1

I use a double-entry system (ledger) to manage my personal finances. I have set it up so that the only entries in my Equity are my opening balances.

If I sell an asset (e.g. laptop) whose value I hadn't accounted for previously, the money goes into my bank account (assets), but where should the money come from?

Something like this?

Description      Account                Funds In    Funds Out
-------------------------------------------------------------
Sale of laptop
                 Income:Sale of assets              $500.00
                 Assets:Bank account    $500.00

Or this?

Description      Account                Funds In    Funds Out
-------------------------------------------------------------
Sale of laptop
                 Equity:Sale of assets              $500.00
                 Assets:Bank account    $500.00

Am I approaching this the right way, or am I completely off track?

Bonus question: what's a better name for that account than Sale of assets?

Thanks!

  • 4
    What benefit do you expect to get out of using double-entry accounting? I ask because you have the columns labeled as 'funds in' and 'funds out', rather than debits and credits. This implies to me that you are not familiar with accounting terminology, so I'm curious as to what has led you to try it? The reason I ask is because in my opinion, as an accountant, there is minimal value to tracking your personal finances using this methodology. It is overly complex without much tangible benefit, for this type of situation. – Grade 'Eh' Bacon Jul 4 '17 at 13:19
  • 3
    Query where did you learn double-entry book keeping ? If you are reading a book, keep on reading. You are jumping the gun as of now. – DumbCoder Jul 4 '17 at 13:37
  • Sorry for the sloppy tables and sub-par terminology, I just copy-pasted it from this question to save typing. I'm using double-entry accounting because I am primarily tracking my business, but also my personal finances. I haven't set up a separate bank account for the business yet, so I keep track of everything with personal and business sub-accounts. – jeevcat Jul 4 '17 at 18:29
  • Your laptop is an asset, not equity. When you sell it, you increase cash and reduce the asset by its cost. Any difference would go in an income/loss account, which would affect equity once you close you books (moving the value from Net Income to Retained Earnings) – D Stanley Jul 5 '17 at 13:57
  • 4
    Possible duplicate of How to double-entry bookkeep money incoming from sold items – Peter Cooper Jr. Oct 16 '17 at 19:19
3

There are basically two approaches, based on how detailed you want to be in your own personal accounting:

  1. As you say, just transfer from an Income account. (Calling it "Sale of Assets" sounds fine to me.) Especially if you're not tracking it for some tax purpose, and just want looking at your Checking account (or whatever) to make some semblance sense, it will work just fine.
  2. The more complex approach is that you're realizing "Wow, I had some assets all along that I'd forgotten to track!" So, create an Asset account for "Laptop", and create an "Opening Balance" transfer from Equity to it, just like when you opened all your other accounts. For extra complexity, you may even want to backdate it to the date you're starting all your other opening balances, and maybe even track the difference between its basis and current value so you know the capital gain involved. (Going to that degree is probably only worthwhile if there's a chance that your capital gain is positive and thus taxable in your jurisdiction.) And then, now that you have an appropriate Asset and have tracked that you did in fact have that value, treat the sale as a transfer to your Bank Account.

Obviously the more like a business or like "real" accounting you want to be, the more complex you can make it, but in general I find that the purpose of personal accounting is (1) to track what I own, and (2) to ensure I have documented anything I need to for tax purposes, and as long as you're meeting those goals any reasonable approach is workable.

  • Yes, these are the two options I was trying to convey in my question. Thanks for the clarification and thanks for the detailed answer. I think I'll go with the simpler income option for now, but now I know the process for more complex business situations. – jeevcat Jul 5 '17 at 20:11
0

It's better to use the accounting equation concept:

Asset + Expenses = Capital + Liabilities + Income

If you purchase an asset: Suppose you purchased a laptop of $ 500, then its journal will be:

Purchase of Laptop....Dr         500 (Asset acquired)

     To Bank or Cash A/C             500 (Funds Out)

If you sell the same Laptop for $ 500, then its entry will be:

Bank or Cash A/C... Dr          500 (Funds in)
   To Sell of Laptop A/C           500 (Asset Sold out)
  • I think this answer has minimal value without explaining the Dr/Cr concept to the OP; this highlights (a) that the question may be too broad; and (b) what the OP is asking for may be unnecessary for good personal financial recordkeeping. Further, this does not answer the OP's actual question, which is how to record your 2nd transaction there, if you don't already have an asset already recorded for the laptop. You could choose to show how to record this as a 'gain', or how to record the introduction of the laptop in the first place as a Dr to Assets & Cr to Equity. – Grade 'Eh' Bacon Jul 4 '17 at 17:09
  • @Rohan. Thanks for the response. I am using the accounting equation (with Equity in lieu of Capital). Also, my question was what to do if I am unable to create the first transaction in your example. – jeevcat Jul 4 '17 at 18:46
0

Selling an asset is not earning income. You are basically moving value from one asset (the laptop) to another (your bank account.) So you reduce the equity that is "value of all my electronics" and you increase the asset that is your bank account.

In your case, you never entered the laptop in some category called "value of all my electronics" so you don't have that to make a double-entry against. The temptation is high to call it income as a result. Depending on the reason for all this double-entry book-keeping for personal finances, that may be fine. Or, you can create a category for balancing and use that, and realize the (negative) value of that account doesn't mean much.

  • 1
    I think you understand why I asked this question: I hadn't previously created a "value of all my electronics" equity account. What is the difference between creating an Opening Balance transaction which debits an Equity account, and creating a Laptop transaction in the same manner? Aren't both a way of recording equity that existing before I began bookkeeping? – jeevcat Jul 4 '17 at 18:42
  • 1
    @jeevcat "value of all my electronics" should be an asset account, not an equity account. That may be the heart of your problem. – D Stanley Jul 5 '17 at 14:24

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.