GNOME Bugzilla – Bug 113196
Begin/End dates for balance sheet (and other) reports
Last modified: 2018-06-29 20:32:03 UTC
Here is a summary of an email between a programmer and a Certified Public Accountant. It bests summarizes the bug and explains its importance. Question from programmer: In what way is Net Income not properly reflected on the Balance Sheet? Answer from Certified Public Accountant: If I were to run a Profit and Loss Report (What CPA's call the Income Statement)from July 1 - June 30, net income from that report would not equal the amount indicated as profit and loss on the balance sheet as of June 30. Net equity would be correct, but net income does not adjust itself to reflect a year spanning from July 1 of the prior year to June 30 of the current year. The bug only comes as a result of the program tieing the year end date to a calander year. It can be demonstrated by runnng a balance sheet as of June 30 and a profit and loss report from July 1 of the previous year to June 30 of the currentt year. Profit and loss on the Balance Sheet will not tie to the amount reported on the profit and loss. Question from Programmer: So you want the "End of Year" setting to imply June 30 and "Begining of Year" to be "July 1"? Unfortunately there is no way to do that, currently. The "year" is currently tied to calendar year. Answer from Certified Public Accountant: Yes, many government agencies and not for profit organizations have various year ends. Question from Certified Public Accountant: What piece of code determines this? Is it separable, can it go in a .conf file? Answer from Programmer: I dont know, I'd have to look. I think there is a date-utilities in the report subsystem that probably determines it. Question from Programmer: The balance sheet doesn't have a start-date setting. Answer from Certified Public Accountant: In general that is true, but Gnu Cash breaks out profit and loss on the balance sheet, and profit and loss is a measurement for a certain time period. Question from Programmer: Sorry, which report is the "income statement"? I don't see a report of that name in the Reports menu or any sub-menu. Answer from Certified Public Accountant: Profit and loss = income statement. Question from Programmer: Ahh, thank you. The P&L report does let you set the start date. The balance sheet does not. Please file a bug report at: http://bugzilla.gnome.org/enter_bug.cgi?product=GnuCash Answer from Certified Public Accountant: Ok, here it is :)
Changed summary to be more accurate changed component to reports
It looks like the balance sheet is computing the "retained income" by taking the sum of the balance of the income and expense accounts at the end of the period. Question: are the income/expense account balances not zero at the beginning of the period? Is the reported number "off" by that number? For example, let's say you run a report to July 31, 2002. Is that "off" by the amount you see if you run a report to July 31, 2001?
I just put an hour into updating the bug report, then it wanted a password. When I went to get it, the report was gone. I don't have time for that.
Well, it clearly accepted your password at the end.. And it keeps cookies so you shouldn't need a password unless you change to a different computer or a different IP Address. Also, i didn't think the question was hard enough to require an hour's response....
FYI, GnuCash does have the concept of a Financial Year, July 1 - June 30. Many of the date options allow you to specify the Current Financial Year or Previous Finanacial Year in the option menu. The only problem is that the july 1 date it is hard-coded. (See bug #101519)
This bug has not been fixed.
Did I say it was fixed? I was just pointing out that there was already a "financial year" choice. I admit that it's hard-coded to July 1, but it does at least mean gnucash isn't assuming Jan 1st. Also, you still have not answered my question: Question: are the income/expense account balances not zero at the beginning of the period? Is the reported number "off" by that number? For example, let's say you run a report to July 31, 2002. Is that "off" by the amount you see if you run a report to July 31, 2001?
Ok, I was able to "reproduce" this... If your income or expense accounts are not zero at the start of the period, then the "Profit" from the P&L report is going to differ from the "Net Profit" on the Balance Sheet by whatever the P&L Profit was at the beginning of the period. For example, I ran a P&L from 1/1/03-Today and Balance Sheet as of Today, and the difference between "Net Profit" on the Balance Sheet and "Profit" on the P&L was about $640. I then ran a P&L from 1/1/02-12/31/02 and lo! there was that extra $640. I think the problem is that the "Net Profit" on the Balance Sheet is mis-named. I think it should be called "Net Worth". The reason I believe this is that the "Net Profit" is computed as "Total Equity" - "Equity", where "Equity" is the sum of Opening Balances and Retained Earnings and "Total Equity" appears to be the difference "Assets" - "Liabilities". Obviously the Net Worth is NOT (necessarily) equal to your P&L Profit! So, if I change the label from "Net Profit" to "Net Worth", would that fix this whole confusion issue for you (and others?)
