how to setup a revolving credit facility account

[David Latham]

Thanks Ariel,

I will try to explain it a little bit better.

The revolving credit account is a type of home loan.

When I look at my balance on on line banking, I have an available
balance and a balance outstanding for the same account.  The available
balance is really the portion of the loan that I can draw down on.  The
way it works is like this:

Example: 
# Opening Total outstanding balance = 30,000 [LIABILITY]
# Salary into account.  > Total outstanding balance is now 25,000
[REDUCED LIABILITY]
        Available balance is now 5,000 [INCREASED EQUITY AND CURRENT
ASSET (CASH)]
# Spend some money on Groceries = 100 [EXPENSE]
        Available balance is now 4,900 [REDUCED CASH]
        Outstanding on loan is now 25,100 [NET LIABILITY]
# Net equity = 4,900 = current cash.  (The loan is a combination of a
cash account and a liability account.)

Note: in order to service this loan, the bank charge interest.  The
interest is calculated daily so the longer I keep my funds in the
account the less interest I have to pay.  The other thing that happens
is that over the period of the loan, maximum amount available for cash
is reduced.  The idea is that after 3 years or so, I transfer the loan
to the fixed interest portion of my home loan and draw down another
30,000 for the revolving credit facility... :)  Its all in an effort to
reduce the time spent paying back the loan and therefor the total
interest paid...  Hopefully it will work.  My broker said it would and
hes a good man.  (don't worry, Ive done my due diligence and researched
it all myself)

I know that I can always link the cash account with the liability
portion, but then I loose the ability to generate reports on things like
groceries and income etc.

At the end of any given cycle I would like to be able to get a report
that has these figures in it:

Current Account: 4,900
Liability              : 25,100
Groceries          : 100
Salary               : 5000

The problem with a credit card is that Available credit is not really an
asset.  Or am I wrong in this.  A credit card facility is, so far as I
know, a liability.  The difference with a revolving credit facility is
that, because its a type of home loan, any payments made into the
account can be interpreted as an INCREASE in equity.  ( These payments
immediately contribute to the home loan, thus reducing the outstanding
amount on the loan, thus increasing personal equity. )

See what I mean?

Thanks again, and looking forward to seeing how it all works.


Dave Latham



On Fri, 2007-06-01 at 20:27 -0400, Ariel wrote:

> On Sat, 2 Jun 2007, David Latham wrote:
> 
> > I was wondering how one sets up GNU Cash to deal with a revolving credit
> > loan.
> 
> Do you mean a line of credit? To me a revolving credit loan is just a 
> credit card, but maybe your terminology is different. It doesn't matter 
> though, they act the same way.
> 
> > This loan should act as both a liability account AND a current
> > checking account.
> 
> Are you sure it's a checking account? I don't mean can you write checks, 
> but can the balance actually grow to where they owe YOU money?
> 
> But again, it doesn't matter, just set it up as a credit card - or a 
> liability, or a bank - it makes no difference, they all act the same. The 
> only difference is for you, so pick whichever looks best to you.
> 
> > Any transactions to the checking account should be
> > transferred to the appropriate income / expense account AS WELL as being
> > inversely linked to the loan account.
> >
> > Basically any income immediately reduces the loan and any payments
> > immediately increase the loan.
> >
> > At the same time I wish to use the features of the checking account and
> > double entry to accounts such as salary or groceries in the normal
> > manner.
> 
> You are over thinking this. Just do the transfer, it will work fine.
> 
> There are no specific features of "the checking accounts". You can do a 
> transfer from a credit card to groceries just fine. Or salary to credit 
> card if you like.
> 
> Most of the different account types doesn't change anything, they are for 
> you to organize things (and for the reports).
> 
> The system basically has a few types of accounts:
> 
> Income/Expense
> Equity
> A/R and A/P
> (Maybe some of the stock ones, not sure.)
> Asset: Asset, credit card, liability, cash, bank
> 
> In your case you want one of the asset types, if you have some kind of 
> hybrid account, just pick one, it doesn't really matter, just decide if 
> usually you owe money, or usually have money - and if it varies, then 
> just choose 'Asset', so what if sometimes it's a negative asset.
> 
>  	-Ariel
> 
> PS. I really hope I understood your question, and that I'm not missing 
> some distinction in gnucash. Well if I got anything wrong hopefully 
> someone will correct me.
> 
>