Then you will learn how to customize them to suit your needs and how to save these customized reports for repeated use. You will also practice creating custom stylesheets and applying them to reports. You will then walk through the steps to export reports in standard formats that can be used by popular spreadsheet applications, such as MS Excel or OpenOffice. Chapter 4, How Not to Get Lost in the Transactions Jungle: Here you will practice how to cross-check your entries using your bank and credit card statements.
You can do this reconciliation by hand if you get printed monthly statements in the mail. Or you can automate it if you are able to download electronic statements. You will also learn why it is not a good idea to change or delete reconciled transactions. We will caution you why it is important in GnuCash to make sure that you select the right account to import into the first time you import into an account.
However, if you pointed to the wrong account, we will show you how you can recover from that. Chapter 5, Repetitive Work? Let GnuCash do it: Bookkeeping often feels repetitive - entering the same or similar transactions every day, week, or month. Here you will learn how to set them up as scheduled transactions and let GnuCash take care of them. You will learn how to convert a regular transaction into a scheduled transaction or set up several in one go. Also you will learn how to keep an eye on them as well as how to edit or delete them.
Similarly, you will learn how to add vendors to your database as well as how to enter bills as and when you receive them. You will also practice creating reports that will help you to follow up on payments due to be paid to you as well as payments you owe. Even though GnuCash doesn't provide a means for you to set the starting invoice number, we will share an insider tip to editing the GnuCash accounts file directly. Chapter 7, Budget: Trip Planner for your Business: You will learn how budgets help you to set up a Trip Plan to reach your business goals and practice creating budgets and generating reports showing budget vs.
You will also learn the limitations of GnuCash budget reports and how to overcome them by exporting to spreadsheets. In addition, in this chapter you will learn how payroll accounting is complex because of the many deductions and the company's contributions. We will show you how to enter them and how to use the Duplicate Transaction capability of GnuCash to reuse them. Also, tax law allows capital purchases such as office machines and furniture to be written off over a period of time. We will show you how to account for the allowed monthly depreciation. Furthermore, US tax law doesn't allow owners to draw a salary as a business expense.
So, owners have to pay themselves through owner's draw. We will show you how to account for that and remind you that, in addition to income tax, you have to provide for self employment tax as well. Chapter 8, Making Tax Times Less Stressful: You will set up GnuCash accounts to help you run and control your business on a day-to-day basis effectively.
However, at tax time, you need to be able to create the tax returns quickly. We will show you how to get the numbers needed for the tax return in a report that can be entered into your tax return software manually. Even better, if your tax return software supports it, you can also export this data in a standard format and import it into your tax return software. Next, we will show you different ways of setting up sales tax tables to follow the law in different jurisdictions.
You will practice how to apply all these sales taxes on your invoice. You will also practice creating reports to attach to your sales tax returns. Chapter 9, Printing Checks and Finding Transactions: Sorting is often the first step to finding transactions and you will learn how to do sorting.
Then you will go on to filtering out transactions that you are not interested in so that you can home in on the ones that you do want. Finally, you will study various ways to search for that needle-in-the-haystack elusive transaction. You will also briefly see how to create and save a custom format, if the standard check formats don't work for you. You will learn why you might want to give numbers to your accounts and how to go about doing that.
You will also see how to check and fix transactions, if some of the splits are accidentally not imported or deleted. Finally you will learn how to use the custom calculator provided by GnuCash for calculating loan and mortgage payments. Chapter 10, Adapting GnuCash for Non-profits and Personalizing: Non-profits have special needs to maintain funding as well as expenses, separately for each program, project, or event.
Small Business Accounting (Teach Yourself) [Paperback]
You will learn how you can stretch the features of GnuCash to meet these needs. You will also practice setting preferences in GnuCash so that you can arrange the environment to suit your needs. You will learn how to back-up and restore data as well as options available for password protection. If you are using a feature phone, you will see how to use a third-party expense tracking service to send transactions and then import it into GnuCash.
