# The Basics

This chapter will introduce some of the basics of using &app;. It is recommended that you read through this chapter, before starting to do any real work with &app;. Next chapters will begin to show you hands on examples.

## Accounting Concepts

&app; 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 &app; was designed using these principles as a template. It is highly recommended that you understand this section of the guide before proceeding.

### 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, your mortgage is a liability, your paycheck is income, and the cost of dinner last night is an expense.

### The Accounting Equation

With the 5 basic accounts defined, what is the relationship between them? How does one type of account affect the others? Firstly, equity is defined by assets and liability. That is, your net worth is calculated by subtracting your liabilities from your assets:

Assets - Liabilities = Equity

Furthermore, you can increase your equity through income, and decrease equity through expenses. This makes sense of course, when you receive a paycheck you become richer and when you pay for dinner 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.

#### The basic accounts relationships

The basic accounts relationships

A graphical view of the relationship between the 5 basic accounts. Net worth (equity) increases through income and decreases through expenses. The arrows represent the movement of value.

### Double Entry

The accounting equation is the very heart of a double entry accounting system. For every change in value of one account in the Accounting Equation, there must be a balancing change in another. This concept is known as the Principle of Balance, and is of fundamental importance for understanding &app; and other double entry accounting systems. When you work with &app;, you will always be concerned with at least 2 accounts, to keep the accounting equation balanced.

Balancing changes (or transfers of money) among accounts are done by debiting one account and simultaneously crediting another. Accounting debits and credits do not mean decrease and increase. Debits and credits each increase certain types of accounts and decrease others. In asset and expense accounts, debits increase the balance and credits decrease the balance. In liability, equity and income accounts, credits increase the balance and debits decrease the balance.

This accounting terminology can be confusing to new users, which is why &app; allows you to use the common terms Deposit and Withdrawal. If you prefer the formal accounting terms, you can change the account register column headings to use them in the General tab under Preferences (see the &app; Help Manual for more information on setting preferences).

## Data Entry Concepts

When entering data in &app;, you should be aware of the 3 levels of organization in which &app; divides your data: files, accounts and transactions. These levels are presented in their order of complexity, one file contains many accounts and one account contains many transactions. This division is fundamental to understanding how to use &app;.

### Files

&app; stores information at the highest level in files. A file can be stored on your computer either as a single XML file (in all versions of &app;), or in a SQL database (in &app; version 2.4 and higher).

SQL is pronounced sequel, so in spoken and written language we would say a SQL database.

With the XML file format, &app; stores your data in an XML data file, usually in compressed format (although this can be changed in the General tab of the &app; Preferences).

With SQL storage, &app; stores your data in a SQL database under the database application you select (SQLite3, MySQL or PostgreSQL).

You will need one main file or database for each set of accounts you are maintaining. To learn how to create and manage &app; files, see .

If you think you might need more than one set of accounts, you might want to consult a professional accountant or bookkeeper before proceeding. Most users will probably have only one data file.

Backup files and log files are automatically generated by &app; when appropriate. Backup and log files are described in .

### Accounts

An account keeps track of what you own, owe, spend or receive. Each &app; file can contain any number of accounts, and each account can contain many sub-accounts up to an arbitrary number of levels. This simple feature gives &app; much of its power in managing your finances, as you will see in later chapters.

Examples of accounts include: checking accounts, savings accounts, credit card accounts, mortgages, and loans. Each &app; account tracks the activity for that real account, and can inform you of its status.

In addition, accounts are also used to categorize the money you receive or spend. For example, you can create expense accounts to track the money you pay on utilities or groceries. Even though these are not accounts that receive statements, they allow you to determine how much money is being spent in each of these areas.

Accounts will be covered in more detail in .

### Transactions

A transaction represents the movement of money among accounts. Whenever you spend or receive money, or transfer money between accounts, that is a transaction.

Examples of transactions are: paying a phone bill, transferring money from savings to checking, buying a pizza, withdrawing money, and depositing a paycheck. goes more in depth on how to enter transactions.

