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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, values, and <EMPHASIS>credits</EMPHASIS> are represented by negative values,
the income/expense accounts do a slightly non-intuitive thing 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 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>
<PARA>Another way in which income and expense accounts are special <PARA>Income and expense accounts are also special, in
is that their account totals do not directly appear on a that their account totals do not directly appear on a
balance sheet. A balance sheet shows "Net Worth": the sum of balance sheet. A balance sheet shows "Net Worth": the sum of
all assets minus all liabilities. all assets minus all liabilities.
Income and expenses are neither assets nor liabilities, and
</PARA>
<PARA>Income and expenses are neither assets nor liabilities, and
so do not appear on the balance sheet. What appears on the so do not appear on the balance sheet. What appears on the
balance sheet is their effects on <EMPHASIS>equity.</EMPHASIS> balance sheet is their effects on <EMPHASIS>equity.</EMPHASIS>
</PARA> </PARA>
<PARA>There is a separate report, a "Profit and Loss" (P&amp;L) <PARA>Another report, the "Profit and Loss" (P&amp;L)
report, to analyze income and expenses. The total profit (or report, analyzes income and expense. The total profit (or
loss) is calculated as total income less total expenses. In a loss) is calculated as total income less total expenses. In a
nicely symmetrical fashion, since assets and liabilities are nicely symmetrical fashion, since assets and liabilities are
neither income or expenses, <EMPHASIS>they</EMPHASIS> correspondingly do neither income or expenses, <EMPHASIS>they</EMPHASIS> correspondingly do
not appear on a P&amp;L statement. not appear on a P&amp;L statement.
</PARA> </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 not need to do anything particularly special to use income and
expense accounts. GnuCash handles the values automatically, so expense accounts. GnuCash handles the values automatically, so
that if you record properly the effects of the transactions on that if you record properly the effects of the transactions on
your bank account or credit card, the income/expense side of your bank account or credit card, the income/expense side of
the transaction should also be handled correctly. the transaction should also be correctly handled.
</PARA>
</PARA> <PARA>
<PARA>The time when things get "peculiar," and when you need to Things only get "peculiar" when amounts are transferred
more deeply understand this, is when amounts are transferred between income and expense accounts. If you feel you need
between income/expense accounts. (The <EMPHASIS>causes</EMPHASIS> for such to make such a transfer, then you will need to learn the
transfers tend to be somewhat peculiar, so it's pretty fair for more sophisticated concepts behind "accounts payable"
this to be a pretty odd situation.) and "accounts receivable". Such transfers typically
occur in businesses, when income and expenses may occur at a
</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
moment that is different from the moment when cash actually moved moment that is different from the moment when cash actually moved
into or out of the business's bank accounts. into or out of the business's bank accounts.
</PARA> </PARA>
<PARA>For instance, companies usually recognize income <PARA>For instance, companies usually recognize income
<EMPHASIS>when the sale occurs.</EMPHASIS> For example, <EMPHASIS>when the sale occurs.</EMPHASIS>
that might mean that you recognize a $10,000 sale That might mean that you recognize a $10,000 sale
<EMPHASIS>at the moment you and the customer <EMPHASIS>at the moment you and the customer
shake hands on the deal.</EMPHASIS> shake hands on the deal.</EMPHASIS>
Since the money hasn't actually come in, the sale has to be posted Since the money hasn't actually come in, the sale has to be posted
in another way. You must <EMPHASIS>accrue</EMPHASIS> a sale in another way. You must <EMPHASIS>accrue</EMPHASIS> a sale
at the time of the handshake. To make the transaction balance, at the time of the handshake. To make the transaction balance,
you add the $10,000 sale to <EMPHASIS>Accounts you add the $10,000 sale to <EMPHASIS>Accounts
Receivable</EMPHASIS>, Receivable</EMPHASIS>, rather than adding something in to cash.
rather than adding something in to cash.
</PARA> </PARA>
<PARA> <PARA>
<EMPHASIS>Insider Knowledge:</EMPHASIS> When a sale is recognized <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>
<PARA> <PARA>
(The documentiation should state that (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> </PARA>
</SECT1> </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 "New Account" dialogue window, and then be sure to transfer
income/expenses to it as you record paychecks, interest, income/expenses to it as you record paychecks, interest,
etc. etc.
You will doubtless wish to create quite a number of income
</PARA> and expense accounts; it may be worth looking at the
<PARA>You will doubtless wish to create quite a number of income <LINK LINKEND="XACC-SAMPLECHART">Sample Chart of Accounts</LINK> for
and expense accounts; it may be worth looking at the <LINK LINKEND="XACC-SAMPLECHART">Sample Chart of Accounts</LINK> for
ideas. ideas.
This partitioning of incomes and expenses is likely to prove
</PARA>
<PARA>This partitioning of incomes and expenses is likely to prove
particularly useful for North Americans when <EMPHASIS>income tax particularly useful for North Americans when <EMPHASIS>income tax
time</EMPHASIS> rolls around. time</EMPHASIS> rolls around.