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183 lines
7.1 KiB
HTML
183 lines
7.1 KiB
HTML
<!DOCTYPE html PUBLIC "-//W3C//DTD HTML 3.2//EN">
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<html>
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<head>
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<meta name="generator" content="HTML Tidy, see www.w3.org">
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<title></title>
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<link rel="stylesheet" title="normal" type="text/css" href=
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"gnucash.css">
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<title>Understanding Double Entry Accounting</title>
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</head>
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<body>
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<h1>Why Use Double Entry Accounting?</h1>
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<p>If you are a novice to accounting, you <em>need</em> double
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entry accounting to help you keep your accounts straight. It
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will keep you from creating an unverifiable mess. It will make
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your life easier, and it will make this software easier to
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understand and to use.</p>
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<p>And if you are an experienced accountant, you would likely
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feel <em>ill</em> at the thought of life without it.</p>
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<h1>What is Double Entry Accounting?</h1>
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<p>Double entry bookkeeping is an accounting methodology
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introduced in the 13th century to to make sure that each
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accounts and indeed <em>each transaction</em> is properly
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balanced.</p>
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<p>When these are all required to balance, the likelihood of
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data-entry errors is greatly reduced. For large, complex sets
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of accounts with many transactions, it is distressingly easy to
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make errors that may go undetected for a long time, and be
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appallingly difficult to track down, even when double-entry
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bookkeeping is used.</p>
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<p>A double-entry transaction is a transaction that contains
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entries for two (or more) accounts that balance against one
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another. One account is <em>debited</em> by an amount exactly
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equal to what the other is <em>credited.</em> By ensuring that
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each transaction balances, a balanced set of accounts is
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guaranteed. This doesn't prevent you from having errors, but
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certainly eliminates the large class of <b>I forgot to enter
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that part of the transaction</b> errors.</p>
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<p>Double-entry may be introduced in a more intuitive way via
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the notion of a transfer from one bank account to another,
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where an amount is taken out of one bank account and deposited
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in the other. This is effectively the "rule" of double entry
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accounting; if you add something in to one account, you <em>
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have</em> to have another component to that transaction to
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balance it.</p>
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<p><b>Not-quite-an-aside:</b> If you look at your bank
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statements, they are typically written up from the <b>
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bank's</b> perspective, which is exactly <em>opposite</em> to
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yours. For instance, when you put money in, establishing a
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deposit, this establishes a <b>DEBT</b> on their part.</p>
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As a result, "newcomers to accounting," who only see the terms
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"Debit" and "Credit" on statements from their bank seem to get
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fairly confused about this.
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<p>The perhaps less obvious extension is the notion that double
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entry can be used to represent income and expenses as well as
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bank transfers. See the <a href="xacc-expense.html">
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Income/Expense</a> page for a more detailed discussion of
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that.</p>
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<p><a name="IDENTITY">In a traditional system that records
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debits and credits separately, the identity that all
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transactions are required to satisfy is that <tt>Total of
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Debits = Total of Credits.</tt></a></p>
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<p>The fact that the identity requires merely that the <em>
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total</em> balances means that it is a little bit misleading to
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call this <em>double</em>-entry bookkeeping; it would be
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somewhat more accurate to call it <em>multiple-</em>entry
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bookkeeping. Unfortunately, there's 700 years of history of use
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of the term, which sufficiently discourages changing it. (To
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think some newcomers to UNIX think that it has some crufty old
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bits of oddness. Hah! We've got UNIX beat by the better part of
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a millennium!)</p>
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<p>GnuCash treats "Debits" as positive values, and "Credits" as
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negative values, so that this identity simplifies to <tt>
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value<sub>1</sub> + value<sub>2</sub> + value<sub>3</sub> + ...
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= 0</tt></p>
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<h1>Using Double Entry</h1>
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<h2>Creating Transactions</h2>
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<p>To create a double-entry transaction:</p>
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<ul>
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<li>
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Click on a box in the column marked <tt>Transfer From</tt>
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on the left-hand side of the register.
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<p>A menu will drop down, listing all of the accounts from
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which a transfer may be made.</p>
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</li>
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<li>
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Select one.
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<p>When you record the transaction, the double-entry will
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automatically be made, and the transaction automatically
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appear in all windows showing the transferred-from and the
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transferred-to accounts.</p>
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</li>
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</ul>
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<h2>Changing Transactions</h2>
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<p>To <em>change</em> a double-entry transaction:</p>
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<p>Simply edit the transaction in any window in which it
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appears.</p>
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<p>Any changes made will be automatically reflected in both
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accounts and all windows displaying the transaction.</p>
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<p>Similarly, when a double-entry transaction is deleted, the
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"splits" will be deleted from both accounts, and balances will
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automatically be recalculated for <em>both</em> accounts.</p>
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<p>To change the transfer account, simply select a new account
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from the pull-down menu. When you record the transaction, it
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will automatically be selected from the old account, and
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inserted into the new account.</p>
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<h1>Scrubbing Clean</h1>
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<p>GnuCash may be configured to be strict about double entry,
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or you may configure it to be "loose."</p>
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<p>In "loose" mode, you can create <em>unbalanced
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transactions,</em> that is, transactions where the "splits"
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don't balance to zero. That discards the validation that comes
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from using the more strict double entry scheme, which is
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probably not a really wise move. In effect:</p>
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<ul>
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<li>If you aren't sure of what you're doing, you likely do
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not want to discard the validation of <b>double entry,</b> as
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this helps you keep your accounts balanced even when you're
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not perfectly clear on this.</li>
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<li>If you are an <em>accounting whiz,</em> you'll know that
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it's <em>really important</em> to keep things in balance, and
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again will prefer <b>double entry.</b></li>
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</ul>
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<p>But if you decide to "outsmart the system," and have a
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number of unbalanced transactions, you'll probably want to
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clean this up at some point. To clean up these unbalanced
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transactions, you <b>Scrub</b> the account clean by choosing
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<tt>Scrub</tt> from the window menu.</p>
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<p>The process will examine each transaction; if the
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transaction doesn't balance, a split entry will be created and
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placed into an account named <b>Unbalanced.</b> You may then
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review these splits and move them to their proper accounts.</p>
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<p><b>Warning: Functionality Changing...</b></p>
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<p>At present, control over whether GnuCash is "strict" or
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"loose" is established at compile time, and defaults to <b>
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strict.</b></p>
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<p>In the future, there will be no option of "looseness."</p>
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<hr>
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<p>Return to <a href="xacc-main.html">Main Documentation
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Page.</a></p>
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</body>
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</html>
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