Flavio, That's fine. When it comes to accounting , particularly for personal finances, as long as it provides you with the information you need then if it works for you and tells you what you need, it is good. For businesses with external reporting requirements (multiple taxation agencies, business regulation authorities etc) it is much more necessary to be stricter with following accepted accounting practice. Its a case of making it as simple as possible and as complicated as necessary to do that job. That said GnuCash implements and follows accepted accounting practice so it helps to have a bit of the background.
Good luck David On Tue, 2024-09-24 at 22:26 +0200, Boniforti Flavio wrote: > Hi David. > > In fact I don't buy instruments with the goal of making profit out of > them. I collect and play them too. In fact, for this situation I > would simply account for both purchase and sale as you described. > > So there's no tax implication whatsoever in my case. > > But then... > > I look at my collection of instruments as an asset, not as an > expense. I do own a bunch of vintage instruments, which have the > value corresponding to what I've paid for them. So if I consider this > collection to be an asset, then the suggested accounts you proposed > won't work anymore (please correct me if I'm wrong). > I was thinking more of something like this: > > PURCHASE: > "Asset:Bank Account" decrease > "Asset:Musical Instruments Collection" increase > > It becomes for me more difficult to understand how a sale would have > to be registered, as it not only increases my bank account, but it > also decreases the musical instruments collection - but only of the > value I paid for it when I bought it. Given the fact that many items > will increase their value over time, there might be a surplus. The > easy example is: I bought item A in 2002 for 1000 and I sell it now > in 2024 for 2000 --> my collection account would decrease by 1000, my > bank account would increase by 2000 but where do I put the surplus? I > thought of something like this: > > SALE: > "Asset:Bank Account" increase +2000 > "Asset:Musical Instrument Collection" decrease -1000 > "Income:Musical Instrument Sales" increase +1000 > > If the above is correct and feasible, how would I enter it in GC? > > F. > > https://www.instagram.com/boniforti_music > https://soundcloud.com/boniforti_music > https://bonny-j.bandcamp.com > > > Am Di., 24. Sept. 2024 um 06:48 Uhr schrieb David Cousens > <davidcousen...@gmail.com>: > > Flavio, > > > > If you were just buying musical instruments with no intention of > > earning income with them or in the future, you would simply record > > the purchase transaction as > > > > Asset :Bank account credit xxx > > Expenses: Musical Instruments debit xxx > > > > and any subsequent sale is > > > > Asset:bank debit yyy > > Income:Musical Instrument Sales credit yyy > > > > and you may or may not be required to pay tax on that income > > depending on your jurisdictions tax rules (in most cases probably > > not if below some legislated threshold for business activity), and > > that would be the end of it. In most jurisdictions you will also > > likely be below the threshold where any such activities are treated > > on a cash accounting basis, i.e. they are recorded at the point > > where the money changes hands. > > > > When you purchase instruments where the intention is to either > > resell them or otherwise use them to generate income usually on > > some form of fairly regular basis, then when they are purchased, > > they are an asset to your enterprise, whether that is simply > > personal or a business, so the purchase becomes an asset rather > > than an expense. For business usually where turnover is above a > > specified threshold set by taxation legislation, you will be > > required to record transactions on an accrual timing basis and for > > purchases, this is generally at the time when the agreement to make > > a specific purchase is entered into, not when the actual; cash > > changes hands. Similarly on sales, when you agree to sell an item, > > the receipt of income is recorded at the time you agree to do so > > not necessarily when you actually receive the funds. > > > > There is another accounting principle which requires that the > > recording of expense of items sold should be matched in timing to > > the recording of the income. recording purchases as an asset class > > inventory meets the first requirement and recording it as an > > expense against the Cost of Goods Sold at the timing of the sale > > meets the second. The Cost of Goods Sold title just arises because > > most businesses will sell many different types of items. If the > > expense were recorded at the time of purchase, then the calculation > > of profit is thrown out of whack and if you do that your taxation > > authorities tend to start accusing you of trying to avoid tax. > > Such Inventory and CoGS accounts can have subaccounts for specific > > items or classes of items where knowing that information is > > material to the management of the business. There are also sales > > taxes, VAT, GST type taxes to deal with as well in some > > jurisdictions. > > > > On Mon, 2024-09-23 at 17:26 +0200, Boniforti Flavio wrote: > > > Hi David. > > > Thanks for correcting me. > > > I have a few more questions: > > > > > > As of today, I've got "Assets:Current Assets:Music Equipment CHF" > > > and "Assets:Current Assets:Music Equipment EUR" which I consider > > > my inventory accounts. There I entered the price of a musical > > > instrument which I bought. > > > I also do have the account "Income:Music Equipment Sales CHF" and > > > "Income:Music Equipment Sales EUR". > > > > > > I'm not understanding the use of the "Expenses:Cost of goods > > > sold" account - can you explain? > > > > > > Thanks, > > > Flavio. > > > > > > https://www.instagram.com/boniforti_music > > > https://soundcloud.com/boniforti_music > > > https://bonny-j.bandcamp.com > > > > > > > > > Am Fr., 20. Sept. 2024 um 00:58 Uhr schrieb David Cousens > > > <davidcousen...