You will become familiar with the various formats and processes available to migrate from other accounting software to GnuCash. You will also learn how to export transactions out of GnuCash. You will also learn how to use this queried data for integration with other applications that your business uses. You will practice foreign exchange transactions and how to handle them in GnuCash.
You will also learn how you can get reports at the contract level for the same customer by utilizing the Jobs feature of GnuCash. You will practice two different ways to undo a transaction, if that becomes necessary at a later point in time. You will also learn ways to deal with the year-end closing of books. Though GnuCash doesn't have support for inventory management and mileage tracking, we will clue you into some ways to work around these limitations.
You can use a computer running Mac or Linux for GnuCash. However, for these computers you need to get the installation instructions from the GnuCash website. To do some of the tutorials that show how to export data from GnuCash and manipulate it in a spreadsheet, you need MS Excel or OpenOffice. For Chapter 12, you need to download an ODBC driver and install it as per the instructions provided in the book.
This book is also for you — the office bearer of non-profits and students who want to learn accounting hands-on. If you are currently using a spreadsheet to maintain your business books and wasting time, or if you are handing over a shoe box full of receipts to your high-priced accountant and wasting money or you are using another accounting application, that is overkill for a small business, and wasting both, get this book and download GnuCash. Conventions In this book, you will find several headings appearing frequently.
To give clear instructions of how to complete a procedure or task, we use: Time for action — heading 1. Action 1 2. Action 2 3.
Action 3 Instructions often need some extra explanation so that they make sense, so they are followed with:  Preface What just happened? This heading explains the working of tasks or instructions that you have just completed. You will also find some other learning aids in the book, including: Pop quiz — heading These are short multiple choice questions intended to help you test your own understanding.
Have a go hero — heading These set practical challenges and give you ideas for experimenting with what you have learned. You will also find a number of styles of text that distinguish between different kinds of information. Here are some examples of these styles, and an explanation of their meaning.
New terms and important words are shown in bold. Words that you see on the screen, in menus or dialog boxes for example, appear in the text like this: "Enter Acme in the value field". Warnings or important notes appear in a box like this. Tips and tricks appear like this. Reader feedback Feedback from our readers is always welcome.
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Last November, I discovered GnuCash. I learned rather quickly that I was reinventing the wheel with my spreadsheet. GnuCash is a personal and small business bookkeeping and accounting software. We also include a chapter on how non-profits could use GnuCash for bookkeeping and accounting. The core function of accounting software is to allow you to keep track of your business transactions in an orderly manner. Accountants call this bookkeeping. In plain English, bookkeeping is nothing but keeping a meticulous record of all the financial transactions of a business.
But before you can record the transactions of a business, you need proper places to record them. In other words, you need to set up accounts to enter the transactions into. For example, you can have an account named "Office Supplies" to record all transactions related to buying stationery. Some other accounting applications call this a "Category". So, our first task is to get started with creating the accounts. We are going to use a built-in template provided by GnuCash to set up an account tree. Why does a small business need an account tree?
Think of the account tree as the table of contents of a book. A book is generally organized into chapters, sections, and subsections. With the help of a table of contents, you can find what you are looking for easily in a large book. In a similar manner, your business might have many thousands of transactions in a year. If you organize your accounts in a convenient tree, you can find transactions when needed as well as create reports on different kinds of expenses and so on. Some people use the proper "Guh-noo-cash" and others prefer the easier "NewCash".
Go by whatever works for you. We will walk you through the steps needed to get it installed successfully on your Windows PC, whether you have Windows 7, Vista, or XP. Time for action — installing GnuCash on Windows Let us go through the steps for downloading and installing GnuCash: 1. GnuCash is an open source software developed by volunteers, often for their own use, and shared with the community. It can be downloaded for free. The file should have a name like gnucash The size of the file should be about 90MB. Save the file to a convenient location on your PC, such as the Temp folder in your C drive.
