<!DOCTYPE html PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN">
<html>
<head>
<meta content="text/html;charset=ISO-8859-1" http-equiv="Content-Type">
<title></title>
</head>
<body text="#000000" bgcolor="#ffffff">
<meta content="text/html;charset=ISO-8859-1" http-equiv="Content-Type">
<title></title>
$$$$$$$$$$$$$$$$$$$$$<br>
Thanks again. This highly informative saga has lead me to the following
method of handling
a loan in GnuCash.<br>
I'll use some real numbers (I hope I used Dr & Cr appropriately, if
not I think you should get the picture anyway);<br>
<br>
<table width="100%" border="1" cellspacing="2" cellpadding="2">
<tbody>
<tr>
<td valign="top">DATE</td>
<td valign="top">LOAN TRANSACTION DESCRIPTION<br>
</td>
<td valign="top">LOAN DEBIT</td>
<td valign="top">LOAN CREDIT</td>
<td valign="top">LOAN BALANCE -Dr<br>
</td>
<td valign="top">GNU-CASH ACCOUNT TRANSACTION Asset:Savings
Account</td>
<td valign="top">GNU-CASH ACCOUNT TRANSACTION Liability:Loan
Balance</td>
<td valign="top">GNU-CASH ACCOUNT TRANSACTION Expense:Loan
Interest<br>
</td>
</tr>
<tr>
<td valign="top">31 Mar<br>
</td>
<td valign="top">Interest added<br>
</td>
<td valign="top">$18.02<br>
</td>
<td valign="top"><br>
</td>
<td valign="top">$1,960.78<br>
</td>
<td valign="top"><br>
</td>
<td valign="top">$18.02 Dr </td>
<td valign="top">$18.02 Cr<br>
</td>
</tr>
<tr>
<td valign="top">13 Apr<br>
</td>
<td valign="top">Repayment<br>
</td>
<td valign="top"><br>
</td>
<td valign="top">$67.00<br>
</td>
<td valign="top">$1,893.78<br>
</td>
<td valign="top">$67.00 Dr<br>
</td>
<td valign="top">$67.00 Cr<br>
</td>
<td valign="top"><br>
</td>
</tr>
<tr>
<td valign="top">27 Apr<br>
</td>
<td valign="top">Repayment<br>
</td>
<td valign="top"><br>
</td>
<td valign="top">$67.00<br>
</td>
<td valign="top">$1,826.78<br>
</td>
<td valign="top">$67.00 Dr</td>
<td valign="top">$67.00 Cr</td>
<td valign="top"><br>
</td>
</tr>
<tr>
<td valign="top">30 Apr<br>
</td>
<td valign="top">Interest added<br>
</td>
<td valign="top">$16.34<br>
</td>
<td valign="top"><br>
</td>
<td valign="top">$1,843.12<br>
</td>
<td valign="top"><br>
</td>
<td valign="top">$16.34 Dr</td>
<td valign="top">$16.34 Cr</td>
</tr>
<tr>
<td valign="top">11 May<br>
</td>
<td valign="top">Repayment<br>
</td>
<td valign="top"><br>
</td>
<td valign="top">$67.00<br>
</td>
<td valign="top">$1,776.12<br>
</td>
<td valign="top">$67.00 Dr</td>
<td valign="top">$67.00 Cr</td>
<td valign="top"><br>
</td>
</tr>
<tr>
<td valign="top">25 May<br>
</td>
<td valign="top">Repayment<br>
</td>
<td valign="top"><br>
</td>
<td valign="top">$67.00<br>
</td>
<td valign="top">$1,709.12<br>
</td>
<td valign="top">$67.00 Dr</td>
<td valign="top">$67.00 Cr</td>
<td valign="top"><br>
</td>
</tr>
</tbody>
</table>
<br>
<br>
THEN to make sure my monthly Income/Expense chart makes sense, I would
have to manually re-configure this report in GnuCash as follows;<br>
1) Manually remove the transactions from "Expense:Loan Interest" to
"Liabilty:Loan Balance" from this report.<br>
2) Manually add the transactions from "Asset:Savings Account" to
"Liabilty:Loan Balance" to this report.<br>
<br>
Does THIS method make sense from a practical AND accounting standpoint?<br>
<br>
Regards<br>
JBW<br>
PS-I did an accounting unit at University years ago. I am as convinced
now as I was then that I am one engineer missing the double entry
accounting gene! <br>
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$<br>
<br>
Andrew Sackville-West wrote:
<blockquote cite="mid429C7053.9040907@farwestbilliards.com" type="cite">You
take the analogy too far. In actual practice, you would show the money
coming from your savings account to the liability. THe box under the
bed was to show why its not an expense ;) <br>
<br>
A <br>
<br>
JBW wrote: <br>
<blockquote type="cite">Thanks all, the fog is starting to lift.
