What should I do when the reality of money present and the amounts in GnuCash differ?

Question

I started doing double entry bookkeeping with GnuCash to keep track of my personal finances, down to the penny. I think I am familiar with most of the basics of double entry bookkeeping, I took a course in it many years ago and read the GnuCash manuals, but still some things are unclear to me. What should I do when the reality of money present and the amounts in GnuCash differ? In detail:

I have as assets my back account and "cash in wallet", and many expense accounts for food, gas, water, electricity, clothes, transport/commuting and so on. At the end of each day I enter what money came in, if any, and what I spent, mostly from "cash in wallet". But for example today, I had three penny more in my wallet than I should have. How am I supposed to reflect this in my bookkeeping? Obviously I made a mistake somewhere, but for the life of me I can't track it down. Now three penny might not matter at all, but I need to enter this somehow. As income from the Opening Balances Equity? Or, there is an account called "Imbalance" of type "Bank" which I got as default? And what should I do if I some day I find that I have less in my wallet than GnuCash says I have?

Answer 1

The ”standard“ thing to do, after double checking your numbers to see if you can find or remember the actual reason for the discrepancy, is to use an Income account for ”extra“ money and an expense account for ”lost“ money. The Imbalance account is meant as a temporary placeholder for monies not yet put into their right account.

I personally use Income:Other Income for such found money, and Expenses:Adjustment for lost money.

Answer 2

Some may argue that as long as we're not talking about the kind of found money that is picked up off the street, one should use Expenses:Adjustments for all unexplained amounts below some reasonable threshold.

Reasonable threshold is whatever you would like it to be: somewhere south of $9 billion for a household, I should think. Anything larger than this your personal standard must be found and accounted for. I remember my first job was working for a guy who told me that every penny must be accounted for. That's the way he ran his business. I've tried to abide that rule since then.

Anyway, back to my point. A find of $.03 as you have would debit (increase) your cash account and credit (decrease) your expense:adjustment account. Now your cash count is correct and you have accounted for the discrepancy under an account that reflects exactly what it is: an adjustment.

This way, when you have a nickel missing later on (and you're pretty sure it didn't fall out of your wallet), you do the opposite. If you close books, then you've only got a $.02 negative balance in expenses:adjustments. You know that's all about adjustments only (i.e. that $50 bill you found on the sidewalk appears under income:[something]). Or the time you lost your wallet over the side of the bridge one day is under expenses:write-off (or you pick a name). Those are different from sub-dollar miscounting errors or the like.

Over time, you'll find there are fewer and fewer adjustments necessary at you get better at the game.