I needed an accounting software. A simple one to track and record all my payables and receivables.
There are a lot of accounting softwares and Quickbooks is the one I popped into my head. However, my need was very simple and before I go and buying some expensive accounting software. I was wondering is there any Free Software(Open Source) accounting software?
Luckily, I found one: GnuCash. I’ve wrote a short introduction for it few days ago. Welcome to check it out.
Here I am going to focus on how to use GnuCash with some explanation of double entry accounting.
So if you know nothing about double entry accounting and Gnucash or other accounting softwares. This is for you.
First thing first, we need to create a file to store all the accounts.
Click the button right next to GnuCash: "File" -> "New File"
Here is the screenshot after clicking the New File button:
For now, just clicked “Next” button until finish. However, when you come across the 4th one: Choose accounts to create.
Default is Common Accounts which is very useful but complicated. I’d recommend to chose A simple Checkbook which is the first one.
Un-click Common Accounts and then click “A Simple Checkbook”.
Below is the screenshot:
Then we continue to click “Next” button until finish.
After we finish the account setup, we’ll need to name our file and also chose a location to save the file and logs. It depends on you. Wherever is fine.
Here, I’m going to name my file: Demo and choose the default location to save all the logs related to this file. ( I’m using MacBook Pro. So the GnuCash is for macOs X. There are Linux and Windows versions as well. The interface might look slightly different.)
After loading, out initial look is like this:
The Formula of Accounting Equation
Assets = Liabilities + EquityAssets is what you own and liabilities are what you owe. Since we choose a simple checkbook, there is no liabilities section. I did it on purpose, because it will reduce the complicity of operating the software for now. However, if we chose the default one from GnuCash, there will be a section(it called account in GnuCash): Liabilities. I’ll have another article talking about this in the future.
So, in GnuCash system now, we simplified the whole thing to this:
Assets = Equity + (Income - Expenses)Supposed you have a bank account now, and you have 3000 USD there. Here is what we should do:
We add $3000 for the increase and chose “Assets:Current Assets:Checking Account” under Transfer menu list.
Now we are back to the main window. We could see GnuCash did the rest of things for us. It added $3000 USD to the “Assets” account. Under Equity account, there is another $3000, which was what we input.
Income
Assumed tonight we got $250 USD from work. I could immediately click “Income” account and add $250 to it. Here is the screenshot:
Be careful here. Under “Transfer” section, we need to chose “Assets:Current Assets:Checking Account” instead of “Income”.
It means the $250 USD you got tonight goes to checking account. If you choose “Income”, GnuCash will automatically balance out this amount of money by charging $250 at the same time.
So be careful of the transfer list.
“But I didn’t deposit 250 to my checking account, I just put it in my wallet.” Could we reflect this on Gnucash?
Yes, we could. I’ll explain how to do it in the next article.
Expenses
I suddenly remembered I drank a boba tea on 4/9. I could add this amount under “Expenses” account. And choose “Assets:Current Assets:Checking Account”.
Put $4.87 under “Expense” column.
Be careful. We shouldn’t add any amount under “Rebate” column.
Here is the final result: the payment ($4.87) is deducted directly from the checking account. GnuCash did this for us.
As you can see, the operations were simple. If we used credit cards or we had a lot of different types of expenses, then it may not be enough for us to record all of the transactions using these accounts.
Part 2 will cover more advanced features of GnuCash.
Assets = Liabilities + Equity + (Income - Expenses)Stay tuned.