The GnuCash website will also have other development versions of the software. These are unstable and are for testing purposes only. These are not suitable for business use. Make sure you download the stable release. Launch the GnuCash setup program by double-clicking this file in Windows Explorer. Windows security might pop a message like The publisher could not be verified. Are you sure you want to run this software? Click Run or Yes to continue.
The language selection dialog will appear with English already selected. Click OK to continue. The Welcome screen of the GnuCash setup wizard will appear. Close any other application that may be running and click Next. The License Agreement will appear. Select I accept the agreement and click Next. It will also tell you how much free space is required on your hard disk for installing the program about MB. Make sure you have the required free space and click Next. The next screen will show that a Full Installation will be done.
Click Next to continue. The next screen will show that a GnuCash folder will be created for the menu items. The next screen will show that a desktop icon and a start menu link will be created. The next screen is simply a recap of all the selections made by you so far. Click Install to start the installation. This may take several minutes, giving you time for a coffee break. When the installation is completed successfully, you should see a window with the title Information.
The Run GnuCash now box will be checked. Click Finish to complete the installation. The GnuCash Tip of the Day will pop up. You can close this. You should see the Welcome to GnuCash window with Create a new set of accounts checked. We are going to do that soon. But for now, click Cancel. You have just installed GnuCash successfully and you are ready to start learning, hands-on, how to use it. If you have one of those operating systems, you can download the install package and get installation instructions for those operating systems from the GnuCash.
Other download locations In addition to the GnuCash. Wherever you download from, be careful that you are downloading from a genuine site and that the download is free of viruses and malware. But first, a tip to make your life easier with auto-save Before we start the main show, here is a quick tip to make your life easier. GnuCash has a friendly feature to auto-save changes every few minutes. Some people find this very useful while entering transactions. However, at the time of going through the tutorial, you don't want this auto-save to kick in.
You want to have some breathing time to recover from any errors and correct any mistakes and then save it at your convenience. It is even possible, heaven forbid, that you might want to abandon the changes instead of trying to rectify them. To do this, you might want to exit GnuCash without saving the changes. Select the General tab. As shown in the following image, set the Auto-save time interval to 0 minutes. By setting this to 0, the auto-save feature is turned off. Also, uncheck the Show auto-save confirmation question, if it is checked. As we said, users have found that this ability to auto-save is a big life saver.
So, don't forget to turn this back on when you are done with the tutorials and start keeping your business books. If your business is somewhat larger, you may need to create a lot more than a hundred accounts. Am I going to make you create that many accounts one by one? No, I am going to show you how you can create the entire set of accounts needed for a typical small business in under a dozen clicks. This will give you the hands-on feel to create accounts for your business, when you are ready to do that.
Select from the menu File New New File. This will launch the New Account Hierarchy Setup assistant. GnuCash uses the term assistant to describe what you may have seen in other Windows applications called a wizard. Assistants help you perform tasks that are complex or not frequently performed. Assistants present you with a sequence of dialog boxes that lead you through a series of well-defined steps. Click Forward to go to the Choose Currency screen.
You will find that US Dollar is selected by default. You can leave it as it is and click Forward to go to the Choose accounts to create screen. You will find that Common Accounts is checked by default. This option is for users who want to set up personal accounts. We want to set up a business account.
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So, uncheck this and check Business Accounts, as shown in the next screenshot and then click Forward: [ 14 ] Chapter 1 [ 15 ] Getting Started with GnuCash 5. In the Setup selected accounts screen, click on the Checking Account line and it will become highlighted. Click under the Opening Balance column in this line, a text box will appear allowing you to enter data.
Enter an opening balance of , as shown in the next screenshot, tab out, and click Forward. In the Finish Account Setup screen, click Apply. With the previous step, the New Account Hierarchy Setup assistant has completed its job. You should now be back in the GnuCash main window showing the freshly minted set of accounts with the title Unsaved Book - Accounts.
