7

I've begun trying to learn some money managing techniques, but when fiddling with gnucash I've found that in double-entry accounting, where all money has to come from somewhere, the income accounts are always negative. For example:

Accounts
--------
Assets:
---- Checking Account
-------- Deposit $30 (from Income:Gifts)
Income:
---- Gifts
-------- Obtain $30 (where does this come from?)
-------- Deposit $30 (to Assets:Checking Account)

Somewhere along the line, I have to record obtaining the $30, but without a way to record that money, I'm stuck with either an imbalanced account being automatically created to put the money into Gifts, or don't record the income and just record the deposit, giving me a negative balance for Income.

I imagined it working more like this:

  • Income:Gifts = $30 from Grandma or whatever
  • Assets:Checking = $30 from Income:Gifts
  • Expenses:Food = -$5 from Assets:Checking
  • Assets:Checking now = $25

But without a source for the original income, that's not possible. So how do you record money that comes from a source not in your possession?

9

The thing is that you only need one entry, not two. That's the beauty of double entry - since you have double entry system, every transaction will create two entries. So you don't need to create two transactions, you only need one.

So you got a $30 gift. You credit Income:Gifts and on the other side Assets:Checking.

Your general ledger entry (Menu->Tools->General Ledger) will look like this:

Description         Account          Funds In    Funds Out
----------------------------------------------------------
Gift from Grandma
                    Income:Gifts                 $30.00
                    Assets:Checking   $30.00

You end up with balances:

Income:Gifts    $30
Assets:Checking $30

Which represent your total income and your current balance.

Similarly with expense for food:

GL will look like this:

Description         Account          Funds In    Funds Out
----------------------------------------------------------
Gift from Grandma
                    Expense:Food      $5.00
                    Assets:Checking              $5.00

Balances:

 Income:Gifts    $30
 Assets:Checking $25
 Expense:Food    $5

And you keep track of totals properly.

  • 1
    Thank you so much! I'm not sure if it's the fact that it's 5 am or if the documentation is just really unclear but I was thoroughly confused. – user2941616 Jun 3 '14 at 9:05
3

In double-entry bookkeeping, no transaction is ever negative. You only deal in positive numbers. We "simulate" negative numbers by calling numbers debits and credits, where one is the negative of the other. Only a balance can be negative.

In this case, Income is a credit account. That means that things that increase your balance are credits and things that reduce your balance are debits. So a gift from grandma is a credit. It's a positive number, and you write it in the credit column. You pretty much never subtract from Income except to correct a mistake.

Assets, like a checking account, are debit accounts. Increases are debits and decreases are credits. You routinely have both debits and credits on a checking account, i.e. you put money in and you take money out.

Every transaction affects (at least) two accounts: one with a debit and one with a credit.

So in this case, the gift from grandma credits income and debits checking. Buying food credits checking and debits expenses.

  • "You pretty much never subtract from Income except to correct a mistake." It can be appropriate to enter a refund as negative income. – Wildcard Jul 29 '18 at 8:52
  • What I meant was, you wouldn't post a negative number. You'd post a debit as a positive number. Yes, this reduces the balance. – Jay Jul 30 '18 at 14:05

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