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| | | | |
| | = Ongoing work = | | = Ongoing work = |
| − | * Accounts, Chapter 3 Updates
| |
| | | | |
| − | GnuCash Tutorial and Concepts Guide | + | == GnuCash Tutorial and Concepts Guide == |
| | | | |
| | This document title duplicates the title of the official GnuCash software documentation that currently exists [1] as part of the information available to current and new users of the GnuCash double-entry accounting freeware product. | | This document title duplicates the title of the official GnuCash software documentation that currently exists [1] as part of the information available to current and new users of the GnuCash double-entry accounting freeware product. |
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| | Once integrated into the guide, the content here will be removed and a stub left indicating the date of integration into the official Guide. | | Once integrated into the guide, the content here will be removed and a stub left indicating the date of integration into the official Guide. |
| | | | |
| − | The content below is intended to be added to Chapter 3 of the "Guide".
| + | === Chapter: Other Assets === |
| | | | |
| − | == ENHANCEMENT 1: == Expansion of "Other Assets" in asset descriptions in Guide Chapter 3.
| + | Content has been added into the official GnuCash repository as of revision [http://svn.gnucash.org/trac/changeset/19618 19618]. |
| − | | |
| − | <sect2 id="accts-gc-bsa3">
| |
| − | <title>Expanding Other Assets</title>
| |
| − |
| |
| − | <para>This section introduces current and long-term or fixed assets. It
| |
| − | then is followed in other sections by descriptions of many instances of these
| |
| − | assets and the way to record them in your chart of accounts.</para>
| |
| − |
| |
| − | <orderedlist>
| |
| − | <listitem>
| |
| − | <para><guilabel>Current Assets</guilabel> are those activities whose
| |
| − | normal expected life would be one year or less. They also are those
| |
| − | assets that are easy, or relatively easy, to convert to cash, which is
| |
| − | the most liquid of all assets. Such activities could be tracking
| |
| − | reimburseable expenses, travel advances, short-term loans to a friend
| |
| − | or family member, prepaid expenses, annual insurance premium amortiza
| |
| − | tion, and so on. The individual entity could have many other kinds
| |
| − | of short term activities that reflect what it is doing. [See below
| |
| − | for descriptions and comments about these items.]</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Long-term (Fixed) Assets</guilabel> are those
| |
| − | activities whose normal expected life exceeds 1 or more years. They
| |
| − | are fixed (not in the sense that they no longer are broken) because
| |
| − | they are not easily converted to liquid or near-liquid assets. This
| |
| − | grouping covers both tangible and intangible assets. Examples of
| |
| − | tangible assets are land, buildings, and vehicles (cars, trucks,
| |
| − | construction equipment, factory presses, etc.) Intangible assets
| |
| − | include such things as patents, copy rights, goodwill, etc. Because
| |
| − | the lives of some of these assets show wear and tear and deterioration
| |
| − | in value over time, businesses and individuals can allow for that
| |
| − | diminution in value by calculating depreciation on such assets. For
| |
| − | example, land normally does not depreciate, but buildings do, as do
| |
| − | equipment and vehicles. [See below for further informaton about all
| |
| − | these items.]
| |
| − | </para>
| |
| − | </listitem>
| |
| − | </orderedlist>
| |
| − | </sect2>
| |
| − |
| |
| − | <sect2 id="accts-gc-bsa4">
| |
| − | <title>CURRENT ASSETS</title>
| |
| − | <para>This section explains short-term receivables, reimburseable expenses,
| |
| − | travel advances, prepaid premiums, prepaid rent, suspense or wash accounts.
| |
| − | </para>
| |
| − |
| |
| − | <orderedlist>
| |
| − | <listitem>
| |
| − | <para><guilabel>Short-term Receivables</guilabel> This kind of account
| |
| − | is useful to reflect an agreement made with someone you trust.
| |
| − | Suppose you lent someone $500 and he agreed to repay you $50 a month.
| |
| − | If he paid on time, the loan you made would be paid off within a year,
| |
| − | which is why it is classified as a short-term receivable. So you
| |
| − | could record that loan initially in this account tree: Other Asset>
| |
| − | Current Asset>LoanToJoe. At the time you gave him the money your
| |
| − | entry is debit (increase) LoanToJoe $500 and credit (decrease) Bank
| |
| − | $500. Each time you receive Joe's payment you record $50 debit
| |
| − | (increase) to Bank and credit (decrease) LoanToJoe.</para>
| |
| − |
| |
| − | <para>[Note: don't become confused by the use of the word "Loan".
