Construction loan and cash-flow report

Dwight Tovey dwight at dtovey.net
Sat Oct 30 09:58:43 EDT 2004


I think I need a sanity check.

I'm having a new home built.  To pay for it, I have a construction loan
set up through the bank.  Every month the builder draws funds on this loan
to pay his expenses.  Until the house is finished and I take possession
(at which time the loan will be converted to a standard mortgage), I make
interest-only payments on the current balance.

In gnucash I have a liability account for the loan, an asset account for
the house, and an expense account for the interest payments.  When the
builder does a draw, I enter it as an increase in the liability loan
account with the transfer recorded as an increase in the asset house
account.  The interest payment is entered in my checking account and payed
against the expense mortgage interest account.  Sound reasonable so far?

The question that I have now concerns the cash-flow report.  Using the
standard report I see the loan increase in the "Money in" section, but I
don't see any corresponding entry in the "Money out" section.  This
results in an extremely scewed report showing a much higher income than
normal.

Should I be recording the draw as two transactions: liability -> cash,
then cash -> <some expense account>?  What would <some expense account>
be?  Housing?  Or should I just accept this as a temporary blip in cash
flow since once the loan is converted things will return to "normal".

Thanks for any input.

    /dwight

-- 
Dwight N. Tovey
email: dwight at dtovey.net
web: http://www.dtovey.net/~dwight
-----------
Don't blame Congress.  If you had $600 billion at your disposal, you'd be
irresponsible too.



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