Customizing GnuCash reports will allow transfers between Asset &
Liabilty accounts to show up in cash flow and income/expense reports
(thanks Mr Johnson). One thing that is still nagging at me is that if I
follow correct accounting procedures (as per Mr Sackville-West) to
allow accurate monitoring of interest charges (good point Mr
Broderick), it seems I should show the capital portion of loan
repayments flowing from the Asset (Bank's money in box under bed, as
per analogy by Mr Sackville-West) to the Liability (Loan Balance). This
however does not represent the reality that both the capital and
interest portions of each loan repayment come from my savings account.
If I take the capital portion of the loan repayment from the Asset (Box
under bed) and send it to the Liabilty (Loan balance), my Asset named
Savings Account will not have the correct balance. <br>
<br>
<br>
Kevin T. Broderick wrote: <br>
<br>
<blockquote type="cite"><br>
On 30 May 2005, at 3:38 AM, JBW wrote: <br>
<br>
<blockquote type="cite">This sounds good, however it seems using
this correct accounting practice that the only component of a loan
repayment that can show up as an expense is the interest. The capital
component of each repayment bypasses the expense account. In reality
my monthly expenses (that come out of my pocket) include a COMPLETE
loan repayment. Having only the interest component registered as an
expense does not allow me to accurately monitor my cash flow. <br>
<br>
I am just a home user of GnuCash, so it becoming apparent that the
only way I can make sure my entire loan repayment shows up as an
expense is to forget trying to monitor the loan in detail and just
have an expense "loan repayment" that comes out of my pocket. This is
caveman accounting but I can't see any other way to keep accurate
records of my monthly cash flow. I would like to have kept track of
the loan balance in my accounts but I can't see how I can achieve this
and follow the accounting rules. <br>
<br>
All I ever know is; <br>
1) The loan balance. <br>
2) The date interest is added to the loan balance and the amount
added. <br>
3) The date and total amount of my monthly repayment (interest/ capital
split not known), which comes out of my pocket. <br>
<br>
How can I monitor this loan correctly and also show the entire
repayment as an expense? Alternatively if you cannot show capital
repayment as an expense, how do I manage my cash flow accurately when
capital repayments are not counted as expense? <br>
</blockquote>
<br>
<br>
<br>
Have you looked at the cashflow report? You can track your income and
expenses accurately (per the relevant generally-accepted accounting
practices) and still track cashflow. The cashflow report basically
"draws a circle" that encompasses a set of accounts and displays
transactions that cross the line of that circle. You would have to
either open multiples copies of the report to view different months or
reload it with different options, though. <br>
<br>
Personally, I find it useful to follow GAAP and to be able to track
cashflow separately from profit/loss (or income vs. expense, if you
prefer). Among other reasons, I can look to see if the apparent
buildup of money in my checking account represents a pattern of
positive cashflow or just a temporary increase in cash-on-hand; if
it's the former, then I know that I should probably increase the
amount of money I'm putting towards debts (credit cards in particular,
but student loans as well), while the latter might suggest that I
either make a one-time increased payment or that I hold the cash in
anticipation of upcoming cash-preferred expenses. <br>
<br>
If you'd still prefer to consider the entire loan payment an expense,
then yes, you're right, you need to just create an expense account
called "loan" and put your entire payment there. It's not following
GAAP and it may make your taxes a tad more complicated (if the
interest is in any way deductible, it's quite helpful to track it
separately from the principal pay-down and know exactly how much