| |
| − | "Loan-To" is the tipoff that you really have a receivable, that is,
| |
| − | you will receive from Joe, the money you previously loaned. Until he
| |
| − | actually pays the money owed you, you reflect his debt in your books
| |
| − | by an account describing your expectation -- you will receive the
| |
| − | money owed you, hence the word "receivable".]</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Reimburseable Expenses</guilabel> This kind of activity
| |
| − | is one in which you spend your own money on behalf of someone else
| |
| − | (your employer, perhaps) and later you receive repayment of what you
| |
| − | spent. The case might be a business trip. The employer has a policy
| |
| − | of covering (paying for) all expenses that he authorizes. After the
| |
| − | trip is over, the employee submits a report listing dates and amounts
| |
| − | spent with receipts for all the expenditures. The employer reviews
| |
| − | the report and pays for all items that he considers belongs to his
| |
| − | business. [Normally, employees know in advance what the employer will
| |
| − | reimburse, so only those items are recorded as a reimburseable expense
| |
| − | on the employee's books.]</para>
| |
| − |
| |
| − | <para>Because a business trip can involve different kinds of expenditures
| |
| − | (air travel, logdging, transportation at the destination, etc.),
| |
| − | different kinds of expenditures would be recorded in the one account
| |
| − | as long as the expenditures all related to the same trip. In other
| |
| − | words, if a second trip is made before the first is fully settled, a
| |
| − | second account for a diffent event could be set up. It would make
| |
| − | sense to do this, if it would help to keep separate all the details of
| |
| − | one trip from those of another. It is up to the person making the
| |
| − | trip to decide how much trouble it would be to put separate trips in
| |
| − | separate accounts or to put them all in the same account.</para>
| |
| − |
| |
| − | <para>Recording the expenditures on the trip would be much the same.
| |
| − | That is, if you paid by cash you would debit (increase) the reimburse
| |
| − | able expense account for the money paid in cash and credit (decrease)
| |
| − | the Bank account for the payment made. If the traveler paid by credit
| |
| − | card, the debit side would be the same as just described, but the
| |
| − | credit (here, an increase) would be to the account for the credit card
| |
| − | company.</para>
| |
| − |
| |
| − | <para>When you received your reimbursement, then the journal entry to
| |
| − | record receipt of the funds from the employer would be: debit (in
| |
| − | crease) Bank for the check amount; credit (decrease) the reimburseable
| |
| − | expense account for the check amount. If it turns out that the
| |
| − | reimburseable expense account is not zero balance, then it means that
| |
| − | there is a difference between you and the employer in handling the expense,
| |
| − | which difference needs to be investigated. If the balance is a debit
| |
| − | (a positive balance), your account has some money that was not reimbursed.
| |
| − | If the balance is a credit (a negative balance), you were paid for more
| |
| − | than what you recorded as due you. In both of those situations you should
| |
| − | reconcile the difference between what you recorded and what was paid.
| |
| − | That effort should disclose exactly what is causing the discrepancy.
| |
| − | You may need to contact the employer's bookkeeper to know what happened
| |
| − | on that side of the transaction.</para>
| |
| − |
| |
| − | <para>In the event the employer refused to reimburse you for an
| |
| − | expenditure, that effectively makes it your expense. In that case, you
| |
| − | would make this entry: debit (increase) your own Expense (appropriate
| |
| − | ly named) and credit (decrease) the Reimburseable Expense account.
| |
| − | That entry should result in a zero balance in the Reimburseable
| |
| − | Expense account. If not, reconcile until you identify the difference.</para>
| |
| − |
| |
| − | <para>[Sometimes there are small differences that don't match an individual
| |
| − | entry. In those cases divide the amount by 2 or by 9. If the unresolved
| |
| − | amount is divisible by two, it suggests that both you and the employer
| |
| − | entered the item in the same manner: both as debits or both as credits.
| |
| − | If it is divisible by 9, then likely one of you transposed adjoining
| |
| − | numbers; e.g., one entered 69 and the other entered 96.]</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Travel Advances</guilabel> These are very similar to
| |
| − | Reimbursable Expenses. The difference is that someone gives you his
| |
| − | money first; you spend it, and then you give a report accounting for
| |
| − | what you spent it on. The report is supported by invoices establishing
| |
| − | who, what, where, when, and how much for each expenditure. In the
| |
| − | Reimburseable Expense case, you spent your money first and later
| |
| − | recovered it.</para>
| |
| − |
| |
| − | <para>In this situation you record on your books this entry: debit
| |
| − | (increase) Bank for the travel advance amount (say, $500) received;
| |
| − | credit (increase) short-term liability>Travel Advance ($500). This is
| |
| − | a liability because you are not gifted with the money, but only loaned
| |
| − | it for the purpose of having funds to spend when doint the employer's
| |
| − | business.</para>
| |
| − |
| |
| − | <para>Frequently, the way these monetary arrangements work is that at
| |
| − | the beginning of the salesman's employment, he receives the advance
| |
| − | and monthy (or more frequently) turns in a report about who, what,
| |
| − | where, when, and how much he spent. The money in the report is paid
| |
| − | to him in the amount the report asks for, assuming all was approved.
