perspective, depending on jurisdiction, they should be included on purchase as in increase in value without a unit amount
14:50:04 <CDB-Work> third, on sale, depending on jurisdiction, commissions reduce gross proceeds and do not affect cost basis
14:50:04 <CDB-Work> fourth, for weighted average, they should probably (?) also be included, as it is part of the total purchase cost, and therefore affects both the CAD/USD/currency fx rate (total DR value vs the cash CR), and also the weighted average value
14:55:24 <jralls_afk> Easily accomplished by just burying them in the stock buy and sell split, though that does reduce the visibility.
14:55:49 <CDB-Work> that also means the price entered does not match the transaction
14:56:01 <CDB-Work> ie if i were to compare the price to my trading confirmation, it would not match
14:57:32 <jralls_afk> No, but the total at the bottom would. That's the number that matters.
14:58:50 <CDB-Work> true, but if you don't track commissions separately, you can't do things like run the Advanced portfolio with commission differences (not that this is currently setup properly), or other types of analysis regarding commissions. though of course not everyone might be interested in that
15:01:38 <jralls_afk> Including me. Especially since most discount brokers don't even charge commissions, but when they did it was ~$10. On a $10K trade I'm not going to worry much about whether the commission is 8.95 from broker a and 9.95 from broker b.
15:03:25 <CDB-Work> indeed. it matters a lot though for traders whose average order size is $2,000 or less, where $10 would be 5%+ of the trade
15:03:41 <CDB-Work> or for people like me that want 100% accuracy
15:04:02 <CDB-Work> day traders and high frequency traders, it matters a lot as well
15:05:39 <jralls_afk> high freq traders don't pay commissions. Their computer talks directly to the market-maker or specialist computer and that party makes his money off the spread.
15:06:30 <jralls_afk> Which is probably negotiated to be really small for a high-freq trader since the specialist makes a pile on the volume.
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15:10:30 <CDB-Work> home trading retail HFTs pay some hefty commissions
15:10:49 <CDB-Work> I know a few friends that run their own at home scripts and make 100-200 trades a day
15:11:01 <CDB-Work> hook into the API from Interactive Brokers
15:12:17 <jralls_afk> That's insane. But no more than playing the slots, I guess. It's also not really HFT. HFT is hundreds of trades a second.
15:13:47 <jralls_afk> Do any of them use GnuCash? I guess their script could spit out a CSV for import at the end of each day.
15:15:48 <CDB-Work> they don't use GNC, and yes I agree not HFT in the context of the NYSE, but certainly HFT in the context of a typical retail investor
15:16:21 <CDB-Work> myself I am not a day trader
15:16:43 <CDB-Work> I do trade in options tho... and the GNUcash reporting of that has been quite the adventure
15:16:50 <CDB-Work> in the end, I take a manual approach to it
15:17:07 <CDB-Work> track in Excel, and post the results in gnucash
15:19:30 <jralls_afk> I see that Interactive Brokers commissions are .01/share, $1 minimum, .5% max for Canadians. Not zero, but not exactly hefty. Still enough to make arbitrage impractical.
15:20:11 <jralls_afk> Yeah, options are a PITA in GnuCash. I did covered calls for a while but after a couple of years decided that it wasn't making enough to be worth the effort.
15:23:26 <CDB-Work> I write bull put spreads and bear call spreads
15:23:35 <CDB-Work> along with buying long calls and puts
15:23:50 <CDB-Work> also write naked puts for premium + entry into a position
15:24:52 <jralls_afk> Sounds like a lot of work... and a lot of risk.
15:25:54 <CDB-Work> spreads are risk-capped
15:26:12 <CDB-Work> your short position's loss is limited by an offsetting long position
15:26:45 <CDB-Work> i.e. write/sell SPY PUT $300 strike, buy SPY PUT $290 strike
15:27:12 <CDB-Work> you are net credit the difference in premiums. should the stock fall below $290, you have a protective put
15:27:58 <CDB-Work> max loss is $10/share, less your net credit of writing the $300 option less premium paid for the protective $290 option
15:28:11 <CDB-Work> (that's a bull put spread example)
15:31:49 <jralls_afk> Yes, I know that spreads are hedged, but buying long and writing naked aren't unless you're 100% right about correlating the risks.