In double entry accounting, transactions always involve at least two accounts–a source account and a destination account. &app; manages this by inserting a line into the transaction for every account that is affected, and recording the amounts involved in each line. A line within a transaction that records the account and amount of money involved is called a split. A transaction can contain an arbitrary number of splits.

Splits in transactions will be covered in

## Interface

The very first time you open &app;, you will see the Welcome to &app;! screen. From there, &app; provides other tools to help you easily find what you are looking for. Let’s take a look at some of the common screens and screen boxes you will see.

### Tip of the Day

&app; provides a Tip of the Day screen to give helpful hints for using the program:

The Tip of the Day

This image shows the Tip of the Day.

These tips provide useful information for beginning users. To view more of the tips, click Forward to continue. If you do not wish to see this screen box on start-up, deselect the box next to Show tips at startup. When you have finished viewing the helpful tips, click Close to close the Tip of the Day screen.

### Account Tree Window

You should now see the Accounts window, which appears as shown below. The exact layout of the account tree will depend on which default accounts you selected during the New Account Hierarchy Setup. In this example, the Common Accounts are shown.

The Account Tree Window

This image shows the Accounts window.

The Account Tree window provides an overview of the data contained in the current file. It contains a list of account names and their current balances. From this window, you can open any of the accounts. The individual account windows are called account registers. &app; allows you to have as many account registers open as you wish.

At the top of this window is the Titlebar, which displays the file name (once you have saved the file.) Below that is the Menubar. You can access the menu options by either clicking on these menu headings or by using shortcuts and access keys (see ). Next is the Toolbar, which contains buttons for the most common functions.

The account tree appears below the Toolbar. Once you have started creating accounts, the account names will appear in the account tree. You can customize which headings show up by using the small down-arrow at the far right just above the account tree.

At the bottom is the Statusbar, which tells you information about what you own (Net Assets) and how much money you have made (Profits).

### Account Register Window

The Account Register windows are used to enter and edit your account data. As the name suggests, they look similar to a checkbook register. When you double-click an account name in the Accounts window, the Register window for that account will open.

The Checking Account Register

This image shows the Checking Account - Register with several transactions.

explains more about account register windows and how to enter data into them. For now, note that the parts of an account register window are similar to the parts of the account tree window described earlier. The Titlebar at the top contains the account name. Below that, the Menubar contains menu options related to the account register. Toolbar buttons simplify common data entry functions. The Statusbar at the bottom of the window, displays some account balances covered in . At the bottom of the account register window, information appears about the current location of the cursor.

In the register windows, you can resize the various columns that &app; displays, but keep in mind that the description column will automatically expand to fill all unused space. Therefore you should increase the size of all your other columns first and then decrease the size of the description column.

### Toolbar Buttons

Both the account tree window and the account register window contain Toolbar buttons. These buttons provide quick access to common functions such as Save and Open in the account tree window and Record and Delete in the account register window. If you are not sure what a button does, move the mouse pointer over that button, and you should see a description of the function appear.

Here is a summary of the account tree window buttons:

- Save — Save the current file to disk.

- Close — Close the current notebook page.

- Open, Edit, New and Delete — These are functions related to accounts. They are discussed in .

Register buttons are discussed in .

### Menu Items

The account tree window and the account register window both contain menu headings in a Menubar. Clicking on a menu heading brings up the menu items for that heading.

You can click on the account tree menu headings and then move the mouse pointer over the menu items to see what they do. As the pointer moves over a menu item, a description of the item appears in the lower left-hand corner of the window (inside the Statusbar). To select a menu item, click on it.

You can also access the most common menu items in a window by right-clicking the mouse anywhere in that window. In the account tree window, this will bring up a list of account items. In the account register window, this will bring up a list of transaction items.

Other ways of accessing menu items are through keyboard shortcuts and access keys, described next.