| |
| − | </para>
| |
| − |
| |
| − | <para>During the period after receiving the advance and before filing
| |
| − | a request for reimbursement report, he can record his expenditures into
| |
| − | the advance account, the liability account. If he does that, the balance
| |
| − | in the account will show how much of the advance he has not yet spent
| |
| − | (assuming the Travel Advance balance is a credit). If no mistakes have
| |
| − | been made and all expenses are approved, then the sum of the unspent
| |
| − | account balance and the reimbursing check amount will equal the original
| |
| − | travel advance amount.</para>
| |
| − |
| |
| − | <para>That he records the travel expenses to this advance account (and
| |
| − | not to his own expense accounts) makes sense, because he is spending
| |
| − | his employer's money for the employer's authorized expenses. He is
| |
| − | not spending his own money for his own books to record as his expenses.
| |
| − | </para>
| |
| − |
| |
| − | <para>When he receives the report reimbursement (say, $350), he debits
| |
| − | (increases) Bank, and credits (increases) Travel Advance, assuming
| |
| − | that previously he had been recording expenditures to the travel
| |
| − | advance account. Tracking activity in this manner causes the account
| |
| − | always to show the amount that he owes the employer.</para>
| |
| − |
| |
| − | <para>See the Reimburseable Expense discussion above for what to do if
| |
| − | the employer does not accept an item the employee put on the travel
| |
| − | advance reimbursement request report. The difference resolution effort
| |
| − | is essentially the same for both types of accounts.</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Prepaid Premiums or Prepaid Rent</guilabel> Some types of
| |
| − | expenses are usually billed as semi-annual or annual amounts. For
| |
| − | example, the insurance industry will bill home insurance annually,
| |
| − | while car insurance premiums can be annual or semi-annual. For those
| |
| − | that pay an amount that covers several months or a full year, the
| |
| − | proper accounting treatment is to reflect in each accounting period
| |
| − | the amount that expresses the benefit applying to that period.</para>
| |
| − |
| |
| − | <para>In the case of someone who pays a full-year's insurance premium
| |
| − | at the beginning of the insurance period, the entry to record this is
| |
| − | debit (increase) Prepaid Insurance Premium for say, $1200, and credit
| |
| − | (decrease) Bank for $1200.</para>
| |
| − |
| |
| − | <para>Then a monthly recurring journal entry (scheduled transaction)
| |
| − | is created that debits (increases) Insurance Expense $100 and credits
| |
| − | (decreases) Prepaid Insurance Premium $100. This technique spreads
| |
| − | the cost over the periods that receive the insurance coverage benefit.
| |
| − | Businesses following generally accepted accounting practices would
| |
| − | normally use this technique, especially if they had to present
| |
| − | financial statements to banks or other lenders. Whether idividuals do
| |
| − | depends on the person and how concerned they are to match cost with
| |
| − | benefit across time periods. Another factor influencing use of this
| |
| − | technique would be the number of such situations the person encounters.
| |
| − | It is relatively easy to remember 1 or two, but more difficult if
| |
| − | having to manage 10 to 20. You would set up as many or as few as proved
| |
| − | useful and important to you.</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Suspense or Wash Accounts</guilabel> The purpose of
| |
| − | these accounts is to provide a device to track "change of mind" situations.
| |
| − | Say, in the grocery store you see canned vegetables on sale, so you buy
| |
| − | 6 cans. When you come home and are putting things in the cupboard you
| |
| − | discover you already had 12 cans. You decide to return the 6 you just
| |
| − | bought. Some persons in this situation would charge (increase) the whole
| |
| − | bill to Grocery Expense; and when they returned the cans, they would
| |
| − | credit (decrease) Grocery Expense. That is one way of handling that.
| |
| − | It works fine if that happens once in awhile.</para>
| |
| − |
| |
| − | <para>When there are several persons shopping and at several vendors,
| |
| − | there can be a case where there are several returns happening at once
| |
| − | and in overlapping time frames. In that case the Wash Account is
| |
| − | charged (increased) at time of changing the mind, and either Bank
| |
| − | (decreased) or Credit Card (increased) is credited. When the return
| |
| − | occurs, the reverse happens: Bank is debited (increased) or Credit Card
| |
| − | is debited (decreased) for the cash value of the returned items and the
| |
| − | Wash Account is credited (decreased) in the same ammount.</para>
| |
| − |
| |
| − | <para>If the wash account has a non-zero balance, scanning the debit
| |
| − | and credit entries in the account will show the non-matched items.
