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266 lines
10 KiB
266 lines
10 KiB
<ARTICLE ID="XACC-DOUBLEENTRY">
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<ARTHEADER>
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<TITLE>Understanding Double-Entry Accounting</TITLE>
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</ARTHEADER>
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<SECT1 ID="XACC-DOUBLEDEF">
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<TITLE> What is Double-Entry Accounting?</TITLE>
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<PARA>
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You've probably heard the saying, "Money doesn't
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grow on trees." It means that money must come from
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somewhere---it doesn't just "appear." Double-entry accounting is
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a method of record-keeping that lets you track just
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<emphasis>where</emphasis> your money comes from and <emphasis>
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where</emphasis> it goes. </para>
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<para> Using double-entry means that money is never gained nor lost---it
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is always transferred from somewhere (a source account) to
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somewhere else (a destination account). In GnuCash, this
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transfer is known as a <EMPHASIS>transaction</emphasis>, and each
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transaction requires at least two accounts. </para>
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<para> An <emphasis>account</emphasis> in GnuCash is a record for
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keeping track of what you own, owe, spend or receive. For
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example, if you pay a phone bill with a check, money transfers
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from checking to the phone company. In GnuCash, this is a
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transaction transferring money from a checking account to a phone expense
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account. You probably already think of your checking account as
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a bank "account," but your expenses (such as phone bill) are
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also "accounts" in GnuCash. </para>
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<para>This double-entry concept has been around since the 13th century,
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and its purpose has always been to reduce the likelihood of
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data-entry errors. Fortunately, GnuCash makes it a lot easier
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to enter transactions than it was in those early days of
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accounting!
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</PARA>
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<sidebar><title>Insider knowledge:</title>
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<para>
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Calling this
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<EMPHASIS>double</EMPHASIS>-entry bookkeeping is a bit misleading;
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it would be somewhat more accurate to call it <EMPHASIS>multiple-
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</EMPHASIS>entry bookkeeping, since a transaction can affect more
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than two accounts. Unfortunately, there's 700 years of
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history of use of the term, which sufficiently discourages
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changing it.
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</para>
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</sidebar>
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</SECT1>
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<SECT1>
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<TITLE>Why Use Double-Entry Accounting?</TITLE>
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<PARA>
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Double-entry accounting helps you avoid mistakes. This is why
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professional accountants use it. A double-entry
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system provides a good check-and-balance benefit, by making
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it easier for you to trace the source of any entry errors. </para>
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<para>It also provides more useful and complete information to you than
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you would get with just a single-entry "checkbook" approach. Because each
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transaction contains both a source and destination, double-entry
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provides valuable details that can be sorted and viewed in report
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form later. Reports allow you to see things like how much money
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you made for the year and where it all went, what your net worth
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is, and what your taxes might be for the year.</para>
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<para>GnuCash offers an advantage over traditional accounting packages
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because it does a lot of the double-entry work for you while still
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giving you the accuracy benefits of double-entry accounting.
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</PARA>
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</SECT1>
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<SECT1 ID="XACC-DOUBLEENTRYRULE">
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<TITLE> The Rule of Double-Entry Accounting</TITLE>
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<PARA>In a double-entry transaction, an equal amount of money is
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always transferred from one account (or group of accounts) to
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another account (or group of accounts). Accountants use the terms
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<emphasis>debit</emphasis> and <emphasis> credit</emphasis> to
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describe whether money is being transferred <emphasis>
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to</emphasis> or <emphasis> from</emphasis> an
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account. </para>
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<para> Money is recorded in the debit column, which is the left
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column, when it is being transferred <emphasis>to</emphasis> an
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account. Money is recorded in the credit column, which is the
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right column, when it is being transferred
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<emphasis>from</emphasis> an account. For every transaction, the
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total of debits (left column entries)
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must equal the total of credits (right column entries).
