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explanation ofr expense accounts

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Linas Vepstas 1997-11-27 03:22:11 +00:00
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<!DOCTYPE HTML PUBLIC "-//IETF//DTD HTML//EN">
<html>
<head>
<title>Using Expense/Income Accounts</title>
</head>
<body>
<h2>What is an Income/Expense Account?</h2>
The words "Income" and "Expense" are beguilingly simple; everyone
knows what they mean. Don't let this fool you: they have a
special meaning when applied to double-entry accounting.
<p>
To properly record income and expenses in a double entry system,
two special accounts must be created: one of type "Income" and one
of type "Expense". Income such salary, wages, bank interest and
stock dividends are then recorded as transfers from an income
account to a bank (or generally, asset) account. Similarly,
expenses are recorded as transfers from a credit card account
(or generally, a liability account).
<p>
Why are accounts of type "Income" and "Expense" considered
special? The answer lies in the nature of double-entry.
With a double-entry transaction, one account is always credited,
and another account is always debited. When salary is deposited
in a bank account, the bank account is credited, and the
income account is debited. In order to make income appear
positive (as it is), and expenses look negative, the meaning
of "debit" and "credit" is reversed for income and expense
accounts. This makes them special.
<p>
Another way in which income and expense accounts are special
is that thier account totals do not appear on a balance
sheet. A balance sheet shows "Net Worth": the sum of all
assets minus all liabilities. Since income and expenses are
neither assets nor liabiliites, they do not appear on the
balance sheet. There is a different kind of report, a
"Profit and Loss" (P&L) report, that shows income and
expenses. The total profit (or loss) is the total income
minus total expenses. Since assets and liabilities are neither
income or expenses, they do not appear on a P&L statement.
<p>
Even though the accounts may be "special", you do not need
to do anything "special"
to use income and expense accounts. Everything is handled
automatically, as long as you remember to transfer income
and expenses between income/expense accounts and ordinary
bank/asset/credit-card/liability accounts.
<h2>Using Income/Expense Accounts</h2>
To use an income/expense account, simply create one from the
"New Account" dialogue window, and then be sure to transfer
income/expenses to it as you record paychecks, interest, etc.
<p>
If you have a complex account arrangement, you may want to
create multiple income/expense accounts. One can be used to
record salary, and only salary, another to record only bank
interest, and a third only to record stock dividends. This
paritioning is particularly useful when tax-time rolls around.
</body>
</html>

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Docs/xacc-main.html
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For help on a specific topic:
<ul>
<li><a href="xacc-about.html">About X-Accountant</a>
<li><a href="xacc-gpl.html" name="SEC001">License</a>
<li><a href="xacc-gpl.html">License</a>
<li><a href="xacc-accwin.html">Account Types</a>
<li><a href="xacc-accwin.html">Creating a new account</a>
<li><a href="xacc-double.html">Using Double Entry</a>
<li><a href="xacc-expense.html">Using Income/Expense Accounts</a>
<hr>
</body>