| |
| − | That is, debits not matched by offsetting credits indicate items
| |
| − | intended to be returned but not yet. The reverse (credits not matched
| |
| − | by offsetting debits) indicates that returns were made but the original
| |
| − | charge was not recorded in the Wash Account. These differences can be
| |
| − | cleared up by returning unreturned items or recording charges (debits)
| |
| − | for items already returned. The mechanics of doing that likely will be
| |
| − | finding the original expense account the item was charged to and making
| |
| − | an entry like: debit Wash Account, credit original expense.</para>
| |
| − | </listitem>
| |
| − | </orderedlist>
| |
| − | </sect2>
| |
| − |
| |
| − | <sect2 id="accts-gc-bsa5">
| |
| − | <title>SHORT OR LONG-TERM ASSETS</title>
| |
| − | <para>This section explains why some types of assets may be short or
| |
| − | long term and gives an example.
| |
| − | </para>
| |
| − |
| |
| − | <orderedlist>
| |
| − | <listitem>
| |
| − | <para>An example is deposits (e.g., utility, rental, security). If the
| |
| − | deposit agreement contains a provision to recover the deposit at the
| |
| − | end of a year, the treatment could be that of a short-term asset.
| |
| − | However, when the agreement is that the deposit holder returns the
| |
| − | funds only upon successful inspection at the end of the relationship,
| |
| − | then at the start of the relationship or agreement, the person paying
| |
| − | the deposit has to decide whether to write it off as a current expense
| |
| − | or to track it for eventual recovery at the end of the agreement
| |
| − | (usually, moving to a new location).</para>
| |
| − |
| |
| − | <para>Whichever decision is made, the accounting treatment is to debit
| |
| − | (increase) expense [assuming the write-off decison] or debit (increase)
| |
| − | Deposts Receivable [assuming the intent is to recover the deposit in
| |
| − | the future] and credit (decrease) Bank for the amount of the deposit.
| |
| − | </para>
| |
| − | </listitem>
| |
| − | </orderedlist>
| |
| − | </sect2>
| |
| − |
| |
| − | <sect2 id="accts-gc-bsa6">
| |
| − | <title>LONG-TERM (FIXED) ASSETS</title>
| |
| − | <para>This section illustrates long-term assets by a discussion of land,
| |
| − | buildings, leasehold improvements, intangibles, vehicles and other
| |
| − | equipment.</para>
| |
| − |
| |
| − | <orderedlist>
| |
| − | <listitem>
| |
| − | <para><guilabel>Land</guilabel> is not a wasting asset. That is, it
| |
| − | does not get used up over time. For that reason, it usually is recorded
| |
| − | at cost at the time of purchase. Appreciation in its value over decades
| |
| − | is not recorded and is not recognized in any way on the books of the owner.
| |
| − | It is only after land has been sold that sale price and purchase cost are
| |
| − | compared to calculate gain or loss on sale.</para>
| |
| − |
| |
| − | <para>Land is frequently sold/purchased in combination with structures
| |
| − | upon it. That means that the cost has to become separated from the
| |
| − | cost of structures on it. Land valuation is usually part of the trans-
| |
| − | fer of ownership process and its value is shown on the purchase documents
| |
| − | separately from that of the structures on it.</para>
| |
| − |
| |
| − | <para>Land values shown on purchase documents frequently arise from the
| |
| − | process of value determination managed by assessors whose job it is
| |
| − | to assign values to land for tax purposes. Local and regional areas of
| |
| − | a state or province use the values determined by assessors in their tax
| |
| − | formulas, which provide revenues for local and regional governing
| |
| − | authorities to finance their required community services.</para>
| |
| − |
| |
| − | <para>Should land be acquired in a situation not subject to a history of
| |
| − | land valuation by a formal valuation system, then the purchaser can appeal
| |
| − | to real estate agents and an examination of recent sale transactions for
| |
| − | information that would allow calculating a reasonable amount to express
| |
| − | the value of the land.</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Buildings</guilabel> are the man-made "caves" in which
| |
| − | much of life's human interaction occurs. These structures are wasting
| |
| − | assets, because in their use they or their components gradually wear.