The Save As dialog should open. If your screen looks like the following screenshot, you have now successfully created the default business account hierarchy for MACS: Most Windows applications require you to save files with a 3 or 4 letter extension. Microsoft Word, for example, requires a.
However, GnuCash uses the longer. If you fill in the file name, GnuCash will automatically add the. There you are. With a small amount of effort, you have not only created a complete set of accounts that would be needed for a typical small business, but you have also learned how to enter opening balances as well. Now that we have that under our belt, let us discuss the key aspects of setting up accounts.
Account hierarchy As you can see in the previous figure, the account named Assets contains two sub-accounts, Currents Assets, and Accounts Receivable. Arranging our accounts in this sort of a tree structure is why it is known as the Account Hierarchy. A GnuCash account can contain transactions as well as other sub-accounts. To extend the example of a book that we used earlier, this is similar to how a chapter in a book can contain some introductory text, several sections, and some summary text.
This Account Hierarchy window is the GnuCash main window. We will also refer to this as the Account Tree window or the Accounts tab. Minimal set of accounts "What is the minimal set of accounts that I need, if I want to keep my business accounts simple? Here is one way to visualize your accounting system. Think of transactions as business documents. Accounts are like manila folders. Parent accounts are like hanging folders. The top level accounts are like the drawers. And your accounting system is like a five-drawer filing cabinet.
Once you have arranged and labeled your hanging folders and manila folders inside the drawers, your task is to then put each document that comes in into the appropriate folder in the filing cabinet. You may also want to run it by your accountant and tax consultant to make sure they are comfortable with it. Setting up too few accounts will make it difficult for you to analyze the numbers and take corrective actions.
For example, let us say you have travel, entertainment, and office supplies lumped together under a Miscellaneous account. You find that your Miscellaneous expenses for this month are 50 percent higher than last month. What next? You have to spend a lot of time analyzing what caused this unexpected increase in expenditure. On the other hand, setting up too many accounts may overwhelm you, especially if you are a new user. Can I add and delete accounts as I need them? Yes, GnuCash lets you do that as and when you want.
However, it is not a good idea to keep adding and deleting accounts often. An important aspect of maintaining accounts is to be able to compare expenses, revenue, and so on from month-to-month and from quarter-to-quarter. If the basis has changed, such comparisons with past periods will not be valid. Pop quiz — understanding accounts 1. Accounts can contain which of the following? Only transactions b.
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Only sub-accounts c. Both transactions and sub-accounts Have a go hero — creating account hierarchies from multiple templates Create a new account hierarchy which includes the following three templates: 1. Business Accounts 2. Car Loan 3. To add one or more account hierarchies to the one already created, choose File New New Account Hierarchy. Yes, I know what you are thinking. You did get a whole set of business accounts set up with opening balances as well.
But when you scrutinize the list, you find that there are some accounts you don't want and others that you must have but which are not in the default set provided by GnuCash.
Accounting Terminology Guide - Over 1, Accounting and Finance Terms
What now? We will look at how you can tweak it further, by making selective additions, deletions, and changes. Time for action — fine tuning business accounts We will now go through the specific steps needed to create a new account, make changes to an existing account, and delete unwanted accounts. Creating a new account: For example, you find that you are spending a lot on auto insurance. However, currently there is no separate account for that. So, we are going to go ahead and create a new account for auto insurance.
Select File New New Account…. The New Account dialog will open. Renaming an account: You don't care much for the name Petty Cash for the cash account. You feel people should take cash more seriously than that. You want to change it to Cash. Right-click on the Petty Cash account. From the pop-up menu, select Edit Account. The Edit Account dialog will open. Deleting an account: You have determined that you don't need an account for Outside Services.
So, we are going to go ahead and delete that. Scroll down to the Outside Services account, right-click on it, and select Delete Account… from the pop-up menu, as shown in the following screenshot. You will get a warning message that "The account Expenses:Outside Services will be deleted". Go ahead and click on the Delete button to confirm that it is OK to delete it. This combination of using a template to create a whole bunch of accounts in one go and then making further tweaks through selective additions, deletions, and changes lets you have the best of both worlds.