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</PARA>
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<para> You don't have to use the terms "debit" and "credit" to use
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GnuCash, however. GnuCash registers default to "common" column
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headings such as "deposit" and "withdrawal"---if you are more
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comfortable with those headings, use them. If you prefer the
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credit and debit headings, you can change the column headings to
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"use accounting labels" from the menu item
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<guimenuitem>Settings|Preferences...General</guimenuitem>.</para>
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<para>The main concept to remember, regardless of terminology, is
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that all transactions involve a transfer of some amount of money
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from a source to a destination. For example, if you write a check
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for $50 to buy groceries, you record that as a transfer of $50
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from the checking account to the groceries expense account. In
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accounting terms, this is a credit to checking and a debit to
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groceries expense:</para>
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<literallayout>
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Debit Groceries 50
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Credit Checking 50</literallayout>
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<PARA>What about your paycheck? You can see that money goes into a bank
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account, but where does it come from? In double-entry, the
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money has to have a source, and the source of your paycheck is
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an income account. So to enter the deposit of a $500 paycheck
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in your checking account, you record a transfer of $500 from an
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income account to a checking account. In accounting terms, this
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is a credit to income and a debit to the bank account:</para>
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<literallayout>
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Debit Checking 500
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Credit Income 500</literallayout>
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<sidebar><title>Insider knowledge:</title>
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<para>
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Bank statements are often written up from the bank's
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perspective, which is exactly <emphasis>opposite</emphasis> to
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yours. When you deposit that paycheck in the bank, you are
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giving the bank money which they promise to pay you back
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someday. So to the bank, your deposit is a loan; it is money
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they owe you. Since that money is a
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<emphasis>source</emphasis> of funds to the bank, they show a
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<emphasis>credit</emphasis> to your checking account when you
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deposit money in it.</para>
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</sidebar>
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</SECT1>
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<SECT1 ID="XACC-DOUBLEUSE">
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<TITLE>Using Double-Entry in GnuCash</TITLE>
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<para>Let's try an example that applies double-entry accounting to
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using GnuCash. We will record the deposit of a $500 paycheck. </para>
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<SECT2>
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<title>Creating Accounts</title>
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<para>
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To enter a paycheck deposit, you first need to create two
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accounts. The first account is a checking account. Click
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the <guibutton>New</guibutton> button in the main window
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toolbar to create a new account, then enter the following
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account details in the dialog box that appears:
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<literallayout>
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Account Name: "Checking"
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Account Type: Highlight "Bank"
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Parent Account: Highlight "New top level account"
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</literallayout>
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</para>
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<para> Click "OK" to complete setup, then create a second income
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account. Click the <guibutton>New</guibutton> button again, and enter these
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details in the dialog box:
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<literallayout>
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Account Name: "Salary"
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Account Type: Highlight "Income"
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Parent Account: Highlight "New top level account"</literallayout></para>
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<sidebar><title>Insider knowledge:</title>
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<para>
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GnuCash provides several different types of accounts, discussed in
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the <LINK LINKEND="XACC-ACCTYPES">Account Types </LINK>
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section. Debits increase your asset and expense accounts, while
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credits increase your income, liability and equity accounts.
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Income and expense accounts are also discussed in more detail in
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the <LINK LINKEND="XACC-INCOMEEXPENSE">Income/Expense</LINK>
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section.</para></sidebar>
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</sect2>
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<SECT2>
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<TITLE>Creating Transactions</TITLE>
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<PARA>To create a double-entry transaction for the paycheck deposit:
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<orderedLIST>
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<LISTITEM>
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<PARA> Open the Checking account register you just created by double-clicking
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on the account name in the main window.
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</PARA>
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</LISTITEM>
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<LISTITEM>
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<PARA>Tab to the Description field and enter "Paycheck Deposit."
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</PARA>
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</LISTITEM>
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<LISTITEM>
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<PARA>Tab to the Transfer field and select the Salary account from the
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pull-down menu.
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</PARA>
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</LISTITEM><LISTITEM>
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<PARA> Tab to the Deposit column and enter "500," then hit "Enter" to
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record the transaction. Now your Checking account
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shows a debit entry of 500.
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</PARA>
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</LISTITEM>
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<LISTITEM>
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<PARA>Highlight the transaction again and click the "Jump" toolbar
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button to see the transaction's effect on the Salary
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account. Notice that in the Salary account, you now
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have a matching credit entry of 500 that GnuCash entered
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automatically for you.
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</PARA>
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</LISTITEM>
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</orderedLIST>
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</PARA>
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</SECT2>
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<SECT2>
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<TITLE>Changing Transactions</TITLE>
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<PARA>
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What if you want to edit this transaction to increase the
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paycheck deposit to $600? To <EMPHASIS>change</EMPHASIS> a
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double-entry transaction, simply select the transaction in any
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register in which it appears, then make your changes and
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record the transaction. In this case, you can either edit the
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transaction from the Checking account register or the Salary
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account register. Any changes made will be automatically
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reflected in both accounts and all windows displaying the
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transaction.
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</PARA>
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<PARA>
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To change the transfer account, simply select a new account
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from the pull-down menu. When you record the transaction, this
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account change will be reflected in all affected accounts.
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Similarly, when a double-entry transaction is deleted, entries
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will be deleted from all affected accounts, and balances will
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automatically be recalculated for those accounts.
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</PARA>
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</SECT2>
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</sect1>
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</ARTICLE>
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<!-- Local variables: -->
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<!-- sgml-parent-document: "gnucash.sgml" -->
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<!-- End: -->
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