@gmail.com>: > > > > Flavio, > > > > > > > > > I would do the following when selling something for 120 which > > > > I bought for 100: > > > > > 1. increase the checking account by 120; > > > > > 2. increase the "Income:Sales" account by 120; > > > > > 3. increase the "Inventory:Music Equipment Sales" account by > > > > 120; > > > > > 4. decrease the "Expenses:Cost of Goods Sold" account by 100. > > > > > > > > These steps are not correct . Your inventory account records > > > > the value (at cost) of the items you are holding so the entry > > > > on sale o an item should equal the cost at purchaser so you > > > > your transaction to record it should be: > > > > > > > > 1 . increase (debit) the checking account by 120 > > > > 2. increase (credit) the Income:Sales account by 120 > > > > 3. decrease (credit) the Inventory:Music Equipment Sales > > > > account by 100 > > > > 4. increase (debit) the Expenses: Cost of Goods Sold account by > > > > 100 > > > > > > > > > > > > The Inventory:Music Equipment Sales account is what is known in > > > > accounting terms as a contra account to the Music Equipment > > > > Purchases which is why it is credited to decrease the balance > > > > of Inventory (rather than debit as is usual to increase the > > > > balance of an asset account). I have added the usual > > > > accounting column headings in brackets. Of the two columns with > > > > entries in themthe Debit column is always the first and the > > > > Credit column is always the second followed by the Balance > > > > colum last. > > > > > > > > Note that in any transaction the sums of all the debit and all > > > > the credit entries have to be equal, which was not the case for > > > > your proposed entries. > > > > > > > > Cheers > > > > David > > > > > > > > > > > > On Thu, 2024-09-19 at 21:52 +0200, Boniforti Flavio wrote: > > > > > Hi David and David :-) > > > > > Thanks for your replies. > > > > > I'm not running any business at all. I am a musician who also > > > > > collects (vintage) music instruments. As I also do play them, > > > > > it happens a couple of times a year that I'm not interested > > > > > anymore in keeping one or the other instrument. For this > > > > > reason, I sell a couple of items a year and given the fact > > > > > that the majority of my items are "vintage" ones, prices are > > > > > always fluctuating. So I want to keep track of how much I've > > > > > gained (or lost) when selling an item. > > > > > Given the above, I think that if I would only use a single > > > > > "Music equipment" account, I could not see how much I made > > > > > (plus or minus) while selling some items - right? This is the > > > > > reason which led me to think about setting up some accounts > > > > > to "correctly" keep track of this all. > > > > > > > > > > Using this: > > > > > 1. Debit the Checking account for the total amount of the > > > > > purchase paid by > > > > > the customer; > > > > > 2. Credit the Income:Sales account by the total amount of the > > > > > purchase; > > > > > 3. Credit the Inventory: MusicEquipment Sales account by the > > > > > amount of the > > > > > cost of the items sold; > > > > > 4. Debit the Expenses:Cost of Goods Sold account by the > > > > > amount of the > > > > > cost of the items sold. > > > > > > > > > > I would do the following when selling something for 120 which > > > > > I bought for 100: > > > > > 1. increase the checking account by 120; > > > > > 2. increase the "Income:Sales" account by 120; > > > > > 3. increase the "Inventory:Music Equipment Sales" account by > > > > > 120; > > > > > 4. decrease the "Expenses:Cost of Goods Sold" account by 100. > > > > > > > > > > (of course previoulsy I'd had increased the "Inventory:Music > > > > > Equipment Purchases" and decreased my "Assets:Checking > > > > > Account" by 100). > > > > > > > > > > Am I correct with the above? > > > > > TIA, > > > > > F. > > > > > > > > > > > > > > > https://www.instagram.com/boniforti_music > > > > > https://soundcloud.com/boniforti_music > > > > > https://bonny-j.bandcamp.com > > > > > > > > > > > > > > > Am Do., 19. Sept. 2024 um 03:52 Uhr schrieb David Cousens > > > > > <davidcousen...