Without wasting too much time, you now have a set of accounts that are just right for your business and named according to your preference as well. Account types GnuCash has the following 11 account types and we have listed examples of each account type. Of these, Stock and Mutual Fund account types are mainly used for personal accounts. For a business, when creating new accounts, you will typically select from one of the remaining 9 types: 1. Bank: Checking Account, Savings Account 2. Cash: Petty Cash or Cash 3. Credit Card: Credit Card any type 5. Liability: Loan Principal, Sales Tax collected and to be paid 6.
This helps GnuCash to treat the accounts appropriately. For example, while entering transactions, an account of type Bank will display 'Deposit' and 'Withdrawal' columns. An account of type Cash will display 'Receive' and 'Spend' columns. Parent accounts and top level accounts The different business accounts that you might want to create for your business can be typically placed into one of these five groups: 1.
Assets: Things that you own. Equity: The net worth of your business. This can include only accounts of type Equity. Expenses: Costs incurred in running your business. This can include only accounts of type Expense. Income: Revenue you receive for goods supplied and services rendered by your business. This can include only accounts of type Income. Liabilities: Things that you owe to others. If you study the account hierarchy that you created from the template, you will find that all accounts are grouped under these five accounts.
These five accounts are not only parent accounts, they have no parents themselves, thus making them top level accounts. On the other hand, take a look at the account Auto under Expenses. Auto is a parent account with four child accounts: 1. Fees 2. Gas 3. Parking 4. Repairs and maintenance. But Auto itself has a parent account, namely, Expenses. Thus it is a parent account but not a top level account. New account creation tips As you just saw, when you create a new account, you need to select an account type and a parent account. If you highlight the parent account and then open the New Account dialog, the appropriate Account Type and Parent Account will be selected by default.
You can right-click the parent account and choose New Account from the pop-up menu. Also, when the Account tab is open, you will see a 'New' button on the toolbar. This will also open the same dialog. Sometimes you may want to create a new top level account for things that do not belong in the default five top level accounts created by the template. For example, you may want to create a new top level account for non-operating revenue to keep it separate from operating revenue. Take a look at the New Account dialog again.
You will see that it has an option to select New top level account as the Parent Account. It is convenient for grouping similar accounts under a common account, but it cannot have any transactions itself. For example, you can have a placeholder account Professional Fees with two sub-accounts under that, namely, Accounting Fees and Legal Fees. Opening balance If you are just starting your business, life is simple. Well, that didn't come out right. Abandoning the safety and comfort of a regular pay check can feel like leaving on a one-way trip to Mars. But, from the very narrow point of view of figuring opening balances, you are starting with a clean slate.
All opening balances are zero. Nothing has happened yet, business-wise. But if you are switching from another accounting software, a spreadsheet or even a shoebox, you need to decide on a start date. For example, if you are planning to start using GnuCash as of January 1, , your previous system end date is December 31, For your bank account, for example, enter the ending balance as on December 31, You will find this on your bank statement.
Take a look at the create New Account dialog once again; you will see a tab marked Opening Balance. We didn't need an opening balance for the Auto Insurance account that we created. However, if you find that you need to enter an opening balance for the account that you want to create, you can enter that here at the time of creating a new account. Pop quiz — understanding account types and hierarchies 1. Which of the following is not a valid account type in GnuCash?
Bank b. Debit Card d. Asset e. Cash 2. Which of the following are common top level accounts? Asset, Liability, Equity, Expenses and Income b. Asset, Liability, Cash, Expenses and Income c. Asset, Liability, Equity, Expenses and Bank d. Placeholder accounts can have transactions a. Yes b. Under certain conditions Have a go hero — tweaking accounts The Professional Fees account has two child accounts—Accounting and Legal Fees. Change the Professional Fees account into a placeholder account. How to impress your accountant Even though we are trying to keep accounting jargon to a minimum, it is a good idea to be on talking terms with your accountant!
