mortgaging with gnucash

[Maf. King]

On Thursday 23 Sep 2004 14:54, Andrew Gelvin Burley Grimes wrote:
> Hello --
>
> I am about to buy a house, and I was looking for some clarification
> concerning some theoretical accounting issues.  I've been using gnucash
> for a while, and everything runs smoothly, so this isn't a question
> about operating gnucash per se.  I suppose it's really a question about
> the double-entry accounting system.
> Questions follow:
>
> 1) When I take out this mortgage loan for the house, will I set up a
> liability account for the house, and an expense account for the
> purchase of the house as well, so that the first transaction concerning
> the house will be to move (say) $100,000 from the liability account to
> the expense account?  Or, will I actually just create the liability
> account with an opening balance of $100,000, which will decrease as I
> make monthly payments?
>
> 2) So either way, I end up with this liability account containing the
> amount of the house.  As I make payments, money will flow monthly from
> my bank account to the liability account, which will steadily decrease,
> right (I understand that I'll need to set up expense accounts for
> interest and other associated costs).  How can I keep track of the
> equity I build as time goes by?  Should I create a new asset account
> that will contain the money that I have paid towards the mortgage
> principle?  If so, how do I get the money into that account without
> taking it out of the liability account for the mortgage (and thereby
> increasing the balance of that account)?
>
> thanks for your thoughts
>
> Drew

Hi Drew,

IANAA, but I would suggest that you have an asset account which reflects the 
actual value of the house, a liability account for the mortgage loan, and 
expense accounts for mortgage interest, legal costs and whatever else you 
want.

Assuming that you pay for the house partly with some of your own money, and 
mostly with a mortgage, the opening value of the house asset is a transfer 
from your bank account and from the liability account for the mortgage sum.

As you repay the mortgage, you do a transfer from bank -> expenses:interest 
and liability:mortgage-loan

Not exactly sure how to account for the increase (hopefully!) in the value of 
the house, but it is a matter of adding value to the asset account, possibly 
a transfer from another income account?

hope that doesn't add to your confusion!

Maf.