The virtual accounts should not be included in a Balance Sheet. Neither
will they affect an Income Statement.
Trying to include them in either would of course, make those reports
incorrect.
Once again, I'm not advocating putting these in the tree under Equity.
Let's take the example of Envelope Budgeting. (since that was the
original case)
I 'allocate' my earnings periodically to various envelopes based on a
formula to meet my needs for various categories of expenses. The money
doesn't physically go anywhere, is not paid to anyone and is neither an
expense or liability at this point. It is still my asset. I just want to
remind myself it isn't available to spend on anything but the intended
purpose. (leaving any remainder open for contingencies)
The virtual accounts allow me to do this. (and they should be asset
accounts as noted)
When I make the real-world expenditure (or incur the expense if accrued)
is when the expense gets recognized just as if the virtual accounts
never existed. And yes, that might be in one lump, because that is what
really happened.
That's the entire point of the virtual tree. To specifically *not*
record that expense until I'm really suppose to when it actually
happens. ('happens' here might be paid, or it might mean incurred)
I don't think cash vs. accrual has any bearing on this. I can follow
accrual methods and still want to earmark assets but not want actual
liabilities or expenses to be overstated, or assets to be understated at
any point in time.
Certainly, a built-in budgeting option along these lines would be nice.
I use the Budget Module as-is, but it doesn't quite work the way I need
it to for this method.
Regards,
Adrien
On 8/9/20 5:25 PM, doncram wrote:
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.
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