15:34:10 <CDB-Work> well, buying long is only risky if you actually take advantage of leverage
15:34:36 <CDB-Work> what I mean is, if instead of investing $10k in the underlying, you invest $10k in a long call, you are playing 100:1 leverage
15:35:08 <CDB-Work> but if instead, you use the option simply as a capital efficient way to expose yourself to $10k notional, ie only buy $100 of options, then your net risk isn't too far off
15:35:13 <CDB-Work> notwithstanding theta decay
15:35:30 <CDB-Work> for the naked put, I write them on something I intend to buy anyways
15:35:50 <CDB-Work> I effectively use them as a limit purchase order, with premium income as an added bonus
15:36:23 <CDB-Work> why set a buy limit for 100 shs and pay $10 commission, when I can write 1 put for the same limit price, and also get paid $1 per share insted of paying out
15:37:21 <CDB-Work> in other words, leads I win, tails they lose! if I get assigned, it means it was attractive enough to buy anyways. if I don't get assigned, well, i've pocketed a few hundred bucks in premium
15:39:53 <jralls_afk> Um, if you get assigned doesn't that mean that the price has fallen below what you promised to buy it for?
15:41:45 <CDB-Work> well, that's what would happen with a LIMIT purchase order
15:42:23 <jralls_afk> It could. I see the equivalence.
15:42:31 <CDB-Work> except the limit order triggers more or less immediately, whereas with an assignment, you may not be the first in line to get assigned
15:42:55 <CDB-Work> and even if you were, you still earned premium for your troubles, rather than pay commission for the privilege of buying
15:43:45 <jralls_afk> Other way around. When the limit order triggers you pay the bid when it executes, but the option binds you to pay the strike price regardless of what the bid is.
15:45:14 <CDB-Work> the premise/assumption is that the order will always be filled at the limit price -- you're not going to end up with an order fill anywhere below the limit
15:45:31 <CDB-Work> so equivalent to the option, where of course you are assigned at strike
15:46:20 <CDB-Work> or using an example, if the LIMIT was BUY SPY $300, i doubt your order would be filled by anything lower than $299.95
15:47:12 <CDB-Work> too many market makers in existence to have some scenario such as your order being filled substantially below LIMIT, ie $295
15:48:08 <CDB-Work> the net expense on the order is $10, the net credit on the option is my option premium, and the total i pay for the underlying SPY is the same in both scenarios
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15:51:30 <jralls_afk> Depends on a couple of variables, including whether that limit order actually goes to a NYSE specialist. If it does, then it goes in a buy queue and will be matched with the nearest offer on the sell queue. OTOH if your brokerage trades NYSE stocks through the NASDAQ system then the limit isn't transmitted, they wait until there's an offer below your limit price and execute with that market maker. If volatility is high the price might have dro
15:51:31 <jralls_afk> pped quite a bit in the 20-30 milliseconds needed for that to happen. Exploiting that is the HST game.
15:53:54 <jralls_afk> But SPY being an extremely high-volume EFT is likely to execute at exactly the limit. Too many market makers, too many buyers & sellers, and too much HST arbitrage.
15:55:11 <fell> jralls, if you are nat already there, I will apply BobIT's news change.
15:55:29 <fell> jralls_afk ^
15:56:06 <jralls_afk> fell, I'm actually about to reply in email proposing different wording.
15:56:30 <fell> OK, will wait
15:57:24 <fell> BTW, my editor says there are invalid chars like '&' in the text
15:57:51 <jralls_afk> fell, do you know how to update the Github release notice? They need to be kept in sync.
15:58:20 <fell> No, never did it. :-(
16:07:20 <jralls_afk> It's not hard. Go to the Github repo log in if you're not already, click the releases tab, find the one you want to change and click the Edit button at the top. When you're done go to the bottom and click the publish button.
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16:12:18 <fell> https://wiki.gnucash.org/wiki/Release_Process#GitHub #4
16:16:34 <jralls_afk> Yup.
16:17:36 <jralls_afk> For an edit, though, you'd just paste in or retype what you changed.
16:19:19 <jralls_afk> Now I need to go actually afk, I have some meat-space stuff I need to do.
16:19:59 <fell> OK
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19:20:54 <fell> 3.903 was not marked as Pre-release on GH. Fixed now.
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20:02:23 <shaggy> help
20:02:34 <shaggy> oops wrong window
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20:32:53 <dtux> are the debit/credit aliases (i.e. "deposits"/"withdrawals") the only difference between "bank" accounts and "asset" accounts?
