Correct way to book a [auto] loan

[Nathan Cummings]

I have been using gnucash 1.6.x for some time now and i am quite pleased with how it works 
  and i would say that i have learned quite a bit about accounting philosophy by using it 
especially the double-entry method. the question i have now probably relates more to 
actual accounting principles than to gnucash but clarifying it would be didactic for 
myself and new users as well as those unfamiliar with the double entry method. i have gone 
through the entire gnucash-user archive and found an example somewhat similar to this 
based on a ome mortgage loan but i am not sure if they should be handled the same so here 
goes.

here is the problem: a new car is just purchased, and for arguments sake, let's say the 
total purchase price (car+tax+tags+etc) is $10,000. A $2,000 down payment is made at the 
time of purchase and the remaining $8,000 will be financed. Again for a concrete example, 
let the interest rate be 3.9% for 36 months making a monthly payment of $235.84 and a 
final payment total of $8490.24, with the difference of $490.24 being the finance charges 
incurred over the period of the loan.

so here is what i want to do in gnucash:
  * create an asset account in fixed assets called my_new_car
  * create a liability account in loans called my_new_car_loan
  * create an expense account in interest called my_new_car_loan_interest

--+--Assets-+--Fixed Assets-+--my_new_car
   |
   +--Liabilities-+--Loans-+--my_new_car_loan
   |
   +--Expenses-+--Interest-+--my_new_car_loan_interest

  * next from my checking account, i credit the $2,000 to the my_new_car asset. which 
makes the total present value of the car $2,000
  * now, from my_new_car_loan liability, [credit?] the remaining $8,000 to the my_new_car 
asset. thus giving me the total purchase price of the car ($10,000) to be reflected in the 
asset value of my_new_car and a liability of $8,000 in the my_new_car_loan.

i think i am pretty clear up to this point but here is where things start to get a little 
fuzzy. when it comes time to make the first car payment, the check is sent off to the lien 
holder and the following should occur in gnucash:

   credit the monthly payment of $235.84 from checking with it split this way

-----------------------------------------------------------
    asset:   my_checking           | 235.84   |
-----------------------------------------------------------
  liability:  my_car_loan          |          | 222.22[22]
-----------------------------------------------------------
  expense:  my_car_loan_interest   |          | 13.61[778]
-----------------------------------------------------------

now the numbers in the right column were obtained by dividing the principle ($8,000) and 
the interest ($490.24) both by the 36 month loan period. the rounding errors are only 
slightly unsettling because after the loan period is over, they should account for only 
$0.08 in total error (i assume that accountants handle this a little more gracefully than 
i did, but i am not an accountant). somewhere along the way, i could simply change one or 
two of the split totals to account for the error manually anyway, so i am not going to 
worry about it much.

so at the end of the loan period, my liability (my_new_car_loan) should be decreased to $0 
and the total accrued loan interest expense should be the $490.24. the value of the 
my_new_car asset should still be the original $10,000. but that doesn't feel quite right 
as i know it is not worth $10k and gnucash will be reporting my total assets artificially 
inflated by the difference in its actual value and $10k. i guess that is where you factor 
in depreciation, but i think for now, that is beyond the scope of simply setting up the 
loan. however, does the rest of the argument appear to be correct? if not, please let me 
know the best way one should approach recording a moderately sized loan such as a car 
loan. also if anyone has any other tips about how to track loans, those would be appreciated.

thanks,
-- 
Nathan Cummings
Virginia Tech Antenna Group