path: root/ledger.texi

\input texinfo    @c -*-texinfo-*-
@comment $Id: ledger.texi,v 1.11 2003/10/10 19:12:31 johnw Exp $
@comment %**start of header

@setfilename ledger.info

@settitle Ledger Accouting Tool
@syncodeindex pg cp
@comment %**end of header

@dircategory Ledger Accouting Tool
@direntry
* ledger:    (ledger)The Ledger Accouting Tool.
@end direntry

@titlepage
@title Ledger Accouting Tool
@author John Wiegley <@email{johnw@@newartisans.com}>
@page
@vskip 0pt plus 1filll
@c @insertcopying
@end titlepage

@contents

@ifnottex
@node Top, Introduction, (dir), (dir)
@top Ledger Accouting Tool

@c @insertcopying
@end ifnottex

@menu
* Introduction::                
* Keeping a ledger::            
* Using GnuCash to Keep Your Ledger::  
@end menu

@node Introduction, Keeping a ledger, Top, Top
@chapter Introduction

@code{ledger} is an accouting tool that has the chutzpah to exist.  It
provides not one bell or whistle for the money, and returns the user
to the days before user interfaces were even a twinkle in their
father's CRT.

What it does do is provide a double-entry accouting ledger with all of
the flexibility and muscle of its modern day cousins---without any of
the fat.  Think of it as the bran muffin of accouting tools.

To begin with, you need to start keeping a ledger.  This is the basis
of all accouting, and if you don't know how to do it, now is the time
to learn.  The little booklet that comes with your checkbook is a
ledger, so we'll describe double-entry accouting in terms of that.

A checkbook ledger records debits (subtractions, or withdrawals) and
credits (additions, or deposits) with reference to a single account:
your checking account.  Where the money comes from, and where it goes
to, are simply described in the memo field where you write the person
or the company's name.  The ultimate aim of keeping a checkbook ledger
is so you know how much money is available to spend at all times.
That is really the aim of all ledgers.

What computers add is the ability to walk through all of those
transactions and tell you things about your spending habits; let you
devise budgets to get control over your spending; squirrel away money
into virtual savings account without having to physically move the
money around; etc.  As you keep your checkbook ledger, you are
recording a lot of information about your life and your habits, and
sometimes that information can tell you things you aren't even aware
of.  That is the aim of all good accouting tools.

The next step up from a checkbook ledger is a ledger that covers all
of your accounts, not just your checking account.  In this ledger, you
write not only who the money goes to---in the case of a debit---but
where the money is coming from.  In the checkbook ledger, its assumed
that all of the money is coming from your checking account.  But in a
general ledger, you have to write two-lines: The source and target.
There must always be a debit from some account for any credit made to
anyone else.  This is what is meant by ``double-entry'' accouting.

For example, let's say you have a checking account and a brokerage
account, and that you can write checks from both of them.  Rather than
keeping two checkbooks, you decide to use one ledger for both.  Once
you get the hang of this, you'll be ready to use one ledger for all of
your accouting needs, which gets you to the point of this
introduction.

So in your general ledger, you need to pay Pacific Bell Telephone for
your monthly phone bill.  The cost is $23.00.  In a checkbook ledger,
you would write out a line that credits your account with Pacific Bell
by $23 as follows:

@example
9/29  100  Pacific Bell                        $23.00     $77.00
@end example

Very simple: You've written check #100 for $23 to Pacific Bell, which
leaves your balance in checking at $77.

But in a general ledger, you need to say where the money is coming
from.  A general ledger entry would look like this:

@example
9/29  100  Pacific Bell                        $23.00    $223.00
	   Checking                           $-23.00     $77.00
@end example

What does all of this mean?  The first line shows a credit (or
payment) to Pacific Bell to the tune of $23.00.  Then, because there
is no one ``balance'' in a general ledger, we've written in the total
balance of your payments to the account ``Pacific Bell''.  This was
done by looking at the last entry for ``Pacific Bell'' in the general
ledger, adding $23.00 to that amount, and writing in the total in the
balance column.

Secondly, the money is coming from your ``Checking'' account, which
means a debit (or withdrawal) of $23.00, which will leave the ending
balance in your ``Checking'' account at $77.00.