password test
You are persistant, and I have the day off.Persistance is an asset, don't loose it like I have. "The reason I believe this is that the "Net Profit" is computed as "Total Equity" - "Equity", where "Equity" is the sum of Opening Balances and Retained Earnings and "Total Equity" appears to be the difference "Assets" - "Liabilities". Obviously the Net Worth is NOT (necessarily) equal to your P&L Profit! So, if I change the label from "Net Profit" to "Net Worth", would that fix this whole confusion issue for you (and others?)" Ok, you are getting much closer. It would be most useful to show these three components of equity... :) -> Opening balances is NOT one of them. There really is no such thing.... Three components 1.Equity --->This could be stock, (stockholder's equity) a partner's share in the business (Parter's equity) [all you will care about here is allowing the user to change the name of it as necessary] When the company starts up, and assets are put into the business, equity is being put into the business as well. 2.Retained Earnings ----> Accumulated Net income over several accounting periods. 3. Net Income -----> Net income for the current period.
Hey, I'm just trying to get my bugs closed out. ;) I don't have that many, so I can devote a lot of time to this one. I'm looking at the Balance Sheet report right now. It shows all your Equity Accounts (regardless of what you name them). I happen to have one named "Opening Balances". Perhaps that is a poor naming choice on my part.... ;) However, I don't see how/where you are supposed to compute "Net Income" on a balance sheet. What is "Net Income"? A balance sheet is supposed to be a snapshot of Equity = Assets - Liabilities at a particular point in time, no? So, where does "Net Income" fit into this? Or are you asking for a compiled Balance Sheet + P&L Report?
See http://www.totaltaxsolutions.com/bal-sheet.htm for an example balance sheet which closely (but not exactly) matches what GnuCash produces. I don't see anything in here about Net Income (then again, I don't see anything in here about Net Worth, either ;) Perhaps this line should just be removed (and the Total Equity line fixed to actually be Total Equity).
"However, I don't see how/where you are supposed to compute "Net Income" on a balance sheet. What is "Net Income"? A balance sheet is supposed to be a snapshot of Equity = Assets - Liabilities at a particular point in time, no? So, where does "Net Income" fit into this?" That was the whole point of the bug. As I said, Net income is a component of equity. In accounting debits = credits. So, if I went to the street corner and sold $100 of lemonaide having nothing before, at the end of the first period I would have a balance sheet showing: Cash $100 Beginning Retained Earnings $ 0 Current Period Net Income $100 Ending Retained Earnings $100 Now if in my next year I have $200 of net income, I would want to show Cash $300 Beginning Retained Earnings $100 Current Period Net Income $200 Ending Retained Earnings $300 There are technical reasons why you would not want to simply show equity in the balance sheet.
"See http://www.totaltaxsolutions.com/bal-sheet.htm for an example balance sheet which closely (but not exactly) matches what GnuCash produces. I don't see anything in here about Net Income (then again, I don't see anything in here about Net Worth, either ;) Perhaps this line should just be removed (and the Total Equity line fixed to actually be Total Equity)." You can do that, but gnucash will not be as useful as Quickbooks. It is useful to show net income on the balance sheet as a component of equity.
Can you provide a URL that shows an example Balance Sheet that includes Net Income? I'm balking because currently a Balance Sheet is a snapshot at a period in time -- it has no idea about accounting periods. Indeed, it doesn't need one, it's showing the BALANCE (of assets and liabilities) at a particular point in time. Everything I've read (and indeed talking to a CPA) confirms my conviction that a balance sheet does not include income (or expenses).
