Could you expand on the benefits of double-entry bookkeeping, beyond reducing errors?
Personally I am looking into it, because the run-of-the-mill personal finance software applications can't even deal with the fact that paying off a credit card statement is not income and expense, but a mere change between assets and liabilities. Or buying some stock is not an expense, but a change between two types of assets. And so on.
However, the run-of-the-mill software is a bit better with categorizing things and integrating with other applications. Currently, I am looking for
- Connecting PDFs or images as invoices with transactions
- Marking transactions as relevant for my tax income statement
- Estimating my tax return in advance
and some more I can't think of off the top of my head. What weirds me out, is that everyone has to deal with personal finances, yet there isn't a single personal finance app that deals with everyone's situation. Do I massively underestimate the complexity of the problem domain?
Besides reducing errors, double-entry bookkeeping allows you to follow money flow easily, detect unexplained billings, and get all kinds of reports quickly, like profit & loss or financial statements.
However, to "deploy" it in full power, you must think like an accountant: money (or any other commodity) had to come from somewhere and had to go somewhere. Approaching this way, you can apply it in all sorts of things, like tracking income/expenses, car/house/equipment depreciation, fuel spending... I even tracked gym workouts for some time.
What works for me is ledger-cli [1]. It takes some time to get used to, especially for those who used GUI, but you get powerful reporting and extreme flexibility. For example, you can accept payments in bitcoin, return change in USD, and buy some stocks in EUR with the received money. A nightmare for other tools.
I think the issue is that there is only a small minority of consumers who (1) care enough and are knowledgeable enough to want to micromanage their finances, and (2) aren't wealthy enough to just pay a CPA to handle it.
I am definitely in that minority, and use GnuCash since I can tap directly into the database backend and automate whatever I want. I do a lot of complex cryptocurrency arbitrage trading, which of course requires "real" accounting to determine profit/loss. I'm also very, ahem, "creative" with my credit cards and like to take advantage of various offers and hacks to get low- or no-interest liquidity. Double-entry bookkeeping is absolutely essential to ensuring that I'm not just wasting money on all my complicated financial maneuvers, as well as seeing where and when I need to move my cash.
I think you're missing a category (3) people who have no reason to micro-manage their finances but rather use double entry accounting to keep track of where things äre coming from and going to on a rather high level. That's where I fit in.
I'm certain something like Quickbooks could integrate each one of those bullet points.
I think the underlying issue is not every consumer has a background in accounting. People want basic information tagging without the 'complex' components from tax reporting. This is analogous to thiel's assertion - it's difficult to sway consumers if there isn't a 10x improvement from one tech to the next. Accounting software is very much like that. You might find different improvements, but you're also constantly making trade offs (price, setup time, etc.).
Is Gnucash closer to Quicken or Quickbooks? I wish I had started with Quickbooks even for my personal finances, years ago, but I used Quicken instead :( My impression was that Gnucash was meant as an open source version of Quicken which would be much less attractive as it hides the true double-entry bookkeeping going on underneath.
It's closer to Quickbooks. Gnucash's interface is stripped-down but fairly friendly, focused directly on the chart of accounts and registers, with lots of keyboard shortcuts and relatively little unintuitive behavior. It runs fine for me on MacOS 10.14; the developers keep it quite up to date. It's very powerful and I believe you could run nearly any SMB on it, much less personal finances. That said, I haven't touched QB in a minute, and never their online offering, so I'd love to hear how it compares from somebody who's used both.
(Not specifically to parent:) You will need to know double-entry bookkeeping to use Gnucash. While there is no in-app tutorial and little hand-holding (by default the "Debit" and "Credit" columns of the register are given friendly names), there is an excellent Tutorials and Concepts guide https://gnucash.org/viewdoc.phtml?rev=4&lang=C&doc=guide that starts from first principles on basic accounting, and has tons of examples of how to enter various transactions. I was very impressed going through it, as a layman; it's a hidden gem and better than 90% of the "accounting tutorial" websites out there.
Personally I am looking into it, because the run-of-the-mill personal finance software applications can't even deal with the fact that paying off a credit card statement is not income and expense, but a mere change between assets and liabilities. Or buying some stock is not an expense, but a change between two types of assets. And so on.
However, the run-of-the-mill software is a bit better with categorizing things and integrating with other applications. Currently, I am looking for
- Connecting PDFs or images as invoices with transactions
- Marking transactions as relevant for my tax income statement
- Estimating my tax return in advance
and some more I can't think of off the top of my head. What weirds me out, is that everyone has to deal with personal finances, yet there isn't a single personal finance app that deals with everyone's situation. Do I massively underestimate the complexity of the problem domain?