Tracking Loans in Gnucash

[Benjamin]

On Mon, 8 Mar 2004 10:38 pm, Robert C. Ramsdell III wrote:
> On Sunday 07 March 2004 01:44 pm, Patrick Scott wrote:
> > Hi, I'm a newbie to gnucash.  I would like to know how should I record
> > loans that are made by the company to an employee and the repayment of
> > the loan.  The assumption is that the repayments will be made over a
> > period of time.  Thanks in advance.
> You should treat this as you would any other loan.  So under Liability (or
> Liability->Loans), create a new account and give it a reasonable name and
> description.  Then click the Opening Balance tab and fill in the loan
> amount. Check the Select Transfer Account box, and select the account (i.e.
> checking) that you deposited the money to.

To the employee it's a liability. To the company it's an asset. How it's 
accounted for can vary depending on the loan duration (a <1 year loan is 
probably a current asset, while a longer loan might be non-current or 
partially noncurrent).

In the company's books I would expect to see a transfer from the company's 
cash-at-bank to an asset account set-up for the loan. If the repayments on 
the loan are fixed you may wish to set-up a scheduled transaction to 
calculate the interest due on the loan as a transfer from an income account 
to the asset. As the employee pays off the loan transfer money from the asset 
account back to your cash-at-bank:

Opening the loan:
current assets:cash-at-bank        ->      current assets:tom's loan

Accruing interest:
income:interest for tom's loan     ->      current assets:tom's loan

Receiving a repayment:
current assets:tom's loan      ->     current assets:cash-at-bank

There are several variations on this that you could use:
1) You could combine the repayment and interest in a single transaction
2) You could charge the scheduled repayment to your accounts receivable and 
deal with repayments just like any other outstanding bill
3) You could create a separate (sub-)account to deal with early repayments or 
variations from the original schedule. In this way you could offer a "redraw" 
facility up-to the amount the employee had paid ahead of schedule. In that 
model you'd transfer from the prepayments into the regular loan account 
instead of billing the employee.
4) You could include a provision for bad debts by creating an offset asset 
account (ie a liability).

As I understand it, gnucash will not currently help you too much with 
calculating the interest due on the account. In-particular, I think it will 
help you with the scheduled payments but as extra repayments occur the whole 
thing can get a bit messier.

Benjamin.