And, in order to talk to the accountants, you need to speak their lingo, right? Oh no, not all of it, just enough to get across what you want to get done. So, it is good to know that whatever GnuCash calls the 'account hierarchy', the Accountants call the 'Chart of Accounts'. They can open this in their GnuCash application and review. What if your accountant doesn't have GnuCash? You can still send it in one of the popular spreadsheet formats such as Microsoft Excel or OpenOffice. How will you do that? Go to the Reports menu and select Account Summary.
You should now see the complete hierarchy of accounts that we created in a tabular report format. You can copy and paste this into Microsoft Excel and save it as an Excel file. Alternatively, you can paste this into OpenOffice. Accountants are typically very heavy users of spreadsheets and, chances are, your accountant should be able to handle one of these.
In the e-mail, just say casually, "Here is the draft chart of accounts that I created. When you have a minute, take a quick peek and let me know what you think". That ought to do it. Strengths and limitations of GnuCash By now, you know that GnuCash can do business accounting, however, you would like to know how far it can go. For example, you would like to know what type of accounting GnuCash is most suitable for and what kind of accounting it cannot handle. Work on only your business accounts. Work on only your personal accounts.
Combine your personal accounts and business accounts into one single account. For example, if you have a simple rental type of business, you can keep your rental income and expenses in separate accounts within your personal accounts. Maintain your personal accounts as well as your business accounts in separate files. This is because GnuCash saves one account with all of the related transactions in one file. You can open your personal accounts file, enter transactions, and save it. Then you can open your business accounts file, enter transactions This is a description of the capabilities of the software.
You should check with your accountant and tax consultant regarding the best course of action for your specific financial and tax situation. However, please note that this book is focused entirely on business accounting. Personal accounting is not within the scope of this book. Single user GnuCash is a single user software. Oh, you and your business partner both need access? Your associate will be entering transactions and you must be able to view the reports? You want to know whether there is a way for more than one person to access GnuCash?
Yes, there is. As long as you are willing to live with the limitation that only one person can use it at a time. Look for a common folder that both users have access to. This can be a folder on one of the users' PC for which the other user is provided shared access. Or, as shown in the diagram below, it can be a folder on a network file server that both users have access to.
If User B tries to open this same file, GnuCash will pop a warning as shown in the following screenshot: On seeing this message, User B should quit. If User B goes ahead and chooses to Open Anyway, then there is risk of data corruption and data loss. However, this message can also appear if the last time you used GnuCash it closed abnormally. This abnormal closing can occur due to a number of reasons including power failure, application, operating system crash, or other such problems.
If that is the case, you must select Open Anyway. Accounting features not supported by GnuCash GnuCash is suitable for small business accounting. Payroll Even though GnuCash doesn't have an integrated payroll module, you can create necessary accounts in GnuCash and enter payroll expenses, as needed. In order to work around this limitation, you may choose to use a payroll service provider or a spreadsheet for calculating your payroll.
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Business functions other than accounting Quotations, purchase orders, and other business functions do not result in an accounting transaction. GnuCash is solely devoted to accounting. It doesn't support these other business functions. No two businesses are going to be exactly the same. There is always a need to tweak it further. We then looked at how to make account additions, changes, and deletions so that we can get it just right for your special business. We also reviewed different account types, parent accounts, top level accounts, and placeholder accounts.
Now that we've created the set of accounts, we have laid the necessary foundation. With that, we are ready to start entering transactions, which is the topic of the next chapter. I always feel good after completing the book-keeping. On the other hand, there are others who look at accounting as a game. If something doesn't balance, they take it on as a fun challenge to track down the problem and find a solution. However, if you are like this small business owner, you may find bookkeeping a boring activity because it is very repetitive.
