On 3/27/2020 9:11 PM, Long wrote:
Hello David Cousens,
Thank you for your help, I knew what i need to do if i choose "Accrual
Accounting".
What i'm asking you is : If the end of the year, I credit my Expense:Tax and
debit Liability:Tax 2000$, at this time, on DECEMBER in my "Income Statement
(multicolumn)" (It's a Report option to show you, What you have spent and
your revenue each month for the period time) it will show the negative
value.
I think there are two things you will need to do.
The first is to read some tutorial or text "introduction to double entry
bookkeeping with emphasis on trying to understand what the differences
between "cash" and "accrual" basis are and what they are not. Also with
accrual accounting, how adjustments are made then the actuals (when
these become known) do not match what was originally entered.
The second is to try to understand time/date of financial statements.
When I settle up with the government is it NEVER in the same year as the
taxes were for. Thus I could never expect the "tax expense" on the end
of year report to be anything other than an estimate of tax expense. I
won't know the actual amount (may be either more or less) until I do my
taxes and settle with the IRS.
So in your example, starting the NEXT year with -2000 in tax expense is
correct because your P&L for the year just ended had been overestimated
by 2000. Maybe you would feel more comfortable entering the correction
transaction as a so called "journal transaction. Accounts of type income
and expense are actually temporary accounts of fundamental type equity.
So when you settle with the government, instead of:
tax liability debit 12,000 cash credit 10,000 tax expense credit 2,000
tax liability debit 12,000 cash credit 10,000 equity credit 2,000
This is correct. Your previous year end report had you 2,000 poorer than
you really were (because you didn't really owe the gov't as much as you
thought you did. You are now correcting that by increasing your equity
by that amount. On the other hand, you might prefer the -2000 in tax
expense if you want to look at a series of YE reports for the
information "what is my tax expense per year" << look ahead to the
following years assuming the amounts continue the same >>
Michael D Novack
PS -- Gnucash doesn't substitute for learning basic accounting, you
still have to learn that, and we are here to help with HOW when using
gnucash and not the WHAT of basic accounting.
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