Ok, I've done some more research here.. In my case (at least) the problem is due to a confusion of cash v. accrual accounting, and gnucash isn't coping well. In my case I have some expense entries dated December, 2002, which really apply to FY 2003 (because they weren't paid until 2003). So that's where my imbalance is coming from. So, there appears to be an architectural disconnect here -- I'm going to have to think about this for a while to see how I think it should work. I'm not convinced the balance sheet wants a start-date, and I'm thinking the P&L report might want to lose its start date -- and then we can just make sure that all income/expense accounts are $0.00 at the start of the period. *goes to ponder for a while*
I still have a question which you haven't answered: What is the result of a P&L report for the previous period? I.e., your current period is 1-July-2002 through 30-June-2003; what do you get from a P&L from 1-July-2001 through 30-June-2002?
Created attachment 16788 [details] Quickbooks balance sheet - useful format
"I'm balking because currently a Balance Sheet is a snapshot at a period in time --" Yes I know this. Why not take a look at the attached pdf file. It will show you a useful balance sheet. Look at the bottom. "I still have a question which you haven't answered: What is the result of a P&L report for the previous period? I.e., your current period is 1-July-2002 through 30-June-2003; what do you get from a P&L from 1-July-2001 through 30-June-2002?" This question does not make any sense.
"Everything I've read (and indeed talking to a CPA) confirms my conviction that a balance sheet does not include income (or expenses)." Go ask your CPA if NET INCOME is a part of equity as retained earnings. If he says no, he's not a CPA.
What about the question doesn't make sense? A P&L report has a start date and an end date. I want to know what the bottom-line total is of a P&L report run over the _previous_ period. The reason I'm asking is that in my data file, I had a few Income/Expense transactions with dates in the "previous" period that were not being included in the P&L report (but were in the Balance Sheet). Running a P&L over the previous period showed me these missing transactions.
"What about the question doesn't make sense? A P&L report has a start date and an end date. I want to know what the bottom-line total is of a P&L report run over the _previous_ period." Derrik, I have reached the point that I am convinced that no matter what I tell you, you won't understand. I am perfectly happy using Quickbooks in Wine. I am moving on to other things.
Perhaps we're talking past each other. I do understand what you're saying, and you HAVE convinced me that the Balance Sheet needs the Net Income (or Net Profit, or whatever it's to be called). I think part of the problem is that I'm an engineer and you're a CPA, and our language just isn't the same... So let me appologize for bastarding the Accounting Terms that I'm probably misusing. But really, I'm just trying to completely understand the problem so I can fix it correctly (see my recent mail to gnucash-devel on the subject). Having worked past the Balance Sheet's Net Profit issue, I'm now trying to figure out why the Net Profit on the Balance Sheet does not match the P&L report. You claimed that even if you set the P&L dates, it doesn't match the Balance Sheet. My guess is that you have income/expense transaction dated prior to the start-date of the P&L report, which is why I was asking for you to run the report for the previous period, to see if it is non-zero. I suppose a better question is: do you have income/expense transactions dated prior to the "current period"? Let's say you have a transaction for $100 to some expense account dated June 28th, 2002. If you run the P&L for July 1, 2002 - July 1, 2003, that $100 transaction will not be included. This is obviously the "right thing" based on the current implementation. However, the Balance Sheet is still including this $100 transaction in its computation of Net Profit. What I'm trying to determine (but you have still not answered) is whether the difference between Net Profit in the Balance Sheet and the total P&L can be accounted for by transactions prior to the start-date of the P&L. PS: I have re-opened this bug because there *IS* a bug....
I've added a start date to the balance sheet report. The fix is in CVS and will be in 1.8.4 I've also closed this bug, because I believe the only other issue (tying the fiscal year to july 1st) is better captured in bug #101519. Please feel free to open other bugs if there are problems with other reports, or if you feel I have not properly captured the fix for this one.