### Menu Shortcuts

All of the menu items have access keys which are marked by underlined characters in the menu names. Pressing the Alt key with the underlined character in the menu heading will bring up the menu items for that heading. Once the menu items are displayed, type the underlined character in the menu item to activate it. For example, typing Alt F in the main window brings up the File menu, then typing S will save the file. Access keys are fixed and cannot be changed by users.

Some of the more commonly used menu items also have shortcut keys that directly activate the command without having to traverse the menu structure. These shortcuts typically use the Ctrl key, although they can use any key combination. Menu shortcuts are displayed at the end of each menu item.

## Getting Help

&app; offers help in many ways. We have already covered the Tip of the Day screen that gives you helpful hints upon start-up of your &app; session. &app; also offers an extensive help manual.

### Help Manual

Once you have opened &app;, you will see the Account Tree window Help menu heading, which opens the on-line manual. The on-line manual is organized by topic, and you can expand each topic into its subtopics.

Topics are listed on the left side. To select a topic or subtopic, click on it, and you should see the text for that topic appear on the right. Use the Back and Forward buttons to navigate through your topic choices, and print any text using the Print button.

### Web Access

The &app; Help window also acts as a simple web browser, so you can pull up a web site for additional information. You can open any web site under this window by clicking the Open Toolbar button and then typing in the URL. Use the Back, Forward, Reload, Stop, and Print buttons as you would in a standard browser.

The &app; web site contains helpful information about the program and about any updates to it. It also contains links to the &app; mailing lists for developers and users, and you can search the archives of &app; mailing lists for discussions on a particular topic. If you don’t find the answers you are looking for, you can post your question to the &app; user list, and someone on the list will attempt to answer you.

The most updated &app; FAQ is also located on the &app; FAQ website, and contains answers to the popular questions.

### Topic Search

The online manual also provides a search function. To search for a particular topic, click the Search tab at the bottom of the help window and type in your topic in the field provided. Click the Search button to complete your search. A list of choices should appear in the box below, clicking a choice will bring up its text on the right.

## Storing your financial data

&app; is able to store your financial data in files or SQL databases so that they can be opened and modified at a later time. But first you need to create a container for your data.

### Creating a file

To create a new &app; file do the following:

1. From the &app; Menubar, choose File New File. The New Account Hierarchy setup assistant will start.

   If you are running &app; for the first time, you will be presented with the Cannot find default values screen or with the Welcome to &app;! screen. Both are described in detail in the &app; manual.

2. Set your preferences in the assistant and move through the screens with the Forward, Cancel and Previous buttons.

### Saving data

Follow these steps to save the file under your preferred name:

1. Choose File Save As... from the Menubar or select the Save Toolbar button. &app; will bring up the save window.

2. Select the Data Format of the file you are saving from the drop down list. The default selection is XML but if you have set up a database back end you can change to that format.

   Depending on the selected Data Format the window can change as described in the following.

3. - If you selected XML or sqlite3 you will see a screen like this:

     #### Save screen when XML or sqlite3 is selected.

     The Save screen

     This image shows the Save screen when the selected Data Format is XML or sqlite3.

     Type your chosen filename in the Name field. It is not necessary to specify an extension when you write the file name. &app; will automatically add the extension `.gnucash` to the file.

     The `.gnucash` extension was introduced in the 2.3 series of &app;. For already existing files, the extension will never be changed. So if you open an existing file named `Myoldfile`, that name won’t be changed if the file is saved. You might use the Save As... command and give the file a new name in order to have it saved with the extension `.gnucash`.

     Select the path where the file will be saved by browsing the tree in the lower panes.

     Click on the Create Folder button to create a new folder with a custom name in the selected path.

   - If you selected mysql or postgres Data Format you will see a screen like this:

     #### Save screen when mysql or postgres is selected.

     The Save screen

     This image shows the Save screen when the selected Data Format is mysql or postgres.

     Enter in this window the Database Connection information: Host, Database, Username and Password.