20:47:35 <jralls_afk> dtux, For the most part. There may be some other special behavior hiding in some corner.
21:07:00 <dtux> jralls_afk: ty
21:22:09 <dtux> I've made household books where my girlfriend and I are essentially owners of a business that only loses money :p at the end of the year, we split the retained losses based on our salaries. i envision that as closing the books and transferring from (negative) Retained Earnings to our owner equity accounts. That leaves all equity split between our owners' equity and Opening Balances. is it
21:22:11 <dtux> a sensible thing to zero out Opening Balances by transferring it to our Owner's Equity? I ask because Opening Balances basically seems like "unallocated equity". am I thinking about that correctly?
21:24:37 <CDB-Work> i think your premise isnt correct
21:25:00 <CDB-Work> Share capital / opening equity is the initial investment. Dr Cash, Cr common shares
21:25:15 <CDB-Work> when you incur expenses, you Dr Expense, Cr Cash
21:25:27 <CDB-Work> at the end of the period, you close your income statement into retained earnings
21:25:40 <CDB-Work> Dr Retained Earnings, Cr Expenses
21:26:07 <CDB-Work> if you want to "allocate" the retained earnings, I would suggest instead that you simply have 2 retained earnings accounts
21:26:13 <CDB-Work> and close the expenses 1/2 and 1/2
21:26:44 <CDB-Work> Owner's equity... means all equity accounts. that includes share capital, retained earnings, etc
21:27:06 <CDB-Work> owner's equity is not a "typical account" as it simply is just another name for the overall equity section as a whole
21:27:25 <CDB-Work> opening balances are not "unallocated equity"
21:27:54 <CDB-Work> if anything, you could have 2 common share accounts or something, like His and Hers common shares
21:28:15 <CDB-Work> there's really no such concept as "opening equity" per se, rather, "opening" is a relative term
21:28:51 <CDB-Work> opening is simply "last period's ending balance", and nothing else. it's not a standalone account. its just the value of equity at the start of the year
21:29:08 <CDB-Work> with typically only retained earnings seeing any changes, since you close your income statement into it each year
21:29:23 <dtux> hmm, ok i'm using the wrong terminology then.... by "owner equity" accounts, i basically mean "owner contributions" (one for me, one for her).
21:31:41 <CDB-Work> so the functional equivalent of common shares / contributed capital
21:32:06 <CDB-Work> i would suggest 2 common share accounts, and 2 retained earning accounts
21:32:11 <CDB-Work> one for each of you
21:32:38 <CDB-Work> and a 3rd "unallocated retained earnings" account
21:32:49 <CDB-Work> you can close your income statement into the "unallocated retained earnings" account
21:33:10 <CDB-Work> then after doing that, reduce that account to zero, and split 2 ways between each of your own retained earnings
21:33:53 <CDB-Work> this way you maintain the original amounts that each person has put in (in each of your common share accounts), and cumulatively how much has been consumed over the years (in each of your retained earning accounts)
21:34:21 <CDB-Work> it would defeat the purpose of retained earnings... if you dont retain the earnings (or losses) in there
21:38:19 <dtux> aha! interesting... so i was essentially throwing away info by trying to treat retained earnings as a contribution "rebate"
21:39:00 <dtux> cool, ok, but i still don't understand why Opening Balances isn't "unallocated equity"? this is the first year (books start 2020-01-01). so ya, last period's balance is in Opening Balances, but there's no indication of whos money that is (e.g. there's $1000 in a checking account, $100 in Opening Balances, and say $500 her equity, and $400 my equity)
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21:43:37 <CDB-Work> i dont quite understand what you mean by "opening balances"
21:43:42 <CDB-Work> might be a terminology thing again
21:44:02 <CDB-Work> not sure where this $100 is coming from
21:44:08 <CDB-Work> _someone_ must have put it in at some time
21:45:16 <CDB-Work> if that $100 came from you in the first place, i would merge it into your share capital account, yes
21:45:29 <dtux> opening balance = the balance of an account on 2020-01-01... but yes! exactly, that's what I'm getting at. it was essentially our retained earnings from last period (but there are no books from last period :p so we might just make up a split and run with that)
