loans

[David Reiser]

On May 16, 2005, at 12:48 AM, JBW wrote:

> I'm trying to figure out how to handle loans in GnuCash. I've read the
> tutorial but the method described does not really suit me.
> The main problem is that it says Interest should be registered as an
> expense. This however is not the case with me. Interest charges and  
> loan
> repayments are separate transactions of differing values. My  
> expense is
> the loan repayment, not the interest charge.

That last sentence is not true. A loan repayment is not an expense,  
it's a cash flow management issue. From the standpoint of an  
accountant, a loan repayment is NOT an expense. It took me weeks of  
beating my head against the proverbial wall to even be able to say  
that, much less really accept it. Satisfying a liability (making a  
payment against loan principle) is not an expense -- you just  
transfer money between an asset and a liability. Given that Gnucash  
is strongly based in standard accounting practice, you're not going  
to see repayments treated the way you think of them.

>
> For example, on the 10th April I want to move $500 from my Asset named
> "Bank Account" to reduce my Liability named "Mortgage Balance". But I
> ALSO want this amount to show up as an Expense named "Mortgage
> Repayment". This little equation has three sides, thus I am having
> trouble dealing with it.

You need to tweak the cash flow report to do show you what you want.  
I'll agree that from an individual's perspective (where a mortgage  
payment is frequently the largest check written against net salary),  
not being able to call the payment an expense is at least  
inconvenient, if not infuriating. I guess that's part of the price of  
having a bunch of other things work out right because of standard  
accounting practice.

>
> Then on the 20th April I want the Liabilty named "Mortgage Balance" to
> increase by $450 (interest charges levied), but there is not really a
> balancing account that I can see. The balance just increases when the
> interest charge is levied against my mortgage account. There is no
> Expense involved.

You seem to want to think of interest as a new loan tacked on to the  
existing balance. But what's the new loan for? It's paying your  
interest expense. Sort of. Why don't you think of interest as an  
expense? It's a chunk of money you have to pay that doesn't reduce  
your original loan balance, it's gotta be some kind of expense.

>
> Does Equity somehow play a part in handling the transactions in the  
> way
> I want?

Nope.

> How do I deal with these transactions in the way I want?

If I'm reading your questions correctly, you can't do it your way in  
Gnucash.

I've spent a lot of years avoiding standard accounting practice for  
my personal cash situation by having my own custom cash flow  
database. But eventually, all recording systems run into problems.  
The advantage of using standard accounting practices is that then  
there are a whole bunch of people who can help you through the rough  
spots. It sounds like using Gnucash will require you to change your  
thinking about the ways you record the money that enters and leaves  
your checking account. In the long run, it's almost certain to be  
worth it. But you'll have to decide if you can deal the changes now.

Dave