     Saving to mysql or postgres requires the proper permissions in that database, that is you need to have the permissions to create a new database with the given database name, or you need to have write access to an existing database with the given database name.

4. Click the Save As button to save the file.

If you are keeping track of finances for a single household, you need only one file. But if you are also tracking business finances or want to keep data separate for some reason, then you will need more than one file.

Before ending each &app; session, be sure to save your data changes using File Save or the Save Toolbar button.

As it is very important to save your data frequently to avoid losing them for whatever reason, &app; is able to automatically save the opened file every a certain amount of time. This interval can be set in the General tab under Edit Preferences (Gnucash Preferences on Mac OS X). Keep in mind that this option is relevant only if you are saving in XML format. If you are working with a database, the Save button and the Save menu entry will be grayed out because changes are stored right away.

### Opening data

To open an existing file or database, select File Open from the menu. In the window that will open, select the Data Format. If you selected File choose the file you want to open by browsing the folders in the lower panes. Else, enter the required Database Connection information.

&app; keeps a list of the recently opened files. Open the File menu and you will see listed the names of recently opened files. Click on the one you want to load to open it.

## Backing Up and Recovering Data

&app; creates several types of files to help ensure that your data is not lost. If you look in the folder where your saved `.gnucash` file resides, you may see other files generated by &app; with the following extensions: `.gnucash`, `.log`, `.LCK`, `.LNK` in the same directory as your primary data file. What each of these files does is presented below.

The following sections are relevant only if you are saving your financial data in the XML format

          $ ls
          myfile.gnucash
          myfile.gnucash.20100414185747.gnucash
          myfile.gnucash.20100414223248.log
          myfile.gnucash.20100415114340.gnucash
          myfile.gnucash.20100415154508.log
          myfile.gnucash.20100415173322.gnucash
          myfile.gnucash.20100415194251.log
          myfile.gnucash.7f0982.12093.LNK
          myfile.gnucash.LCK

### Backup file (.gnucash)

Each time you save your data file, a backup copy will also be saved with the extension `.YYYYMMDDHHMMSS.gnucash`. This backup file is a complete copy of your previous data file, and the filename format refers to the data file, year, month, day and time of the backup. For example, the filename `myfile.gnucash.20100414185747.gnucash` indicates this is a backup copy of the file `myfile` saved in the year 2010, April 14, at 6:57:47 p.m.

To restore an old backup file, simply open the `.YYYYMMDDHHMMSS.gnucash` file with the date to which you wish to return. Be sure to save this file under a different name.

&app; versions 2.3.15 and older create backup files with the old extension `.YYYYMMDDHHMMSS.xac` instead of the actual extension `.YYYYMMDDHHMMSS.gnucash`. So if you upgrade from the 2.2 series to the 2.4 series, you may end up with both `.YYYYMMDDHHMMSS.xac` and `.YYYYMMDDHHMMSS.gnucash` backup files in your directory.

### Log file (.log)

Each time you open a file in &app;, a `.log` file is created and saved with the same name format as the `.YYYYMMDDHHMMSS.gnucash` backup files. As you make changes to the open data file, the log file saves only those changes. Log files are not a full backup of your data file - they simply record changes you have made to the data file in the current &app; session.

In case you exit &app; inadvertently, possibly due to a power outage or a system wide crash, it is possible to recover most of your work since the last time you saved your &app; file using this log file. This is the procedure:

1. Open the last saved &app; file.

2. Go to File Import Replay &app; .log file and select the one .log file with the same date as the saved file you just opened. Make sure that you picked the right .log file, or you will possibly wreak havoc in your accounts.

Log replaying will recover any transaction affecting the balance entered since the last save, including those created from scheduled transactions and business features (invoices, bills, etc.).

Changes to the scheduled transactions, invoices or bills themselves are NOT recovered, and their transactions that were recovered may not be properly associated with them, and should thus be double-checked. Especially for business transactions, you may have to delete and re-create some of them. If you do not, although the balance will be correct, some reports may not.

