1. Intro

1.1 Double entry accounting and the double entry accounting program Gnucash

Tonight I'm going to talk about keeping financial records using the standard method of business accounting, double entry accounting and the accounting package gnucash.

In the physical world, you monitor things invisible to the 5 senses with gauges and meters. In the financial world, this monitoring role is taken by double entry accounting. It's the instrumentation you setup to monitor the various parameters of your business/finances.

Linux J, Apr 2001 p122, has a article on gnucash by Robert Merkel one of the Gnucash developers, which shows how to setup Gnucash to do double entry accounting. This article made setting up and using gnucash seem quite simple and inspired me to install it.

1.2 Why you work

For the purposes of this talk, your goal in working as a computer professional, is to get as much money as you can for your time. In accounting parlance this is called maximising your return on investment (ROI).

Of course your employer will tell you that your goal is to produce the best code possible, the fewest security intrusions, or to have as much uptime as possible... and of course you'll agree with him.

In turn your employer when he goes to his customers will tell them that the reason his company exists is to provide the best service possible to them.

Your employer will tell you that he's running his company to get the most money in return for your efforts (his ROI). When he talks to his customers, he tells them that the reason his company exists is to provide the best service possible to them.

It's possible you want to make the world a better place etc, and you use your job for that, but in the end, if you weren't getting money from your job, you wouldn't be able to save the world. So no matter what we tell other people, what we're really interested in is (ta da) the money.

Not only is your money of interest to you, there's other people looking over your shoulder and it's of interest to them too, Here's a partial list of these people.

• you
• the tax people
• bankers, creditors, investors.

These people want to know about your money to the penny.

1.3 Tracking your money

We need to track our money. The two methods used are

cash book or single entry accounting.

Used only for personal accounting. It sees your finances as one (or a small number of) piles of money (accounts). The pile increases (with salary) and decreases (with purchases).

Single entry accounting is simple if your money is in a single (or small number of) accounts (eg a checking account).

double entry accounting.

In business accounting, money is divided into many piles (accounts) and each account is treated differently.

In your tax form, you'll see that the whole of your expenses for office supplies are taken off the top of your profits, while you can only take off half the expenses for food. To make life easier for yourself, you'll have one account for office supplies and another for food and entertainment. You track the money in each account separately.

You also need to be able to transfer money between accounts. This transfer is called a transaction.

In double entry accounting, there are

• many accounts
• movement of money (a transaction) is from one account another ( i.e. 2 accounts are required for every transaction). This is where the name "double entry accounting" comes from.
• movement of money for different purposes is a matter of making a transaction between the appropriate pairs of accounts.

1.4 Examples of Accounts, with their standard accounting names.

• Personal check account (cash account e.g. cash.check)
• accounts for phone, utilities (expense accounts e.g. expense.phone, expense.utilities).

1.5 Examples of Transactions

From the Linux J article by Robert Merkel

Every time you spend, receive or transfer money is a "transaction". When you write a check to pay your phone bill, that's a transaction. When your paycheck goes into your account - another transaction. When you go to the ATM to get some cash for a night out, that's a transaction. When you buy a burger with that cash ... you guessed it, it's a transaction.

In double entry accounting parlace, what happened was

• you need some cash, you go to the ATM and take some money out of your check account (cash.check) and put it in your pocket (cash.petty).
• you buy a burger, you credit cash (cash.petty), you put the receipt in a folder and you debit the expense to expenses.food_and_entertainment.
• to pay your phone bill you remove some money from your cash.check account and you send it to the phone company (recording it in the expense.phone account).

In all cases money just moves from one place to another. Money does not appear, disappear, get created or destroyed.