| |
| − | Over time they begin to lose some of their function and they can suffer
| |
| − | damage due to the elements or human action.</para>
| |
| − |
| |
| − | <para>Accepted accounting practice is to record the cost of the building
| |
| − | determined at time of ownership transfer (purchase) or at conclusion of all
| |
| − | costs of construction. Because buildings are frequently used for decades,
| |
| − | and due to the need to be able to calculate gain or loss on sale,
| |
| − | accounting practice preserves the original cost by not recording declines
| |
| − | in value in the account containing the original purchase or construction
| |
| − | cost.</para>
| |
| − |
| |
| − | <para>Instead, the depreciation technique is used to show [in the
| |
| − | balance sheet] the structure's net book value [original cost reduced by
| |
| − | accumulated depreciation]. Depreciation is a separate topic treated
| |
| − | elsewhere in this Guide.</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Leasehold Improvements</guilabel> Where a business does
| |
| − | not own the building where it does business, and instead has a long-term
| |
| − | lease, it is not uncommon for the business tenant to make improvements to
| |
| − | the premises so that the structure obtains both function and appearance
| |
| − | that enhances conducting its business activities.</para>
| |
| − |
| |
| − | <para>In these cases, the expenditures that the business incurs are recorded
| |
| − | in a Leasehold Improvements account: increase (debit) Leasehold Improvements,
| |
| − | decrease (credit) Bank or increase (credit) a suitable liability account
| |
| − | [which could be a liability to a contractor or a bank or a credit card,
| |
| − | etc.].</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Vehicles or Equipment</guilabel> of all kinds usually
| |
| − | last for several years, but their useful lives are much shorter than
| |
| − | that of assets that have little movement in their functioning. Because
| |
| − | they do wear out over time, common accounting practice in business is
| |
| − | to record depreciation using life spans and depreciation methods
| |
| − | appropriate to the nature and use of the asset. Frequently, the life
| |
| − | and depreciation methods chosen are influenced by what is permitted per
| |
| − | tax regulations for the kind of asset being depreciated.</para>
| |
| − |
| |
| − | <para>While depreciation usually is used by businesses, individuals can
| |
| − | do so as well depending on being recognized as able by taxing authorities;
| |
| − | or if their personal wealth is so large that it is necessary to employ
| |
| − | accountants to track and manage their holdings to take advantage of tax
| |
| − | benefits permitted by law.</para>
| |
| − | </listitem>
| |
| − |
| |
| − | <listitem>
| |
| − | <para><guilabel>Intangibles</guilabel> The mechanics of accounting (debiting
| |
| − | and crediting appropriate accounts) for these assets are relatively simple,
| |
| − | much the same as for any of the above assets. Where the difficulty lies
| |
| − | is in their valuation, which is an advanced topic and not something that
| |
| − | individual persons and small businesses would likely encounter. For that
| |
| − | reason further discussion of items such as patents, copyrights, goodwill,
| |
| − | etc. are left for an advanced accounting discussion. [You can request
| |
| − | such a discussion by contacting the Gnucash developers list
| |
| − | (gnucash-devel@gnucash.org).]
| |
| − | </para>
| |
| − | </listitem>
| |
| − | </orderedlist>
| |
| − | </sect2>
| |
| | | | |
| | = Remaining work = | | = Remaining work = |
This page is just a temporary page to keep track of the progress of the concept guide, as well as what needs to be done with it.
Please feel free to add to it, with various thoughts and comments.
Especially in things that needs to be clearer, or items that are missing etc.
We can use this wiki page to discuss what should be in the guide, and which examples.
Later on, we can use the gnucash-devel list to send out the raw text for quick reviews
Please co-ordinate and inform of your intentions on gnucash-devel as well as on this wiki.
The following items have missing text in the existing guide, or just need more work
This document title duplicates the title of the official GnuCash software documentation that currently exists [1] as part of the information available to current and new users of the GnuCash double-entry accounting freeware product.
However, the official document as it exists currently covers features only through version 2.2.[2] The current stable version is 2.2.9 [2], and that is soon to be updated and replaced by the pending version 2.4.
Because the introduction of new features has exceeded the pace at which the documentation has been able to keep current, this page is intended to be a repository for new feature descriptions and instructions how-to-use those features. The intent is to provide easy access for gnucash users to review the proposed documentation with the end result of stamping it approved or identifying shortcomings that need update and correction.
Once that process has resulted in the content reaching a stable point, that portion of the new documentation will be moved into the official GnuCash Tutorial and Concepts Guide.
Since the official Guide is organized by chapters, all entries on this page will reference the place in the current official documentation that is intended as its ultimate destination.
Once integrated into the guide, the content here will be removed and a stub left indicating the date of integration into the official Guide.
