Equity type accounts

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Equity type accounts

gnucash
Can someone explain the equity type accounts?  The only account in there
by default is "opening balances".  While this might accurately reflect my
equity when I first built my current gnucash file and propigated the
various accounts with opening balances, it really isn't accurate at all
anymore.

For example, I recently sold my truck and bought a van.  So when I built
an asset account to reflect the value of my truck, there was an opening
balance that is reflected in equity.  Now, I decreased that account to 0,
by making a decrease to the Expense:Adjustement account.  Then I opened a
new account for the van.  Equity noew reflects both the value of my truck
and my van, due to the opening balances.

What am I missing?  Should I have some other accounts of type equity?  Am
I making things confusing by having seperate asset accounts for each of my
vehicles?

Thanks for the help.
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Re: Equity type accounts

David Harrison-2
On 6/24/05, [hidden email] <[hidden email]> wrote:
> Can someone explain the equity type accounts?  

There are two basic types of equity accounts that most people have to
worry about.

The first is share equity.  This is the amount that you paid the
company for your shares.  If your business is not incorporated, or you
are using gnucash for personal finances, you won't have this type of
account.

The second is retained earnings.  This account accumulates your
earnings and losses from prior years.  For example, if you had a net
income of $1,000 in 2002, and a net loss of $50 in 2003, your 2004
opening retained earnings would be $950 (1,000.00 - 50.00)

>The only account in there
> by default is "opening balances".  

If you started from day one, the "openind balances" account would be
zero.  Since you didn't start from day one, the opening balances
should represent the retained earnings from day one to the day that
you started keeping track.

>While this might accurately reflect my
> equity when I first built my current gnucash file and propigated the
> various accounts with opening balances, it really isn't accurate at all
> anymore.
>
> For example, I recently sold my truck and bought a van.  So when I built
> an asset account to reflect the value of my truck, there was an opening
> balance that is reflected in equity.

When you purchase a vehicle, you normally credit (decrease) the bank
account and debit (increase) the asset account for your vehicle.  This
should cause no change in your equity.


> Now, I decreased that account to 0,
> by making a decrease to the Expense:Adjustement account.

When you dispose of the truck (i'll assume for no proceeds, and assume
that you have not booked any amortization or depreciation), you credit
(decrease) the asset and debit (increase) expenses (loss on disposal
of assets).  This would cause equity to decrease by the cost of the
truck.

> Then I opened a
> new account for the van.  Equity noew reflects both the value of my truck
> and my van, due to the opening balances.

Again, the purchase of the van should have no effect on equity.  It
should be a credit (decrease) to the bank account, and a debit
(increase) to the asset account.
>
> What am I missing?  Should I have some other accounts of type equity? Am
> I making things confusing by having seperate asset accounts for each of my
> vehicles?

Having seperate accounts for each of the vehicles shouldn't make any
difference at all.

Hope this helps.

--
David Harrison, BAccS, CGA

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Re: Equity type accounts

Andrew Sackville-West


David Harrison wrote:
> On 6/24/05, [hidden email] <[hidden email]> wrote:

> << snip>>

>>For example, I recently sold my truck and bought a van.  So when I built
>>an asset account to reflect the value of my truck, there was an opening
>>balance that is reflected in equity.
>
>
> When you purchase a vehicle, you normally credit (decrease) the bank
> account and debit (increase) the asset account for your vehicle.  This
> should cause no change in your equity.
>

the reason this causes no change in your equity is simple. If you have
$1000 in your checking account, and you use that $1000 to purchase a
vehicle valued at $1000 then you are essentially transfer the $ from
your checking account to the vehicle. You still have assets that total
$1000, but its in a different "place"
>
>
>>Now, I decreased that account to 0,
>>by making a decrease to the Expense:Adjustement account.

that account shouldn't necessarily be "adjusted" to 0. If you sold the
truck, then the money moves from the truck to your checking account, (or
cash account or whatever). If the $ recieved for the truck were less
than the book value (amount of asset recorded for the truck), then you
still have some $ in that asset, but you no longer own the truck. This
money gets "adjusted"  in one of two ways I know. 1: if you're a
business essentially as depreciation expense, 2: if its personal then
your "adjustment" is just as valid as any other probably, though its
really a capital loss (I think, IANAA) but its not tax deductible (USA),
its just the cost to you of owning the thing. (on reading further, I
like "disposal of assets" below. sure glad there are some accountants
hanging out here!)


>
>
> When you dispose of the truck (i'll assume for no proceeds, and assume
> that you have not booked any amortization or depreciation), you credit
> (decrease) the asset and debit (increase) expenses (loss on disposal
> of assets).  This would cause equity to decrease by the cost of the
> truck.
>

since you sold the truck, equity would decrease by the amount of
"disposal of assets" or the difference between the $ recieved for the
truck and the book value of the truck.


A
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