Okay i think i understand more, from Marilyn Kimple's case and now from searching about "envelope method" in gnucash-user postings (which Adrien Monteleone pointed me to, thanks!), where Adrien and David Cousens and Micheal Novack have a number of postings, including in responses to Eric Bowen. Envelope amounts seem to me to mean equity subaccount amounts, which are displayed to remind one that there are purposes/dedications of funds/obligations out there which need to be remembered.
My new take on this: the issue is that Marilyn and Eric and others have is that they are generally following cash accounting and are not explicitly adopting accrual accounting. But they see/know that there are significant real-life requirements/purposes out there (e.g. accumulated obligation to tithe, perceived requirement within a nonprofit to keep a contingency fund, accumulated requirement to pay taxes eventually related to activities of current and earlier periods), which aren't covered in their implementation of Gnucash accounting so far. What some want to do is to use subaccounts within equity to indicate those obligations. I think this is because they feel that the obligations are not precise enough or legal enough or otherwsise real enough yet to recognize expenses and liabilities for them (which would be accruals, i.e. recognitions of expenses (or revenues) before cash has changed hands). And these users and some advisors here are not yet onboard about full adoption of accrual accounting in these cases. So then some come in with ideas about "virtually" recognizing "virtual liabilities", i.e. to partition out an equity subaccount for tithing obligation or tax obligation or otherwise, out of the entitiy's equity. So that the Balance Sheet will show the obligation, reminding them that the full amount of their assets less explicit liabilities (if any) is not available for spending on other purposes. Okay, there are numerous practical problems with this. For one, it seems that a separate accounting system (e.g. a spreadsheet) has to be run offline to keep track of what these "virtual obligations" are. That side spreadsheet might also keep track of "virtual expenses" being incurred for given periods, i.e. it is recognizing the changes of obligations. The Gnucash accounting system will only sort of recognize that real expenses have been incurred, and that cumulative obligations have grown, when at some future date the tithing or tax or whatever obligation is actually paid. On that date there will be a huge tithing or tax expense recognized. No one else has complained AFAIK, but I think it is a problem that Income Statements for any given period do not show the growth "virtual liabilities" as as expenses, and that Balance Sheets should show the "virtual liabilities" as real liabilities, which they are. And it is, in my experience anyhow, totally non-standard to have equity subaccounts this way. The solution is simple: recognize that those circumstances are exactly what accrual accounting addresses, and adopt accrual accounting relating to these purposes, so maybe ending up with a hybrid between "pure" cash accounting and pure accrual accounting. You don't have to be perfect in recognizing all other types of potential accruals (say, you don't have to recognize capital asset purchases and then follow a depreciation schedule for them), in order for you to choose to use accrual accounting to do what it does well, on a matter or two that are of significant importance to you. For Marilyn, please see that recognizing tithing expense and tithing payable (liability) does exactly what you need. You don't need a separate spreadsheet, I am pretty sure. Your Balance Sheet will show your regular assets, any liabilities that you already recognize, and now also this Tithing Payable. In exactly the amount that you were contriving to have an equity subaccount report. I further understand you were, in your previous system, allocating out all of your equity to a few purposes, i.e. more or less in your words you were dividing out any new net income (which increases equity) into tithing and a couple other purposes. Whatever those other purposes are, probably they could be recognized as liabilities too. To Eric (and to myself in my role with a nonprofit), simply set aside the contingency fund requirement amount as a liability. This is slightly informal, but achieves the reporting goal of showing it, and of reducing the equity which appears to be available for other purposes. Is this about right? --Don _______________________________________________ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user If you are using Nabble or Gmane, please see https://wiki.gnucash.org/wiki/Mailing_Lists for more information. ----- Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