The transaction itself must balance to $0: $23 goes to Pacific Bell,
$23 comes from Checking: there is nothing left over to be accounted
for.  The money has in fact moved from one account to another.  This
is basis of double-entry accounting: That money never pops out of
existence, it is always described as a transaction between
accounts---as a flow from one place to another.

Keeping a general ledger is the same as keeping two separate ledgers:
One for Pacific Bell and one for Checking.  In that case, each time
you write a credit into one, you write a corresponding debit into the
other.  This makes it much easier to write in the running balance,
since you don't have to go looking back for the last time an account
was referenced, but it also means having a lot of ledger books if you
deal with multiple accounts.

Enter the beauty of a computerized accouting tool.  The purpose of
@code{ledger} is to make general ledger accouting simple by keeping
track of the balances for you.  Your only job is to enter credit/debit
pairs and make sure they balance.  If a transaction does not balance,
@code{ledger} will display an error and ignore the
transaction.@footnote{In some special cases, it will automatically
balance the entry for you.}

Your usage of @code{ledger} will have two parts: Keeping the ledger,
and using the @code{ledger} tool to provide you with information
summaries derived from your ledger's entries.

@node Keeping a ledger, Using GnuCash to Keep Your Ledger, Introduction, Top
@chapter Keeping a ledger

The most important part of accounting is keeping a good ledger.  If
you have a good ledger, tools can be written to work whatever
mathematically tricks you need to better understand your spending
patterns.  Without a good ledger, no tool, however smart, can help
you.

The @code{ledger} program aims at making ledger entry as simple as
possible.  Since it is a command-line tool, it does not provide a user
interface for keeping a ledger.  If you like, you may use
@code{gnucash} to maintain your ledger, in which case the
@code{ledger} program will read @code{gnucash}'s data files directly.
In that case, read the @code{gnucash} manual now, and skip to the next
chapter.

If you are not using @code{gnucash}, but a text editor to maintain
your ledger, read on.  @code{ledger} has been designed to make data
entry as simple as possible, by keeping the ledger format easy, and
also by automagically determining as much information as possible
based on the nature of your entries.

For example, you do not need to tell @code{ledger} about the accounts
you use.  Any time @code{ledger} sees a debit or a credit to an
account it knows nothing about, it will create it.  If you use a
commodity that is new to @code{ledger}, it will create that commodity,
and determine its display characteristics (placement of the symbol
before or after the amount, display precision, etc) based on how you
used the commodity in the transaction.

Here is the Pacific Bell example from above, given as a @code{ledger}
transaction:

@example
9/29  (100)  Pacific Bell
    Expenses:Utilities:Telephone               $23.00
    Assets:Checking                           $-23.00
@end example

As you can see, it is very similar to what would be written on paper,
minus the computed balance totals, and adding in account names that
work better with @code{ledger}'s scheme of things.  In fact, since
@code{ledger} is smart about many things, you don't need to specify
the balanced amount, if it is the same as the first line:

@example
9/29  (100)  Pacific Bell
    Expenses:Utilities:Telephone               $23.00
    Assets:Checking
@end example

For this entry, @code{ledger} will figure out that $-23.00 must come
from ``Assets:Checking'' in order to balance the entry.

@menu
* Credits and Debits::          
* Commodities and Currencies::  
* Accounts and Inventories::    
* Understanding Equity::        
* Automated transactions::      
@end menu

@node Credits and Debits, Commodities and Currencies, Keeping a ledger, Keeping a ledger
@section Credits and Debits

Credit and debit are simple enough terms in themselves, but the usages
of the modern world have made them very hard to puzzle out.

Basically, a credit means you add something to an account, and a debit
means you take away.  A debit card is correctly name: From your point
of view, it debits your checking account every time you use it.

The credit card is strangely named, because you have to look at it
from the merchant's point of view: Every time you use it, it credit's
@emph{his} account right away.  This was a giant leap from the days of
cash and checks, when the only other way to supply immediate credit
was by a wire transfer.  But a credit card does not credit you
anything at all.  In fact, from your point of view, it should be
called a liability card, since it increases your liability to the
issuing bank every time you use it.

In @code{ledger}, credits and debits are given as they are, which
means that sometimes you will see a minus sign where you don't expect
one.  For example, when you get paid, in order to credit your bank
account, you need to debit an income account:

@example
9/29  My Employer
    Assets:Checking                           $500.00
    Income:Salary                            $-500.00
@end example

But wait, you say, why is the Income a negative figure?  And when you
look at the balance totals for your ledger, you will certainly be
surprised to see Expenses as a positive figure, and Income as a
negative figure.  Isn't that the opposite of how it should look?

