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Linas Vepstas 2000-09-29 23:33:24 +00:00
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doc/sgml/C/xacc-incomeexpense.sgml
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@ -130,65 +130,55 @@ section deals with the more basic recording of incomes and expenses.
values, and <EMPHASIS>credits</EMPHASIS> are represented by negative values,
the income/expense accounts do a slightly non-intuitive thing
and you see incomes as <EMPHASIS>negative</EMPHASIS> values. That <EMPHASIS> appears</EMPHASIS> contrary to intuition, but is nonetheless
necessary in order for the <LINK LINKEND="IDENTITY"> double-entry bookkeeping identity to hold true.</LINK>
necessary in order for the
<LINK LINKEND="IDENTITY">double-entry bookkeeping identity to hold true.</LINK>
</PARA>
<PARA>Another way in which income and expense accounts are special
is that their account totals do not directly appear on a
<PARA>Income and expense accounts are also special, in
that their account totals do not directly appear on a
balance sheet. A balance sheet shows "Net Worth": the sum of
all assets minus all liabilities.
</PARA>
<PARA>Income and expenses are neither assets nor liabilities, and
Income and expenses are neither assets nor liabilities, and
so do not appear on the balance sheet. What appears on the
balance sheet is their effects on <EMPHASIS>equity.</EMPHASIS>
</PARA>
<PARA>There is a separate report, a "Profit and Loss" (P&amp;L)
report, to analyze income and expenses. The total profit (or
<PARA>Another report, the "Profit and Loss" (P&amp;L)
report, analyzes income and expense. The total profit (or
loss) is calculated as total income less total expenses. In a
nicely symmetrical fashion, since assets and liabilities are
neither income or expenses, <EMPHASIS>they</EMPHASIS> correspondingly do
not appear on a P&amp;L statement.
</PARA>
<PARA>Even though these accounts may be somewhat "special", you do
<PARA>While these accounts may be somewhat "special", you do
not need to do anything particularly special to use income and
expense accounts. GnuCash handles the values automatically, so
that if you record properly the effects of the transactions on
your bank account or credit card, the income/expense side of
the transaction should also be handled correctly.
</PARA>
<PARA>The time when things get "peculiar," and when you need to
more deeply understand this, is when amounts are transferred
between income/expense accounts. (The <EMPHASIS>causes</EMPHASIS> for such
transfers tend to be somewhat peculiar, so it's pretty fair for
this to be a pretty odd situation.)
</PARA>
<PARA>The words "Income" and "Expense" are beguilingly simple;
everyone <EMPHASIS>thinks</EMPHASIS> they know what they mean.
<EMPHASIS>The money I get is income, the money I spend is
expense</EMPHASIS>, right? Yes, but only in a very basic
sense. This may be enough when doing personal accounting, but
for a business, things get more complicated.
Income and expenses may be recognized as having occurred at a
the transaction should also be correctly handled.
</PARA>
<PARA>
Things only get "peculiar" when amounts are transferred
between income and expense accounts. If you feel you need
to make such a transfer, then you will need to learn the
more sophisticated concepts behind "accounts payable"
and "accounts receivable". Such transfers typically
occur in businesses, when income and expenses may occur at a
moment that is different from the moment when cash actually moved
into or out of the business's bank accounts.
</PARA>
<PARA>For instance, companies usually recognize income
<EMPHASIS>when the sale occurs.</EMPHASIS> For example,
that might mean that you recognize a $10,000 sale
<EMPHASIS>when the sale occurs.</EMPHASIS>
That might mean that you recognize a $10,000 sale
<EMPHASIS>at the moment you and the customer
shake hands on the deal.</EMPHASIS>
Since the money hasn't actually come in, the sale has to be posted
in another way. You must <EMPHASIS>accrue</EMPHASIS> a sale
at the time of the handshake. To make the transaction balance,
you add the $10,000 sale to <EMPHASIS>Accounts
Receivable</EMPHASIS>,
rather than adding something in to cash.
Receivable</EMPHASIS>, rather than adding something in to cash.
</PARA>
<PARA>
<EMPHASIS>Insider Knowledge:</EMPHASIS> When a sale is recognized
@ -199,7 +189,7 @@ section deals with the more basic recording of incomes and expenses.
</PARA>
<PARA>
(The documentiation should state that
for more info, click to the a/r/ and a/p page).
for more info, click to the a/r and a/p page).
</PARA>
</SECT1>
@ -209,14 +199,11 @@ for more info, click to the a/r/ and a/p page).
"New Account" dialogue window, and then be sure to transfer
income/expenses to it as you record paychecks, interest,
etc.
</PARA>
<PARA>You will doubtless wish to create quite a number of income
and expense accounts; it may be worth looking at the <LINK LINKEND="XACC-SAMPLECHART">Sample Chart of Accounts</LINK> for
You will doubtless wish to create quite a number of income
and expense accounts; it may be worth looking at the
<LINK LINKEND="XACC-SAMPLECHART">Sample Chart of Accounts</LINK> for
ideas.
</PARA>
<PARA>This partitioning of incomes and expenses is likely to prove
This partitioning of incomes and expenses is likely to prove
particularly useful for North Americans when <EMPHASIS>income tax
time</EMPHASIS> rolls around.