Nicholas emailed me with this question.

I’m trying to find some kind of free accounting software for balancing my checkbook, and that sort of thing. I already use Mint.com, but it isn’t much good if I plan on writing a check, or if I want to create a recurring transaction.

I don’t need something to actually connect to my bank account, although it would be convenient to be able to import transactions. I just need to be able to keep track of everything. Right now I’m using Excel, but Excel really isn’t meant to be this kind of tool. I’d appreciate any recommendations you might have. Thanks!

Nicholas is right about Mint, Yodlee MoneyCenter, and other online services. These websites rely on downloading information from banks, and banks don’t know when you write a check unless you have sophisticated business services. For Nicholas’s purposes, these services fall short.

If Intuit Quicken and Microsoft Money Plus are out of the question—and Nicholas’s requirement according to his email is free—then there aren’t many solutions available.

I would suggest GnuCash. GnuCash is free accounting software available for Linux and other flavors of Unix, Mac OS X, and Microsoft Windows. Like Quicken and Money, GnuCash allows you to track your financial accounts, including cash, credit, and investments.

Unlike Quicken and Money, the designers of GnuCash take an approach more true to professional accounting principles like double-entry accounting. While the more popular (and more expensive) software programs use “accounts” to represent assets and liabilities and use “categories” to record expenses and income, GnuCash considers assets, liabilities, income, and expenses to all be accounts. That means that every transaction is recorded as a transfer between two accounts.

It’s a little weird at first, but it begins to make more sense as you have more practice.

GnuCash will let you easily track your checkbook. When you create a new book of accounts (which GnuCash calls a file because the database is stored in a computer file), the default options include a checking account. You can use the default checking account, or add more if you have more than one to track, to keep your checkbook up to date.

When you write a check, you could record a decrease (GnuCash calls this a “withdrawal”) to your checking account and an increase (GnuCash calls this an “expense”) to the appropriate expense account, such as your telephone expense account. In this manner, your checking account in GnuCash will always match your checkbook. You will be able to see at a glance how much money you have truly available in the account, to help prevent overdrafts.

The problem with tracking a checking account is the reconciliation between your book of accounts (ledger) and the bank statement. If you have outstanding checks—checks you have sent out but haven’t been cashed by the recipients—then the balance in GnuCash won’t match the balance at the bank.

While the above method will be fine for most people and has the benefit of tracking the usable balance in your checking account, if you want to keep a true reconciliation, then you need an additional account. The other option is to create a liability account called “Outstanding Checks.”

When you write a check, record an increase to Outstanding Checks and an increase to the appropriate expense account, perhaps the telephone expense account like above. Then, once the phone company deposits your check and your bank has decreased your balance, you can record a decrease to Outstanding Checks and a decrease to your checking account.

Both options are accurate, so it’s up to you which method to use. If you download GnuCash, both options are free as well. GnuCash does more than just balance your checkbook, as well. It does more than you might expect from free software. Here are some of the features you might find useful:

• QIF and OFX support, so you can download files from your bank and reconcile your accounts
• Schedule recurring transactions
• Track your investment accounts and download stock prices
• Use multiple currencies
• Generate reports and graphs to illustrate your finances

There’s one drawback. If you want to run GnuCash on an operating system other than Windows, you’ll have to “compile” the software yourself. There are instructions for installing and using GnuCash here.