nathan,
This would normally be regarded as a capital gain (or loss) on sale of the item
and whether it is or not depends on the capital gains tax rules as they apply to
this item in your jurisdiction. As such it may be subject to capital gains tax,
in which case you would need to treat it differently from other income which is
subject to income tax rather than capital gains taxes. The process is much the
same but you create additional income and expense accounts for use with items
subject to capital gains, which sum separately form your income accounts for
items subject to income tax ie,e you might have a heirarchy something like
Income:Taxable
Income:Capital_Gains
Income:Noon-Taxable
with a similar heirarchy in your expense accounts. These can then produce
separate line items for each of these categories in the reports produced ( with
the appropriate choices in the report options settings. It is also a common
practice to use a single account usually under Income for both capital gains and
losses and not have expense accounts for losses.
GnuCash uses double entry accounting and a purchase transaction will record the
transfer in value from one asset, your checking account, with a credit entry
(called one split of the transaction to the GnuCash account representing your
checking account) to the new asset (with a debit entry/split to the GnuCash
account representing the asset). The two splits which each affect different
accounts form a single transaction.
In accounting we normally distinguish between assets purchased for immediate
use within the current accounting period (current assets) and assets which are
held for longer than a single accounting period (non-current assets). The
purchase of a current asset, e.g. office supplies, is recorded against an
expense account (a temporary equity account in conjunction with income accounts
to record profit and loss in the current accounting period) immediately on
purchase rather than against an asset account ( credit to the checking account
and debit to the expense account, whereas the purchase of a non-current asset,
e.g. land or a building or plant) is normally recorded against an account in
non-current assets (credit to the checking account and debit of the appropriate
asset account).
I would suggest working through the Tutorial and Concepts Guide
https://www.gnucash.org/docs/v4/C/gnucash-guide/index.html if you are not
familiar with double entry accounting practice. The introductory chapters give a
brief overview of double entry accounting and subjects like purchases,
sales,capital gains and losses are dealt with in later chapters as are things
like depreciation of assets for which the values is consumed over periods much
larger than a single accounting period. It is useful to setup a dummy set of
books to do the examples in the guide. The help manual is more of a button by
button description of the interface operation but is also useful
https://www.gnucash.org/docs/v4/C/gnucash-help/help.html. These are also
downloadable in PDF format if that is more useful for you.
David Cousens
On Thu, 2022-05-19 at 22:11 +, Nathan Falco wrote:
> I need to set up an account structure to show the flow of transactions for the
> following scenario.
>
> I use money in a checking account to purchase a physical item. I sell the item
> for more than I paid for it. I put the money back into the checking account.
>
> I imagine I could record the purchase merely as an expense and record the sale
> merely as income?
> But I would like to show the cost and the income related to each specific item
> I sell. So I imagine another way I could do it would be to convert the money
> used to pay for the purchase into an asset, and then convert it back into
> money when I complete a sale. I hope to be able to show that as the value of
> the checking account decreases the value of the asset account increases and
> vice versa. What kind of transaction would show the increase of value? Should
> I just add a split to the record of the sale and label it income? Because I
> think that would only capture the net. I would want the record to show that
> money received from the sale would be counted as income. I also would want to
> show that any cost related to selling the item was an expense.
>
> Please reply with which method is the best suggested method. Also please
> include a dummy account structure that shows the basic classifications that I
> should use. Thank you.
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