It may take getting used to, but to properly use a general ledger you
will need to think in terms of correct debits and credits.  Rather
than @code{ledger} ``fixing'' the minus signs, let's understand why
they are there.

When you earn money, the money has to come from somewhere.  Let's call
that somewhere ``society''.  In order for society to give you an
income, you must take money away from society (debit) in order to put
it into your bank (credit).  When you then spend that money, it leaves
your bank account (debit) and goes back to society (credit).  This is
why Income will appear negative---it reflects the money you have drawn
from society---and why Expenses will be positive---it is the amount
you've given back.  These credits and debits will always cancel each
other out in the end, because you don't have the ability to create new
money: It must always come from somewhere, and in the end must always
leave.  This is the beginning of economy, after which the explanation
gets terribly difficult.

Based on that explanation, here's another way to look at your balance
report: Every negative figure means that that account or person or
place has less money now than when you started your ledger; and every
positive figure means that that account or person or place has more
money now that when you started your ledger.  Make sense?

Alos, credit cards will have a negative value, because you are
spending @emph{from} them (debit) in order pay someone else (credit).
They are called credit cards because you are able to instantly credit
that other person, by simply waving a card.

@node Commodities and Currencies, Accounts and Inventories, Credits and Debits, Keeping a ledger
@section Commodities and Currencies

@code{ledger} makes no assumptions about the commodities you use; it
only requires that you specify a commodity.  The commodity may be any
non-numeric string that does not contain a period, comma, forward
slash or at sign (@@).  It may appear before or after the amount,
although it is assumed that symbols appearing before the amount refer
to currencies, while non-joined symbols apearing after the amount
refer to commodities.  Here are some valid currency and commodity
specifiers:

@example
$20.00         ; currency: twenty US dollars
USD 20         ; currency: the same
40 AAPL        ; commodity: 40 shares of Apple Computer stock
DM 60          ; currency: 60 Deutsch Mark
£50            ; currency: 50 British pounds
50e            ; currency: 50 Euros (use appropriate symbol)
@end example

@code{ledger} will examine the first use of any commodity to determine
how that commodity should be printed on reports.  It pays attention to
whether the name of commodity was separated from the amount, whether
it came before or after, the precision used in specifying the amount,
whether thousand marks were used, etc.  This is done so that printing
the commodity looks the same as the way you use it.

An account may contain multiple commodities, in which case it will
have separate totals for each.  For example, if your brokage account
contains both cash, gold, and several stock quantities, the balance
might look like:

@example
  $200.00
100.00 AU
  AAPL 40
 BORL 100
 FEQTX 50  Assets:Brokerage
@end example

This balance report shows how much of each commodity is in your
brokerage account.

Sometimes, you will want to know the current street value of your
balance, and not the commodity totals.  For this to happen, you must
specify what the current price is for each commodity.  The price can
be in any commodity, in which case the balance will be computed in
terms of that commodity.  The usual way to specify prices is with a
file of price settings, which might look like this:

@example
AU=$357.00
AAPL=$37
BORL=$19
FEQTX=$32
@end example

Specify the prices file using the @samp{-p} option:

@example
/home/johnw $ ledger -f ledger.dat -p prices.db balance brokerage
@end example

Now the balance for your brokerage account will be given in US
dollars, since the prices database has specified conversion factors
from each commodity into dollars:

@example
$40880.00  Assets:Brokerage
@end example

You can convert from any commodity to any other commodity.  Let's say
you had $5000 in your checking account, and for whatever reason you
wanted to know many ounces of gold that would buy.  If gold is
currently $357 per ounce, then each dollar is worth 1/357 AU:

@example
/home/johnw $ ledger -f ledger.dat -p "\$=0.00280112 AU" balance checking
@end example

@example
14.01 AU  Assets:Checking
@end example

$5000 would buy 14 ounces of gold, which becomes the new display
commodity since a conversion factor was provided.

Commodities conversions can also be chained, up to a depth of 10.
Here is a sample prices database that uses chaining:

@example
AAPL=$15
$=0.00280112 AU
AU=300 Euro
Euro=DM 0.75
@end example

This is a roundabout way of reporting AAPL shares in their Deutsch
Mark equivalent.

