mortgaging with gnucash

[David Harrison]

> 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?

The loan should be posted as a liability with balance of $100,000.  The other side would be an asset account for the house, also $100,000.

As the monthly payments are made, they would come out of the bank and reduce the liability account with the interest going to an expense account.


> 
> 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)?

The equity in the house would be the difference between the liability account and the asset account.
The reports wouldn't expicitly say that, as they are on opposite sides of the balance sheet.  You would have to do the calculation manually.

> 
> thanks for your thoughts
> 
> Drew

Dave