Am I correctly categorizing things wr/t the rules of double entry accounting?

Question

I'm trying to bring some organization to my personal finances. I'm looking at tools like GnuCash, but I'd like to really understand how they work, and after reading bits and pieces about double entry accounting I'm still confused on a few points.

Let's say I have a series of transactions that looks something like this:

Date	Note	Amount	Debit	Credit
1/1/2021	Opening balance	1000	Bank:Savings	Equity:Opening balance
1/1/2021	Opening balance	1000	Bank:Checking	Equity:Opening balance
1/2/2021	Lunch	10	Food:Eating out	Cards:Visa
1/15/2021	Paycheck	2000	Bank:Checking	Income:Paycheck
1/20/2021	Cash	100	Cash	Bank:Checking

That gives me account balances that look like:

Account	Type	Balance
Equity:Opening balance	Capital	2000.00
Bank:Checking	Asset	2900.00
Bank:Savings	Asset	1000.00
Cash	Asset	100.00
Income:Paycheck	Revenue	2000.00
Food:Eating out	Expense	10.00
Cards:Visa	Liability	10.00

Assuming I've categorized things correctly there, I can plug those values into assets = liabilities + equity (or assets = liabilities + capital + revenues – expenses) and get:

(2900 + 1000 + 100) = (10 + 2000 + 2000 - 10)

Or:

4000 = 4000

So that all seems to work, but is it correct?

Answer 1

That's entirely correct!

I use GNUcash for my personal finance and would never ever use anything else than double-entry accounting.

About the only complaint of GNUcash is that its currency handling is a bit tricky: it required some trial and error to figure out how to do it for foreign stocks (I use it so that I create an EUR-based account "USD in EUR" under "Stocks", then a USD-based account "USD" under "USD in EUR", and then accounts under "USD" for the individual stocks that are not currency accounts but stock accounts), and it generates "imbalance" on stock purchases made using foreign currencies. I still haven't understood why the "imbalance" happens but its usually only few cents per transaction.

Once you start to use GNUcash more, you have to figure out some strategy to categorize every item you have as an "Asset" or "Expense". My current strategy is that I categorize everything that has a non-trivial cost (for example extension cords have a trivial cost) and that are likely to last at least few years (for example many clothes don't last more than a year) as assets, so I have a lot of asset accounts for different items I own, and everything else like extension cords and many clothes as direct expense at the time I buy them.

If some item is expected to last less than a decade and/or is quite expensive and/or depreciates rapidly due to prices of new items reducing quickly (for example computers), I also set up a monthly automatic depreciation rule to it, so its value goes to zero and the asset is gradually converted to an expense. For those items that are expected to last very long, and are not very expensive, and prices of new similar items don't reduce rapidly (for example many tools fit all these categories), I mark it as expense at the moment it breaks or at the moment I realize I won't need it anymore.

Answer 2

Yes, that looks correct!

You could make a balance sheet for yourself as well:

Assets                           Liab
Cash: $   100                    Visa: $ 10
Ck:   $ 2,900
Sv:   $ 1,000                    Equity: 
                                 Opening Bal: $ 2,000
                                 Net income:  $ 1,990

Total Assets: $ 4,000            Total Liab & Eq: $ 4,000