Beginners Guide to Using Gnucash

Before you begin working on GnuCash, It is recommended you have a basic understanding of Accounting Concepts, and that you understand this section before proceeding.

GnuCash is easy enough to use that you do not need to have a complete understanding of accounting principles to find it useful. However, you will find that some basic accounting knowledge will prove to be invaluable as GnuCash was designed using these principles as a template.

The 5 Basic Accounts

Basic accounting rules group all finance-related things into 5 fundamental types of “accounts”. That is, everything that accounting deals with can be placed into one of these 5 accounts:

Assets -Things you own

Liabilities -Things you owe

Equity- Overall net worth

Income – Increases the value of your accounts

Expenses – Decreases the value of your accounts

It is clear that it is possible to categorize your financial world into these 5 groups.

For example, the cash in your bank account is an asset, the business loan you owe the bank is a liability, money earned in the course of your business is income, and the cost of office supplies for your business is an expense.

The Accounting Equation

The relationship between 5 basic accounts and how one type of account affect the others:

Assets – Liabilities = Equity

You can increase your equity through income, and decrease equity through expenses. For Example: when you receive sales income you become “richer” and when you pay for office expenses you become “poorer”. This is expressed mathematically in what is known as the

Accounting Equation:

Assets – Liabilities = Equity + (Income – Expenses)

This equation must always be balanced, a condition that can only be satisfied if you enter values to multiple accounts.

For example: if you receive money in the form of income you must see an equal increase in your assets.

As another example, you could have an increase in assets if you have a parallel increase in liabilities. Such as in the case of a business loan that increases your assets.

The Double Entry System of Accounting

GnuCash uses what’s called a double-entry accounting system. This is a formal system that’s a worldwide standard for accounting.

What a double-entry system means is that every single transaction or every record in GnuCash has at least two records that are going on behind the scenes. There are two transactions, a debit, and credit, and they have to add up to the same amount.

Most of the time, you don’t see this happening. For example, when I create an invoice, you’re sending it out to a customer, and an account of yours will get debited. That account is the accounts receivable account. It’s the account that’s waiting for this money.

When your customer pays you, that payment gets credited from your accounts receivable, and it’s being debited into your company’s checking account, which is where the money is arriving.

Every single transaction needs this double system to tell it where to go and where it’s coming from. In fact, different types of accounts will handle debts and credits differently. In some accounts, a credit means the account is decreasing in value, and in others, it means the account is increasing.

GnuCash makes it easy for newbies to enter debits and credit transactions by using the term deposits and withdrawals instead of debits and credits. If you prefer to use the term debits and credits it is possible to turn on that feature.

1. How to Install GnuCash

Gnucash can be installed on windows or mac computer, desktop, or laptop. GnuCash is available for older operating systems such as Windows 7, Vista, XP, and earlier Mac operating systems.

Installing GnuCash

To download the latest stable release of GnuCash visit gnucash.org. On the GnuCash Welcome Page, you are given the option to download the latest version of the software based on your computer operating system. Click on the link which best describes your operating system.

Once you click on an option you will be directed to a download page. On the download installation page, the message your download will start shortly will appear. And with some browsers, you will see the download in progress on the bottom of the screen.

Once the download is complete, you will find the GnuCash executable file under your windows download folder. Double-click on the GnuCash setup icon to launch the program.

Windows security might pop up with a message the publisher could not be verified, are you sure you want to run this software? Or do you want to allow the following program from an unknown publisher to make changes to this computer?. Click Run or Yes to continue.

On the first screen, you see The language selection dialog box with English already selected by default, if you need a different language click on the drop-down arrow and select it. next click OK to continue.

The next screen is The License Agreement when you are finished reading it, which is a good idea to read it, then click on next to proceed to the next screen.

The next screen will show the Full Installation that will be installed on your computer, and below it specifies how much free space in megabytes (MB) is required on your hard disk to install the program. when you are satisfied that your computer can handle the installation click next.

The next screen will give you the option of having the program create a desktop icon and a start menu link for you. It is better to leave this option checked to allow the software to create the icon and link, it will save you time searching for the program to start it since the program will install a shortcut on the desktop. Click Next to continue.

The next screen is simply a recap of all the selections made by you so far. Click Install to start the installation. this may take several minutes, follow the instructions to complete the setup. When the installation is completed successfully, you should see the GnuCash icon on the Desktop.

3. Tour Of The GnuCash Interface (Video)

In this tutorial, I will give you a basic tour of the GnuCash interface so that you can become familiar with the layout, and how things work.

The Account Tree Window

The Account Tree Window is the first window to appear when you first start the program, right after you close out the tip of the day. Gnucash refers to it as the Account Tree, In accounting terms, it is known as a Chart of Accounts). GnuCash account tree has the 5 basic categories of accounts used in accounting by a Business or an organization to classify and distinguish financial transactions, conducted during a specific accounting period. These 5 basic categories are what you will use to keep track of your business accounting records.

The Assets Category – keeps track of the things the business owns- such as money in your business checking account.

The Equity Category – keeps track of the businesses overall net worth.

The Expenses Category- keeps track of your legitimate business expenses. Such as purchasing office supplies or products to sell or any expense that is necessary for your business to run smoothly.

The Income Category: keeps track of the business’s gross earnings. The gross earning is all the money you are making in the course of your business this amount does not reflect the business deductions or Liabilities.

The Liabilities Category– keeps track of how much money the business owes, for example, say you purchase products for your business from a vendor on credit, this is a liability meaning money the business still owes. Any money the business owes will be recorded in the liabilities category.

4. Entering Simple And Split Transactions in GnuCash

The chart of accounts represents the different types of business expenses and income you can expect to encounter in the course of your business. For instance, the opening balance should be your very first entry. You only have to enter this transaction one time when you first start using GnuCash.

The opening balance should reflex the ending balance of your last business checking account statement or the newly deposited amount if you have just opened a new business checking account.

 In Gnucash a transaction with only two splits is called a simple transaction., since it only involves the current account and a single chart of account. An example of two splits in the previous tutorial with the opening balance transaction of the 500.00, the two splits involved are the checking account and the equity: opening balance.

Every transaction in GnuCash has at least two splits, but a transaction can have more than two splits. A transaction that involves three or more accounts is called a split transaction. The need for 3 or more splits in a transaction occurs when you need to split either the “from” or the “to” account into multiple transaction accounts.

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