### Lock files (.LNK and .LCK)

You may occasionally see `.LNK` and `.LCK` files appear. These do not store any data, but they are created to prevent more than one user from opening the same file at the same time. These files are automatically created when you open the file, to lock it so no one else can access it. When you close your &app; session or open another file, &app; unlocks the first data file by deleting the `.LCK` and `.LNK` files.

If &app; crashes while you have a data file open, the `.LCK` and `.LNK` files are not deleted. The next time you try to open &app;, you will get a warning message that the file is locked. The warning message appears because the `.LNK` and `.LCK` files are still in your directory. It is safe to choose Yes to open the file, but you should delete the `.LNK` and `.LCK` files (using a terminal window or your file manager). Once those files are deleted, you will not get the warning message again unless &app; crashes.

### File Management

So which files should you keep around? Keep your main data file, of course. It’s a good idea to keep some of the more recent `.YYYYMMDDHHMMSS.gnucash` backup files, but you can safely delete the `.log` files since they are not complete copies of your data.

If you upgraded from a &app; version prior to 2.4, you may also have backup files in the old `.xac` format. For these files you can apply the same principle described above for `.YYYYMMDDHHMMSS.gnucash` backup files.

You should also delete any `.LCK` and `.LNK` files that you see after closing &app;. If you decide to back up your data file to another disk manually, it’s enough to back up the main data file - not the `.YYYYMMDDHHMMSS.gnucash` backup files.

By default &app; will automatically delete any `.log` and `.YYYYMMDDHHMMSS.gnucash` backup files that are older than 30 days. You can change this behavior in the &app; preferences in the General tab under Edit Preferences (Gnucash Preferences on Mac OS X).

## Putting It All Together

This section begins a tutorial that will continue throughout this book. At the end of each chapter, you will see a Putting It All Together section that walks you through examples to illustrate concepts discussed in that section. Each Putting It All Together section builds on the previous one, so be sure to save your file for easy access.

Let’s get started!

1. First, let’s create a file to store your real data. Open &app; and select File New File from the Menubar. This will start the New Account Hierarchy Setup assistant that allows you to create several accounts at once.

   If you are running &app; for the first time, you will be presented with the Cannot find default values screen which is described in details in the &app; manual.

   The New Account Hierarchy Setup assistant

   This image shows the first screen of the New Account Hierarchy Setup assistant.

   The first screen of the assistant gives you a description of what the assistant does. Click the Forward button to proceed to the next screen.

2. In the second screen, select the currency to use for the new accounts from the dropdown list. Then press the Forward button.

   The currency you select here, will be assigned to all the accounts created in this assistant.

   The New Account Hierarchy Setup assistant - Currency

   This image shows the second screen of the New Account Hierarchy Setup assistant where you select the currency.

3. In the third screen select the Common Accounts group in the Categories pane. Then press the Forward button to proceed.

   If you want, you can select one or more of the predefined account-groups here. For more information on account types, see .

   The New Account Hierarchy Setup assistant - Choose accounts

   This image shows the third screen of the New Account Hierarchy Setup assistant where you choose the various accounts.

4. In the fourth screen you will be able to set an Opening Balance on each of the accounts, as well as indicate if the account should be a Placeholder. As these features will be described in next chapters, leave all as configured by &app; and click Forward to open the last screen of the assistant.

   The New Account Hierarchy Setup assistant - Configure

   This image shows the fourth screen of the New Account Hierarchy Setup assistant where you can set Opening Balance.

5. In the last screen of the assistant, click Apply to create all the accounts and leave the assistant.

   The New Account Hierarchy Setup assistant - Finish

   This image shows the last screen of the New Account Hierarchy Setup assistant.

6. Your main window should now look something like this:

   The Main window showing the test file

   Next, create a file to store test data. This is the file that will be used in the tutorials throughout this manual. Click File Save As... (or press ShiftCtrlS on your keyboard) to open the Save As... dialog. Select XML as data format, name the file `gcashdata_1` and select the folder where the file will be saved.