@gmail.com>: > > > > > > Flavio, > > > > > > > > > > > > Why would you need a Music equipment sold account in the > > > > > > first place? > > > > > > > > > > > > If your business is making music then: > > > > > > > > > > > > when you buy equipment you credit your checking account and > > > > > > debit the > > > > > > Music Equipment asset account by the amount of the > > > > > > purchase; > > > > > > when you sell the equipment you debit your checking account > > > > > > and credit > > > > > > the music equipment account. > > > > > > > > > > > > In this case the equipment is not held for the purpose of > > > > > > selling it at > > > > > > a profit. You may however be subject to capital gains type > > > > > > taxes if > > > > > > they apply in your jurisdiction and the value of the > > > > > > equipment sold > > > > > > exceeds the thresholds for such taxes. > > > > > > > > > > > > The situation may however be slightly different if your > > > > > > business is > > > > > > actually retailing music equipment. In this case the Music > > > > > > Equipment > > > > > > account is essentially an Inventory account - still an > > > > > > asset account. > > > > > > > > > > > > You would normally in these circumstances set up an > > > > > > Inventory asset > > > > > > account which is a placeholder with two sub accounts > > > > > > Inventory:Music > > > > > > Equipment Purchases and Inventory:Music Equipment > > > > > > Sales. Your Income > > > > > > top level account will also need a subaccount Income:Sales > > > > > > and your > > > > > > Expenses top level acoount will need a sub account > > > > > > Expenses:Cost of > > > > > > Goods Sold (GoGS) > > > > > > > > > > > > The basic procedure is the same for purchases of equipment, > > > > > > credit the > > > > > > checking account and debit the Music Equipment Purchases > > > > > > sub account. > > > > > > > > > > > > When you make a sale only the difference between the cost > > > > > > of the > > > > > > equipment sold and the selling price is your income ( > > > > > > neglecting any > > > > > > sales tax issues which may also apply) so the following > > > > > > will be the > > > > > > basic procedure: > > > > > > > > > > > > Debit the Checking account for the total amount of the > > > > > > purchase paid by > > > > > > the customer; > > > > > > Credit the Income:Sales account by the total amount of the > > > > > > purchase; > > > > > > Credit the Inventory: MusicEquipment Sales account by the > > > > > > amount of the > > > > > > cost of the items sold; > > > > > > Debit the Expenses:Cost of Goods Sold account by the amount > > > > > > of the > > > > > > cosdt of the items sold. > > > > > > > > > > > > Your profit on the transaction is recorde by the difference > > > > > > between the > > > > > > Income:Sales account and the Expenses:Cost of Goods Sold > > > > > > account > > > > > > entries. > > > > > > > > > > > > Dealing with any applicable taxes will add additional steps > > > > > > to the > > > > > > accounting as will making allowances returns of purchases > > > > > > to > > > > > > suppliersof faulty equipment and returns of equipment to > > > > > > you with > > > > > > faults by customers. You should consult an accountant and > > > > > > consumer > > > > > > legislation in your jurisdiction in how to deal with these. > > > > > > > > > > > > David Cousens > > > > > > > > > > > > On Wed, 2024-09-18 at 23:37 +0200, Boniforti Flavio wrote: > > > > > > > Hi. > > > > > > > Still very noob here, so bear with me please. > > > > > > > > > > > > > > I've got the following accounts (among others): > > > > > > > > > > > > > > Music equipment > > > > > > > Music equipment sold > > > > > > > Checking account > > > > > > > > > > > > > > When I buy music equipment, I take the money from my > > > > > > checking account > > > > > > > and > > > > > > > add it to the "music equipment" account. > > > > > > > When I sell music equipment, how should I register it? I > > > > > > thought that > > > > > > > the > > > > > > > account "music equipment" would decrease by the sold > > > > > > value, the > > > > > > > checking > > > > > > > account would increase by the same amount... but what > > > > > > happens with > > > > > > > the > > > > > > > "Music equipment sold" account? > > > > > > > Or am I wrong in separating "music equipment" from "music > > > > > > equipment > > > > > > > sold"? > > > > > > > > > > > > > > Thanks, > > > > > > > F. > > > > > > > > > > > > > > https://www.instagram.com/boniforti_music > > > > > > > https://soundcloud.com/boniforti_music > > > > > > > https://bonny-j.bandcamp.com > > > > > > > _______________________________________________ > > > > > > > gnucash-user mailing list > > > > > > > gnucash-user@gnucash.org > > > > > > > To update your subscription preferences or to > > > > > > unsubscribe: > > > > > > > https://lists.gnucash.org/mailman/listinfo/gnucash-user > > > > > > > ----- > > > > > > > Please remember to CC this list on all your replies. > > > > > > > You can do this by using Reply-To-List or Reply-All. > > > > > > > > > > > > _______________________________________________ > > > > > > gnucash-user mailing list > > > > > > gnucash-user@gnucash.org > > > > > > To update your subscription preferences or to unsubscribe: > > > > > > https://lists.gnucash.org/mailman/listinfo/gnucash-user > > > > > > ----- > > > > > > Please remember to CC this list on all your replies. > > > > > > You can do this by using Reply-To-List or Reply-All. > > > > > > > > > > > > _______________________________________________ gnucash-user mailing list gnucash-user@gnucash.org To update your subscription preferences or to unsubscribe: https://lists.gnucash.org/mailman/listinfo/gnucash-user ----- Please remember to CC this list on all your replies. 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