joint or shared checking accounts

[Benjamin Carlyle]

On Fri, 2004-12-31 at 13:17 -0800, Adam Monsen wrote:
> I have a joint checking account with my partner, and I'm rather
> confused about how this could best be handled in gnucash.
> We deposit equal amounts, and generally split everything paid for with
> funds from the account. For instance:
> her: deposit $10
> me: deposit $10
> both: buy dinner for $20
> Net profit should equal out, but my income and expenses will be double
> what they "should" be, at least for my individual accounting needs.

When you are a couple, there are three financial entities to think
about. You have yourself, your partner, and the joint entity that covers
both you and your partner. The checking account is owned by that joint
entity.

My wife and I maintain our accounts as if we were just that joint
entity, and we use internal categorisation to some extent to separate
our different incomes and account ownership (with all the relevant tax
implications that come from one partner or the other owning and earning
specific portions). It sounds like you aren't that financially
integrated with your partner, and want to keep separate accounts. This
leaves you in your current predicament of trying to deal with the joint
entity when the joint entity doesn't have its own set of accounts.
Unlike my treatment of the three entities as being one (the joint entity
under which the two individual entities are subsumed) you want to treat
the three as two (subsuming your interest in the joint entity into
individual accounts).

So, the "how do you do it?" stage. IANAA, but I would consider the
following options:
1) Close the joint bank account for the sake of your books :)
2) Only show the portion of the account that represents your interest in
the account
3) Show all account transactions, but maintain a balancing liability (or
contra-asset? or probably most correctly Owner's Equity but we'll get
back to that) declaring your partner's interest in the asset.

Option 1, I think you can work out for yourself.
Option 2, you have already described in your original post
Option 3 is probably your best bet, as it allows you to properly
reconcile the account.

Your account tree looks something like this:
|
+- Joint Checking $1000
+- Joint Checking (Partner's Interest) -$500

When your partner deposits money, this happens:
|
+- Joint Checking $1010
+- Joint Checking (Partner's Interest) -$510

You enter it as a transfer from the Partner's Interest account into
Joint Checking. No income is declared, and you can clearly track how
much each of you owns of the account.

When you spend money from the Joint Checking, you transfer your portion
to your expenses and her portion back to her interest account (reducing
it back to -$500, say). This works even when your portions are unequal
or the payment is completely unilateral, it'll just make her interest no
longer equal to half of the account's value.

She can do the same thing in her accounts (if she keeps any), and the
total account value should always equal the sum of your interest in her
books and her interest in your books.

So, back to owner's equity. Again, I am not an accountant so I may be
talking out of an impractical orifice. In accounting for a business
partnership the business accounts show assets and liabilities without
any clear statement of who owns which because it is the business that
has both the assets and liabilities. The third term in the accounting
equation is Owner's Equity, and is where you put income and expense
accounts. Once every accounting period the amounts in the income and
expense accounts are moved to other owner's equity accounts representing
each owner's share of the businesses assets. Rather than calling
"Partner's Interest" a liability account, it could be placed with the
income and expenses. In practical terms this wouldn't make a sod of
difference, except maybe alter the way some reports come out and maybe
make things a bit neater for your accountant (if you have one). If you
do have an accountant, I suggest dropping them an email asking how they
would like you to show it.

-- 
Benjamin Carlyle <benjamincarlyle at optusnet.com.au>