bobbyratliff

Creating structures that automate things people do every day.

Posts Tagged ‘accounting’

More GnuCash tips

I’m continuing to learn more about GnuCash in order to use it more effectively.

Make the display a little less cluttered by removing the horizontal and vertical lines from the register view. Edit -> Preferences dialog, then the Register tab. Note the two checkboxes, Draw horizontal lines between rows, and Draw vertical lines between columns. Before:

with lines

After:

without lines

Transaction filtering

I’ve found this to be helpful when looking at a reimbursements account. I mark a reimbursement as cleared once I’ve received the money back from the company. Sometimes the reimbursements get cleared out of order because I have submitted them out of order. Then, when I submit my next reimbursement, I use transaction filtering to narrow down the display to just the un-submitted reimbursements.

How to filter transactions: View -> Filter By… Click the Status tab.

My beef with the summary bar

The summary bar appears above the status bar and includes information pertaining to the currently opened tab. On the main accounts page, it shows the grand total of all assets as well as the profit. The profit is calculated by subtracting YTD expenses from YTD income. Therefore, it gives a rough idea of how much money I’ve saved so far this year. However, I find this idea a bit misleading.

For example, it is August 2013. Lets say I will save $100 a month this year, by spending less than I earn each month. This is a monthly profit of $100, so at the end of the year, my profit would show $1200. However, let’s say that since April of 2009, I’ve been saving up to buy a car, and it will cost $5000. At the beginning of 2013, I had $4200 in my accumulation, and now in August, my accumulation fund has reached maturity. I buy the car for $5000. Suddenly the summary bar reports a profit of $-4200, whereas before it said $800. This is a little disconcerting.

In summary (pun intended) the summary bar’s profit calculation is not helpful for personal finance since it doesn’t help you know if you’ve stayed on budget. However, for other Tabs or Pages, such as stock accounts, the summary bar provides useful information, such as the current value of the shares held. So I wish there was an option to disable the profit calculation from showing, but keep the other useful information visible.

Advanced money tracking with GnuCash

In my last post, I wrote a review of GnuCash. Today I’d like to explain some things I’ve learned to track using this financial software.

Reconciling

When I receive a new statement, I first save the PDF to my hard drive. (Hard drive encryption mitigates some of the risk of having all those statements sitting on your hard drive.) Then I reconcile that particular account.

Adjustment account

The adjustment account is an expense account used to keep cash assets accurate. Cash transactions are hard to track, and sometimes my amount of cash on hand does not match the amount recorded in GnuCash. I periodically record this difference as an “Adjustment” expense.

Tax withholding

In the US, taxes get withheld from paychecks throughout the year. This tax withholding can be tracked in GnuCash. Each time you receive a pay check (or pay stub), create a split transaction. The gross wage is entered as income. This income will be split between several assets: some income goes to the tax withholding asset, and some income goes to the checking account (net pay).

When it comes time to pay taxes, the money in your tax withholding asset is used to pay your taxes. The taxes actually paid are an expense. There are two scenarios, and each can be covered by a split transaction:

  1. Your taxes are less than the amount withheld.
  2. Your taxes are more than the amount withheld.

Here’s an example for situation number 1:

tax-withholding

Multiple currencies

Peter Selinger has an excellent discussion of some of the general challenges of multiple currency accounting. The crux of the matter is: Under File-> Properties, go to the Accounts tab, and check “Use Trading Accounts.” This feature doesn’t have a lot of documentation, but it gets the job done.

Reimbursements

When you spend money on a reimbursable expense, you aren’t really spending your own money. You are eventually going to receive that money back, so to you it is an asset. (Not a very liquid asset.) See GnuCash Guide: Chapter 16.

Salary advance

When you receive a salary advance, you receive money you technically haven’t earned yet. This is a liability. You enter the salary advance as a credit to the checking account and a debit to the liability account. When future paychecks come that are reduced (because the company is using them to pay down your salary advance), you can also track this. Enter the paycheck as income, but instead of crediting your checking account, credit the salary advance liability.

Reimbursement advance

A reimbursement advance is money your company gives you to spend for a specific purpose. If you don’t spend it for that purpose, they will eventually need to make you pay that money, e.g. by lowering later paychecks. When you receive a reimbursement advance, you debit that liability and credit your checking account. You continue to record reimbursements by debiting one of your liquid assets and crediting the reimbursement asset. When you submit a reimbursement to clear the advance, you debit the reimbursement asset and credit the reimbursement liability instead of your checking account.

GnuCash: A Review

GnuCash is a tool for tracking your money that works on Windows, Linux, and Mac OS X. GnuCash has powerful features for tracking assets, liabilities, income, and expenses. Using GnuCash has helped me learn some more advanced accounting terms and concepts, such as double-entry accounting. I’m not going to explain those concepts here, as the GnuCash guide does a good job. Be sure to read both the help and the guide.

I plan to use GnuCash for many years to come. As my finances become more complicated, and my assets grow, by God’s grace, I need a tool to help me track my money. I’ve heard of other people tracking their money on spreadsheets, and I realize that if I did that, I would spend too much time trying to tweak the formulas. GnuCash has excellent data entry and reporting, saving me from writing these myself.

I consider GnuCash a compelling alternative to online finance tools, such as Mint, because it keeps my data secure on my personal computer. Of course, this raises its own risks, since there are many ways an adversary could access your data on your own computer. Still, I am more comfortable with these risks then the unknown risks of trusting the cloud.

Advantages of GnuCash

  • Using it will teach accounting concepts.
  • Register entry has powerful autocomplete and keyboard shortcuts.
  • Importing account transactions in QFX format automatically determines whether the data needs to be used to add a new transaction, or to reconcile an existing transaction.
  • The reconciliation window allows you to keep your accounts in sync with bank statements.
  • Included reports give a good overview of income and expenses.

Areas to improve

  • I wish color coding affected the accounts in the account list view, not just the color of their tab. Since I’ve heavily customized my accounts, the account list view can get longer than one screenful. Color coding would help me quickly spot a particular account.

Things still to learn

  • How to use the price editor for multiple currencies in an effective way.

Features I haven’t used

  • Budgets.
  • Recurring transactions. If I enter it manually, it reminds me that I am spending that money.