Balance, Pad, and 'why should I use an equity account'?

[Oon-Ee Ng]

Preamble: I'm a former Gnucash user, and my pre-2017 accounts were imported from there, now using beancount with fava as a complete replacement.

Historically, I have an account called Expenses:UnaccountedExpenses which is the balancing account for things that go missing. I have two Cash accounts (Assets:Cash:Me and Assets:Cash:Wife) and we use fava to input our cash transactions on the go. Of course, over the course of a week or two sometimes we'll miss a transaction, maybe forget to record cash paid for lunch, maybe we dropped some coins on the floor, whatever it is. The amounts are small, and so I just created this UnaccountedExpenses account to track those amounts.

Additionally this account has been used to track unknown flows of money (I've had cheques and transfers appear in my bank account before which I have no record of. Perhaps payment for some service I've rendered but forgot about).

This seems to be what Pad and Balance are made for, in beancount. However the documentation recommends (highly?) an equity account, which makes sense for the example given of opening balances etc.

My question is - should my 'unaccounted transactions' be considered an equity transfer or an expense? My previous reason for listing this as an expense is that the cashflow tracked here is almost always actually a (forgotten) expense, and should thus show up as something I've spent. I'd like to hear some accounting reasoning on that (I understand equity to mean 'value', but I'm an engineer not an accountant).

Thanks!

[Oon-Ee Ng]

Another thing to note is that there's likely a fava bug (going to report it now) where balance/pad transactions don't actually update the 'target' account. Bean-web seems to handle this fine.

[Jason Chu]

The "bug" you're noticing is because you haven't clicked the Pad button to show padded transactions.  They exist, because they're a fundamental concept in beancount, they're just not displayed by default.

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[Oon-Ee Ng]

No, I see the transaction (did enable pad/balance transactions in the selection), it just doesn't update the balance. Here's the bug report with screenshot. https://github.com/beancount/fava/issues/527

On Fri, Apr 14, 2017 at 6:27 AM, Jason Chu <xen...@gmail.com> wrote:

The "bug" you're noticing is because you haven't clicked the Pad button to show padded transactions.  They exist, because they're a fundamental concept in beancount, they're just not displayed by default.

On Thu, Apr 13, 2017 at 3:18 PM Oon-Ee Ng <ngoone...@gmail.com> wrote:

Another thing to note is that there's likely a fava bug (going to report it now) where balance/pad transactions don't actually update the 'target' account. Bean-web seems to handle this fine.

On Fri, Apr 14, 2017 at 6:14 AM, Oon-Ee Ng <ngoone...@gmail.com> wrote:

Preamble: I'm a former Gnucash user, and my pre-2017 accounts were imported from there, now using beancount with fava as a complete replacement.

Historically, I have an account called Expenses:UnaccountedExpenses which is the balancing account for things that go missing. I have two Cash accounts (Assets:Cash:Me and Assets:Cash:Wife) and we use fava to input our cash transactions on the go. Of course, over the course of a week or two sometimes we'll miss a transaction, maybe forget to record cash paid for lunch, maybe we dropped some coins on the floor, whatever it is. The amounts are small, and so I just created this UnaccountedExpenses account to track those amounts.

Additionally this account has been used to track unknown flows of money (I've had cheques and transfers appear in my bank account before which I have no record of. Perhaps payment for some service I've rendered but forgot about).

This seems to be what Pad and Balance are made for, in beancount. However the documentation recommends (highly?) an equity account, which makes sense for the example given of opening balances etc.

My question is - should my 'unaccounted transactions' be considered an equity transfer or an expense? My previous reason for listing this as an expense is that the cashflow tracked here is almost always actually a (forgotten) expense, and should thus show up as something I've spent. I'd like to hear some accounting reasoning on that (I understand equity to mean 'value', but I'm an engineer not an accountant).

Thanks!

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[Martin Blais]

I don't see a problem using it against an Expenses account.

You can certainly do that.

There's no guidance on this... this type of semi-automated padding is a Beancount feature for your convenience.

[Daniel Clemente]

>
> My question is - should my 'unaccounted transactions' be considered
> an equity transfer or an expense? My previous reason for listing
> this as an expense is that the cashflow tracked here is almost
> always actually a (forgotten) expense, and should thus show up as
> something I've spent. I'd like to hear some accounting reasoning on
> that (I understand equity to mean 'value', but I'm an engineer not
> an accountant).
>

My reasoning is to use the most specific account you can, where „Equity“ is the least specific and therefore less specific than „Expenses“.

E.g.
- if you know you spent $1 in food, specifically cookies, you could use Expenses:Food:Cookies
- if you know you spent $1 in food but don't need to specify what exactly, use Expenses:Food:Various
- if you know you spent $1 but don't need to say (or remember) in what, use Expenses:Unaccounted (or call it Expenses:Various)
- if you know there was a $1 transaction but you don't even know if it was an Expense or an Assets transfer or a Liability etc., use Equity:Unaccounted

Also, to each of the previous cases, add this subcase: „if you don't know the amount or the number of transactions, you should use 'pad' with that account instead of writing the amounts (like $1)“. That is, you could pad to Expenses:Food:Cookies, to Expenses:Food:Various, Expenses:Unaccounted, Equity:Unaccounted. Other accounts (Income, …) also make sense: for instance, I have a bank account that pays around 0'02€ every month in interest, and I won't spend time recording every transaction; instead I pad to Income:Bank1:Interest, maybe once a year, to express that „this account paid me some interest but I don't care about the number of transactions or the amount of each transaction“.

In practice, I rarely use Expenses:Unaccounted (== „I spent something but don't know what“) because it rarely happens that I know nothing else about the transactions; instead I'll say the type (e.g. Expenses:Food:Various) or just use Equity:Unaccounted for all cases (== „there were some movements, but I don't know or I don't care about which ones or even about +/-“). Equity:Unaccounted always with pad (never write Equity:* transactions by hand unless you understand very well everything else, and be prepared to rectify them if you do, because it makes little). I sometimes use „Expenses:Food:Various“ with pad. And of course „Expenses:Food:Cookies“ never with pad, always with detailed information.

I remember this topic was very difficult for me to understand, because you have the freedom to use accounts as you like and you need to create your own rules as you understand more and more. My rules and algorithms are the ones stated above, and I don't know if they're accounting-ly correct, but they now make sense to me.


Greetings