I have just started using version 1.8.4. I am afraid that the changes made to the balance sheet does not seem to fix the problem. The balance sheet now reports the sum of the (initial) equity and the net profit in the specified period as the total equity. This does not work, as demonstrated in the following example: 1. On January 1, 200, open a book by putting $100 in your cash account and the same $100 in your equity account. 2. In year 2000, the net profit was $20. 3. In year 2000, the net profit was $30. 4. In year 2002, the net profit was $60. Your equity, which started with $100, has increased by $20 + $30 + $60 = $110 by the end of year 2002. If we make a balance sheet dated December 31, 2002, the equity should be equal to $210 = $100 + $110. Nevertheless, gnucash 1.8.4 could give a very different answer, depending on which period(s) the net profit is computed for. If you specify 1/1/2002 - 12/31/2002 for the period for the net profit calculation, gnucash would say the total equity is $160 = $100 + $60. If instead you specify 1/1/2001 - 12/31/2002 for the period for the net profit, gnucash would conclude that the total equity is $190 = $100 + $30 + $60. These are not right. The only way to get the right answer is to set 1/1/2000 - 12/31/2002 (or maybe any period covering this period) to the period for the net profit calculation. So, I think that showing the net profit component of the total equity does not have much value, unless it comes with the correctly computed equity at the beginning of the period. If we have both of these, their sum should be equal to the correct value of the equity at the end of the period. At this point, I like the previous implementation of the balance sheet better. By the way, I am not a CPA. So, I am not sure if what I am suggesting here has anything to do with what linuxcpa argued earlier. But it would be great to follow the accounting convention used by CPAs. I wish linuxcpa could provide an entire sequence of calculations (i.e. formulas from the beginning to the end) to obtain the correct values from CPAs' point of view, so that Derek could implement it.
I suspect you are not properly "closing the books" at the end of each year, which is why you need to include all the income from all time. The "new" balance sheet assumes you are correctly implementing periods by hand (which means every Dec 31st you recompute your equity, and your "income/expese" account get reset to zero). Unfortunately GnuCash does not do this automatically, but I suspect linuxcpa was doing it by hand. The _REAL_ problem is that GnuCash does not implement periods. Until period support exists, the balance sheet is going to require some extra work on users, or it's going to be "wrong" in linuxcpa's view. So, honestly, I'm at a loss for what to do. Personally I think the balance sheet was correct before as well, except I can also see his point that the Balance Sheet and P&L should match (and if you have transactions "outside" the date range it will not). Again, the real solution is to implement Periods. However, I am still closing this bug out, because I do believe that what's in there now is "more correct" than what's there before, and as soon as periods get implemented it will be a direct conversion to correct operation.
Ok, we've actually made a lot of progress on the year end dates. You got the right idea. However, Gnucash 1.84 will report an out of balance balance sheet, but it should be easy to fix. Right now the balance sheet is missing Retained Earnings accumulated prior to the current reporting period. On the balance sheet.... Assets - Liabilities = Equity. And.... Equity = (Opening Balances +current period profit & loss + retained earnings accumulated prior to the current period) Ergo....algebraicly.... (Assets - Liabilities) - Equity = 0 (Assets - Liabilities) - (Opening Balances +profit & loss + retained earnings) = 0 (Assets - Liabilities) - (Opening Balances +profit & loss ) = Retained Earnings Set your math this way, and add a line to show retained earnings, and _Guess What! ---> GnuCASH will support _Accounting periods!!!!!_ :-) * YOU DID IT! * :-) To avoid confusion on the balance sheet, you should label the balance sheet dates as "reporting period." Note that I really like the flexibility of GNU cash here with regard to reporting periods. Gnucash will actually be _more_ flexible then Quickbooks!!! :-) On a separate issue..... If you run a profit and loss and click on a description in the profit and loss, you will see a list of all transactions from the beginning of time. It would be more useful if it only showed the transactions that make up the total on the profit and loss. After clicking on report, it would be useful to also be able to change the date range in the options tab. This feature would not be used often, but would be the little extra that turned the ordinary into the extraordinary here. Good job guys! James Leone, CPA
ok, i think I've got this. Any chance you could test the attached balance-sheet.scm to make sure it's doing everything you think it should? Just drop it into place in your install directory in place of the original balance-sheet.scm and then run the balance sheet. Thanks.
Created attachment 17768 [details] Proposed balance-sheet report
From: James Leone <linuxcpa@netscape.net> Subject: Re: I think I lost the attachment... To: warlord@MIT.EDU Date: Wed, 25 Jun 2003 13:10:14 -0700 F A N T A S T I C ! :-) P E R F E C T !!!!!! YES ! YES! YES! Close out both 'dem bugs! http://www.geocities.com/Colosseum/Bench/7484/gooooal.wav Yeeeeehaw!!!!!
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