@node Accounts and Inventories, Understanding Equity, Commodities and Currencies, Keeping a ledger
@section Accounts and Inventories

Since @code{ledger}'s accounts and commodity system is so flexible,
you can have accounts that don't really exist, and use commodities
that no one else recognizes.  For example, let's say you are buying
and selling various items in EverQuest, and want to keep track of them
using a ledger.  Just add items of whatever quantity you wish into
your EverQuest account:

@example
9/29  Get some stuff at the Inn
    Places:Black's Tavern                   -3 Apples
    Places:Black's Tavern                   -5 Steaks
    EverQuest:Inventory
@end example

Now your EverQuest:Inventory has 3 apples and 5 steaks in it.  The
amounts are negative, because you are taking @emph{from} Black's
Tavern in order to credit your Inventory account.  Note that you don't
have to use ``Places:Black's Tavern'' as the source account.  You
could use ``EverQuest:System'' to represent the fact that you acquired
them online.  The only purpose for choosing one kind of source account
over another is for generate more informative reports later on.  The
more you know, the better analysis you can perform.

If you later sell some of these items to another player, the entry
would look like:

@example
10/2  Sturm Brightblade
    EverQuest:Inventory                     -2 Steaks
    EverQuest:Inventory                     15 Gold
@end example

Now you've turned 2 steaks into 15 gold, courtesy of your customer,
Sturm Brightblade.

@node Understanding Equity, Automated transactions, Accounts and Inventories, Keeping a ledger
@section Understanding Equity

The most confusing entry in any ledger will be your equity
account---because starting balances can't come out of nowhere.

When you first start your ledger, you will likely already have money
in some of your accounts.  Let's say there's $100 in your checking
account; then add an entry to your ledger to reflect this amount.
Where will money come from?  The answer: your equity.

@example
10/2  Opening Balance
    Assets:Checking                         $100.00
    Equity:Opening Balances                $-100.00
@end example

But what is equity?  You may have heard of equity when people talked
about house mortgages, as ``the part of the house that you own''.
Basically, equity is like the value of something.  If you own a car
worth $5000, then you have $5000 in equity in that car.  In order to
turn that car (a commodity) into a cash flow, or a credit to your bank
account, you will have to debit the equity by selling it.

When you start a ledger, you are probably already worth something.
Your net worth is your current equity.  By transferring the money in
the ledger from your equity to your bank accounts, you are crediting
the ledger account based on your prior equity value.  That is why,
when you look at the balance report, you will see a large negative
number for Equity that never changes: Because that is what you were
worth (what you debited from yourself in order to start the ledger)
before the money started moving around.  If the total positive value
of your assets is greater than the absolute value of your starting
equity, it means you are making money.

Clear as mud?  Keep thinking about it.  Until you figure it out, put
``-- -Equity'' at the end of your balance command, to remove the
confusing figure from the totals.

@chapter Using the @code{ledger} Tool

Now that you have an orderly and well-organized general ledger, it's
time to start generating some orderly and well-organized reports.
This is where the @code{ledger} tool comes in.  With it, you can
balance your checkbook, see where your money is going, tell whether
you've made a profit this year, and even compute the present day value
of your retirement accounts.  And all with the simplest of interfaces:
the command-line.

The most often used command will be the @code{balance} command:

@example
/home/johnw $ export LEDGER=/home/johnw/doc/finance/ledger.dat
/home/johnw $ ledger balance
@end example

Here I've set my @code{LEDGER} environment variable to point to where
my ledger file is hiding.  Thereafter, I needn't specify it again.

The balance command prints out the summarized balances of all my
top-level accounts, excluding sub-accounts.  In order to see the
balances for a specific account, just specify a regular expression
after the balance command:

@example
/home/johnw $ ledger balance expenses:food
@end example

This will show all the money that's been spent on food, since the
beginning of the ledger.  For food spending just this month
(September), use:

@example
/home/johnw $ ledger -d sep balance expenses:food
@end example

Or maybe I want to see all of my assets, in which case the -s (show
sub-accounts) option comes in handy:

@example
/home/johnw $ ledger balance -s
@end example

To exclude a particular account, use a regular expression with a
leading minus sign.  The following will show all expenses, but without
food spending:

@example
/home/johnw $ ledger balance expenses -food
@end example

If you want to show all accounts but for one account, remember to use
@samp{--} to separate the exclusion pattern from the options list:

@example
/home/johnw $ ledger balance -- -equity
@end example

@section Virtual transactions

A virtual transaction is when you, in your mind, see money as moving to
a certain place, when in reality that money has not moved at all.  There
are several scenarios in which this type of tracking comes in handy, and
each of them will be discussed in detail.