interest one has paid during the year), but it can be done. <br>
<br>
Kevin Broderick / <a class="moz-txt-link-abbreviated"
href="mailto:kbroderick@smcvt.edu">kbroderick@smcvt.edu</a> <br>
</blockquote>
<br>
<br>
<blockquote type="cite"><br>
<br>
</blockquote>
########################### <br>
Mr Sackville-West's response to my initial questions shown below; <br>
<br>
JBW wrote: <br>
<br>
<blockquote type="cite">I'm trying to figure out how to handle my
loans in GnuCash. I've read the <br>
tutorial but the method described does not really suit me. <br>
The main problem is that the tutorial says loan interest should be
registered as an <br>
Expense. This however is not the case with me. Interest charges and
loan <br>
repayments are two separate transactions of differing values. My
Expense is <br>
the loan repayment, not the loan interest charge. <br>
</blockquote>
<br>
<br>
<br>
<br>
<br>
the problem here is that you are not following standard accounting
practices for keeping track of your loans. AFAIK gnc doesn't handle
this automatically and you will be stuck manually creating your
transactions. <br>
<br>
<blockquote type="cite"><br>
For example, on the 10th April I want to move $500 from my Asset named <br>
Bank Account to reduce my Liability named Mortgage Balance. But I <br>
ALSO want this amount to show up as an Expense named Mortgage <br>
Repayment. This little equation has three sides (Bank Account, Mortgage
Balance <br>
& Mortgage Repayment), thus I am having trouble dealing with it. <br>
</blockquote>
<br>
<br>
<br>
<br>
<br>
this is not double entry book-keeping. Follows is a simple description
of how loans work. Read or not as you like. <br>
<br>
<br>
<br>
Here's how a loan works. You borrow money from a bank, say $1,000. you
put that money in a box under your bed. That box of money is the bank's
money. You're just keeping it for them for a while. So... <br>
Every month you take out the box, pull out $100 of the BANKS money and
pay it to the bank. Then you reach into your pocket and get out $1.43
of YOUR money(just making up numbers here) and pay it to the bank as
interest. <br>
<br>
Remember, the box money is the banks money and the pocket change is
your money. So in accounting, the way you represent this is simple.
There are three accounts. First is the Liability account -- the amount
of the banks money that you have. The second is the asset account --
the box under the bed (this can be anything, cash in your checking
account, the boat you bought with the money, the groceries you bought
with the money and then ate. regardless, it is the banks money sitting
in a box waiting for you to give it back). The third is the expense
account for interest. this is the money that you pulled out of your
pocket. This is the only money that is YOURS that is included in the
transaction and thus the only one you can expense. When you make a
payment, you are moving some of the banks money back to the bank and
giving some of your money to the bank, this principal and interest and
equals the total payment to the bank. <br>
<br>
If you have a loan that is accruing interest and adding it to the
principal balance, then you enter an interest transaction in the
liability register. That is an interest expense for say $2.53 accruing
more liability. Using our example that means that you take $2.53 out of
your pocket and put it in the box under the bed. Its now the banks
money for you to repay later. <br>
<br>
Hope this helps, <br>
<br>
Andrew <br>
<br>
<br>
Then on the 20th April I want the Liabilty named Mortgage Balance to <br>
increase by $450 (Loan interest levied), but there is not really a <br>
balancing account that I can see. The balance of this Liability just
increases <br>
when the Loan Interest is levied against my mortgage account. There is
no <br>
Expense involved. <br>
<br>
Does Equity somehow play a part in handling the transactions in the way
<br>
I want? <br>
How do I deal with these transactions in the way I want? <br>
<br>
</blockquote>
<br>
</blockquote>
<br>
</body>
</html>