Perhaps, you would rather be out cultivating customers and working on the deals that make your business grow and prosper. However, that is the very reason why we are going to spend some time equipping you with all the tools and tips necessary to get through this bookkeeping part quickly and effectively. With that taken care of, you can be free to devote more time to growing your business. As a small business, on any given day, you may have several expenses which you might pay by cash, check, or credit card.
Also, you might receive sales revenue by check or cash. You might also have other transactions such as repayment of loan, withdrawing cash from the bank, and so on. All of these transactions need to be entered in GnuCash so that you can run reports at the end of the week, month, and quarter. This will help you to see how your business is doing and navigate around potential cash flow hurdles towards your business goals successfully.
So, capturing these transactions quickly and effectively is the heart of establishing a good accounting and financial reporting system which is essential for a successful small business. Now we are all set to get started entering transactions. A quick and easy way to enter simple transactions GnuCash provides a way by which you can enter simple transactions quickly and easily. It is so simple that on completing it, you will wonder why people are making such a big deal about bookkeeping.
From the menu, select Actions Transfer to open the Transfer Funds window. In the Basic Information pane, enter in the Amount field, leave today's date unchanged in the Date field, enter the check number in the Num field, and enter Withdraw cash in Description. Scroll down in the Transfer From list and select Checking Account. Scroll down in the Transfer To list and select Cash. At this point, the window should look like this: [ 32 ] Chapter 2 5. Select OK to commit the transaction. We will now confirm that the transaction has been entered in the respective accounts correctly.
In the Account tab, double-click on the Checking Account. It will open in a separate Checking Account tab. This is known as the account register for Checking Account. In the account tree window, double-click on Cash. It will open in a separate Cash tab. This is the account register for Cash. When you have double checked all entries and everything looks hunky-dory, make sure you save the changes. What just happened? Well, not quite. You already entered your first transaction in GnuCash while setting up accounts.
You were having a blast creating a ton of accounts so fast, it didn't seem a good idea to slow you down by pointing out that when you entered an opening balance, you actually created your first transaction. On the other hand, while opening balances are needed only occasionally, the Transfer Funds window gives you a handy tool to enter many business transactions. So, go ahead, celebrate. As a business owner, you know that every transaction involves funds, directly or indirectly.
You also know that the transactions only differ on the source of funds, where the money came from and the use of funds, or where it went. Yeah, I know what you are thinking. Sometimes it feels like that money seems to be going into black holes, never to be seen again. However, hold your hat; GnuCash is here to help you. Oh no, it can't prevent your money from disappearing into black holes. However, you will soon learn how to create reports in GnuCash, showing precisely which black holes it went into! An example from outside the business world will help us compare business transactions with non-business ones.
Non-profits, such as the Salvation Army or your local church, can get a donation without giving something else in return. This is an example of a non-business transaction. Let us look at some examples of business transactions: Item Transaction Source of funds Use of funds 1 You pay cash to buy office supplies Cash Business expenses 2 You sell products to get paid by check Sales Bank balance goes up 3 You buy a part online and charge it to your credit card Credit card dues go up Business expenses 4 You invoice a customer for services and allow them 30 days to pay Service provided Accounts receivable goes up 5 You withdraw cash from the bank Bank balance goes down Cash balance goes up So, in business terms, we can say that every transaction can be split into its source of funds and use of funds.
Thus, a single transaction must always consist of at least two parts, namely, an amount in the "from" account and an amount in the "to" account. Moreover, the two must be equal. You just need to answer three basic questions: 1. How much money changed hands? The value of the transaction. Where did the money come from? The source of funds or the "from" account. Where did the money go? The use of funds or the "to" account. These are examples of simple transactions in which there is one account for each split.
These are referred to as simple 2-account transactions in GnuCash. We showed a transaction with another party in the preceding diagram. However, there can be transactions without involving another party. Item 5 in the earlier table, withdrawing cash from the bank, is an example of an internal transaction. We moved funds from one account to another. The same rules of transaction apply even for internal transactions. We need a source of funds and a use of funds and the two must be equal. Checks and balances are good When accounting was done manually, accountants used to post each side of the transaction separately in the books.