To enter a virtual transaction, surround the account name in
parentheses.  This form of usage does not need to balance.  However, if
you want to ensure the virtual transaction balances with other virtual
transactions in the same entry, use square brackets.  For example:

@example
10/2  Paycheck
    Assets:Checking                        $1000.00
    Income:Salary                         $-1000.00
    (Debt:Alimony)                          $200.00
@end example

In this example, after receiving a paycheck an alimony debt is
increased---even though no money has moved around yet.

@example
10/2  Paycheck
    Assets:Checking                        $1000.00
    Income:Salary                         $-1000.00
    [Savings:Trip]                          $200.00
    [Assets:Checking]                      $-200.00
@end example

In this example, $200 has been deducted from checking toward savings for
a trip.  It will appear as though the money has been moved from the
account into ``Savings:Trip'', although no money has actually moved
anywhere.

When balances are displayed, virtual transactions will be factored in.
To view balances without any virtual balances factored in, using the
@samp{-R} flag, for ``Reality''.

@menu
* Saving for a Special Occasion::  
* Keeping a Budget::            
* Tracking Allocated Funds::    
@end menu

@node Saving for a Special Occasion, Keeping a Budget, Understanding Equity, Understanding Equity
@subsection Saving for a Special Occasion

@node Keeping a Budget, Tracking Allocated Funds, Saving for a Special Occasion, Understanding Equity
@subsection Keeping a Budget

@node Tracking Allocated Funds,  , Keeping a Budget, Understanding Equity
@subsection Tracking Allocated Funds

@node Automated transactions,  , Understanding Equity, Keeping a ledger
@section Automated transactions

@menu
* Computing Bahá'í Huqúqu'lláh::  
@end menu

@node Computing Bahá'í Huqúqu'lláh,  , Automated transactions, Automated transactions
@subsection Computing Bahá'í Huqúqu'lláh

As a Bahá'í, I need to compute Huqúqu'lláh on some of my assets.  The
exact details of this matter are rather complex, so if you have any
interest, I encourage you to do research on the Web.

For any fellow Bahá'ís out there who want to track Huqúqu'lláh, the
@code{ledger} tool makes this extraordinarily easy.  Just too easy, in
fact.  Here's all you have to do: If an expense is exempt from
Huqúqu'lláh---a ``necessary'' expense---put an exclamation mark befroe
the account name:

@example
2002.12.31  Rent
   !Expenses:Rent                      $450.00
    Assets:Checking                   $-450.00
@end example

Even easier than that, simply put a list of regular expressions that
match the categories you consider exempt in a file called
@file{.huquq}, and the special marking will be done for you.  Here is
the file I use:

@example
^Income:
^Retirement:
^Expenses:Rent
^Expenses:Taxes
@end example

When you're ready to pay Huqúqu'lláh, just write the check to the
account ``Huququ'llah'' (no accents, one apostrophe):

@example
2003.01.20 * (101)  Baha'i Huququ'llah Trust
    Huququ'llah                      $1,000.00
    Assets:Checking                 $-1,000.00
@end example

That's it.  To see how much Huqúq is currently owed based on your
ledger data, type:

@example
/home/johnw $ ledger -f ledger.dat balance ^huquq
@end example

@node Using GnuCash to Keep Your Ledger,  , Keeping a ledger, Top
@chapter Using GnuCash to Keep Your Ledger

The @code{ledger} tool is fast and simple, but it gives you no special
method of actually editing the ledger.  It assumes you know how to use
a text editor, and like doing so.  Perhaps an Emacs mode will appear
someday soon to make editing @code{ledger}'s data files much easier.

Until then, you are free to use GnuCash to maintain your ledger, and
the @code{ledger} program for querying and reporting on the contents
of that ledger.  It takes a little longer to parse the XML data format
that GnuCash uses, but the end result is identical.

Then again, why would anyone use a Gnome-centric, 35 megabyte behemoth
to edit their data, and a 65 kilobyte executable to query it@dots{}

@bye