What's the best way to record this?

[Mike or Penny Novack]

>A have a related question to these types of accounts. Oftentimes,
>these types of accounts ("loans" to/from friends) fluctuate one way to
>another so they can be assets or liabilities at different points in
>time. What's the best way to deal with this? Keep two accounts and
>when either one hits zero switch to the other?
>
>eg, if I owe a friend $100 and pay them $150, subtract the first $100
>from the Liability and put $50 into an Asset account?
>
>  
>
Depends. Perhaps part of the trouble is not understanding at the debits 
vs credits level.

An account of type "asset" is an asset if it has a net debit balance 
(normal state). If it has a credit balance it is a liability. An account 
of type "liability" is a liability if it has a net credit balance 
(normal state). If it has a debit balance it is an asset.

What I would do is decide (based upon history) which way is normal for 
money owed between yourself and this friend and put the account there.

Michael