This double entry bookkeeping, of course, requires twice the amount of work. So, why did they do it? It helped accountants catch arithmetic and data entry errors. As each transaction had to be recorded in two places, the results of additions and subtractions could be double-checked simply by seeing whether the accounts balanced. With computers, arithmetic mistakes are no longer a major issue, although data entry errors still are.
GnuCash does the double entry bookkeeping for you behind the scenes. You still get all the advantages of double entry bookkeeping, namely, cross checking to see if accounts balance. But, more importantly, you are now equipped with one more piece of jargon to throw at your accountant. During a lunch conversation, in a matter of fact tone, you can say, "It does double entry bookkeeping. That is another reason why I picked GnuCash. In a transaction, how do the source of funds and use of funds compare? Source of funds is higher b. Use of funds is higher c. They must be equal to each other d.
They are unrelated Have a go hero — entering transactions Look at the example transactions in the previous table. Enter some transactions using the Transfer Funds window based on these examples. Just make up suitable amounts and descriptions, as needed. Entering a simple transaction in the account register The account register is the GnuCash window which allows you to view and edit existing transactions or add new transactions to a particular account.
The account registers were designed by the GnuCash team to resemble a check book register, the log used to keep track of checks issued. This is the reason why they are called registers. Let us get familiar with it first by entering a simple transaction. To open the account register, select the Expenses:Office Supplies account in the Accounts tab and double-click to open it.
Once selected, you can also click the Open button in the toolbar or click the right mouse button and select Open Account. GnuCash will open the Expenses:Office Supplies account register in a separate tab. GnuCash will start a new transaction and put the focus on the date field with today's date as the default one. Let us make sure that your view settings are in line with the steps in the tutorial.
Go to the View menu and confirm that there is a dot in front of Basic Ledger and Double Line is not checked, as shown in the following screenshot: 3. Click on the small button on the right of the Date field to drop down a date selection calendar. Click on yesterday's date. Click on the small button on the right of the Date field once more to close the date selection calendar.
Small business accounting
Alternatively, you can type in the date. Click on Tab to move to the Num field. Here you can enter a check, receipt, transaction, or any other number. Enter the receipt number Click on Tab to move to the Description field. This field is used to enter a description for the transaction.
Enter the text Printer ink cartridge set. Click on Tab to move the cursor to the Transfer field. Click on the small button on the right side of the Transfer field to drop down the list of Accounts. Scroll down, select Assets:Current Assets:Cash. Click on Tab to move to the Expense amount field.
Type in the amount Click on the Enter key to complete the transaction and move the cursor to the next transaction. You can also select the Enter icon, or from the menu, select Transaction Enter Transaction. Check all entries again and don't forget to Save the changes. As you were going through this tutorial, I am sure, at some point, this thought suddenly popped up in your head, "Hmmm, I could have done this with my eyes closed in the Transfer Funds window.
Why am I wasting my time with this account register again? So, let me share the reason with you right away. Yes, you could have done this in the Transfer Funds window. However, this is a great way to get familiar with the account register. This will help you to quickly get to the point of entering more complex transactions, which can only be done in the account register.
In other words, you can only enter simple 2-account transactions in the Transfer Funds window. For anything more complicated than that, you will have to depend on the Account Register. As we saw earlier, every transaction has two sides — an account that money is transferred from and an account that money is transferred to. GnuCash calls them splits. Thus, a simple 2-account transaction consists of two splits. For example, if this is a deposit, you can enter the check number here.
This field is optional. Customer or vendor's name, invoice or bill number, and date could all go in here. Now that we are entering the transaction in the Checking Account, we need to select in this field the other account that this transaction touches. This will default to n for 'not reconciled'. In the Cash account, for example, these will be called Receive and Spend respectively. You can open as many account registers at a time as needed.