21:45:58 <CDB-Work> let's say you have a $500 loss at the end of the year
21:46:04 <CDB-Work> since you spend $500
21:46:17 <CDB-Work> this sits in an "unallocated retained earnings" account
21:46:44 <CDB-Work> you would then proceed to split that between "his retained earnings", and "her retained earnings"
21:47:07 <CDB-Work> it's a bit misleading/incorrect, in terms of nomenclature/terminology, to call it "opening balances"
21:47:08 <dtux> "it was essentially our retained earnings" should probably be "it was essentially our left over contributions"
21:47:50 <CDB-Work> hmm, i think there's another incorrect premise here
21:48:04 <CDB-Work> let's say you start fresh right now
21:48:14 <CDB-Work> $ money anywhere
21:48:26 <CDB-Work> you proceed to put $500 into the checking account, and so does she
21:48:52 <CDB-Work> Dr checking $1000, Cr his share capital $500, Cr her share capital $500
21:49:20 <CDB-Work> then during the year, you spent only $900 of that money. So Dr Expenses $900, Cr Checking $900
21:49:37 <CDB-Work> so the ending balance, before closing, entries, are as follows
21:50:09 <CDB-Work> Dr Cash $100, Dr Expenses $900, Cr his share capital $(500), Cr her share capital $(500)
21:50:15 <CDB-Work> next, you close the books
21:50:31 <CDB-Work> Dr unallocated retained earnings $900, Cr expenses ($900)
21:50:38 <CDB-Work> great, your balance sheet now looks like this
21:50:53 <CDB-Work> Dr Cash $100, Dr Unallocated retained earnings $900, Cr his share capital $(500), Cr her share capital $(500)
21:51:13 <CDB-Work> next, you allocate your net P&L, in this case a $900 loss for the year, to everyone
21:51:34 <CDB-Work> Dr his retained earnings $450, Dr her retained earnings $450, Cr unallocated retained earnings $(900)
21:51:43 <CDB-Work> your balance sheet now looks like this:
21:52:12 <CDB-Work> Dr Cash $100, Dr his retained earnings $450, Dr her retained earnings $450, Cr his share capital $(500), Cr her share capital $(500)
21:52:45 <CDB-Work> overall, his total equity is Cr $(500) + Dr $450 = Cr ($50)
21:52:47 <CDB-Work> same with her
21:53:10 <CDB-Work> that's Cr $(50) + $(50) = Cr $(100) equity, against Dr $100 cash
21:53:17 <CDB-Work> and that is the end state of the balance sheet for the year
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21:55:04 <CDB-Work> what this all tells you at the end of the year is that: each person put in $500 (his/her share capital). each person has taken their share of the net loss, $450 each (his/her retained earnings)
21:55:18 <dtux> awesome :D that's exactly what i was picturing! (sidebar: would the "his retained earnings" account be considered a contra account of "his share capital"?)
21:55:35 <CDB-Work> not "technically" a contra
21:55:47 <CDB-Work> since retained earnings, as the name implies, is supposed to contain earnings
21:55:56 <CDB-Work> so the default balance is credit, for a profitable entity
21:56:19 <CDB-Work> but given that you are effectively doing this as a cost centre of sorts, i suppose you could informally call it a "contra"
21:56:32 <CDB-Work> and as a result, more appropriately name it "retained losses"
21:59:42 <dtux> got it, cool :) ty... so then how does the following year start? there are no Opening Balances because you just carry forward the equity accounts?
22:00:49 <CDB-Work> correct, you do not need to do anything to equity... that's what closing P&L into retained earnings is for
22:01:02 <CDB-Work> you do not need to do anything +else to equity **
22:01:36 <CDB-Work> you carry forward, indefinitely, his/her share capital and his/her retained earnings accounts
22:06:08 <dtux> out of curiosity, if there really were retained earnings instead of losses, would anything change?
22:09:08 <CDB-Work> nope, mechanically its all the same
22:09:23 <CDB-Work> the retained balance would flip from Dr to Cr is all
22:10:25 <dtux> makes sense
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22:16:58 <dtux> thanks again! that's all very helpful
22:25:20 <CDB-Work> you're welcome, glad that it helped
22:25:30 <CDB-Work> hopefully not clear as mud :)
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23:06:47 <CDB-Work> jralls_afk , chris , it looks like I won't be accomplishing today Semi-GAAP 3, Semi-GAAP 4, or the CDB cost basis calculator. I have a day off this Friday, so likely it will be done then, unless an opportunity presents itself earlier for me to work on it
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