Using GNUcash and Double-Entry Accounting

Posted by Ginkgo100 | 9:00 AM

Since I took over responsibility for bill paying, I used the old-fashioned pencil-and-paper method. Tracking our expenses and income was new to me, and I felt more comfortable and "in control" when I held the pencil in my hand. I knew the feeling was an illusion — there's nothing about a pencil, as opposed to a computer program, that gives more control — but it was nice to have.

A couple of months ago, I decided the time had come to upgrade and start using financial software. I had already consigned the pen and checkbook to the past, replacing them with online bill paying from my bank's website.

The software I settled on was GNUcash. I was attracted by the fact that it is open-source — and free.

GNUcash uses double-entry accounting, also called two-column accounting, which is different from the simple category system used by other financial applications. Each entry in an account has a corresponding and opposite entry in another account. For example, if I paid a utility bill in the amount of $100.00 from my main checking account, it would be deducted from that account as an expense; but it would also be added to an expense account.

Here is a shot of the page for my checking account with the $100.00 bill. See that the money is recorded as a withdrawal and noted as a "transfer" to another account, in this case to Utilities. Since this is an expense type of account, the transfer column refers to it as "Expenses:Utilities".

At the top of the page are tabs for each account. The left tab labeled Accounts lists all of them, and the user chooses which ones to open and look at. If I open the Utilities account, this is what I see:

Instead of Deposit and Withdrawal, the corresponding columns are called Expense and Rebate, but they amount to the same thing. If my utility company credited money back to my checking account, I would record it in the checking account tab as a deposit, and it would show in the Utilities tab in the Rebate column.

On paper, double-entry accounting would require typing in an entry twice, but GNUcash automatically makes the record in the second account as soon as you save it in the first account. I could just as easily save the record in the Utilities account if I liked, and it would be recorded automatically in the Checking account.

Split transactions are possible in GNUcash, too.

Although I have heard many people, first-year accounting students among them, complain about double-entry accounting as confusing, I find it intuitive. I like it better than a "categories" system.

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