Recoding money I "owe" myself?

[David Harrison]

On Thu, 10 Mar 2005 21:53:40 -0500, Jason Ahrens
<jason.ahrens at rogers.com> wrote:
> Up in Canada we have a plan to help new home buyers.
> 
> Under this plan, I can "borrow" money from my RSP to for money for a house.
> The amount borrowed has to be paid back within 15 or 20 years.
> 
> I'm having trouble figuring out how to record this.
> 
> Is this "borrowed" money a liability? It's money I borrowed from myself, but I
> have to repay into my RSPs. That money is tied up in the house (Asset) after
> purchase but gets repaid from my income (Income). While I have that money "on
> loan" from my RSP, it seems to be neither a liability or a direct asset.
> 
> What this basically boils down to is that I borrowed money from myself at 0%
> interest and have a repayment plan for paying it back.
> 
> To make this more fun, the RSP is an investment account, as I pay back into
> the RSP, it becomes mutual funds so I cannot use the current monetary value
> as an indicator, only the Buy values.
> 
> Jason

Hmmm, this is a tough one indead!!

Certainly, the withdrawal from the RSP is a liability, as it either
has to be repaid or taken into income.  The problem becomes what to do
with the "other side" of the entry.

For the purchase of the house, you should have something like this:

Withdrawal from RSP
Asset:Bank                          $ x,xxx.xx
     Asset:RSP                                         $ x,xxx.xx

Purchase of house:
Asset:House                        $ x,xxx.xx
     Asset:Bank                                        $ x,xxx.xx

That side is pretty straight forward.  Here's how I think you would
set up the liability:

Equity:Retained earnings      $ x,xxx.xx
     Liability:Owing to RSP                         $ x,xxx.xx
This would be for the full amount of what you borrowed.

Each year you would either repay a portion of the RSP, or take it into
income.  You would then make one of the following entries:

If you repay a portion:
Liability:Owing to RSP         $ x,xxx.xx
    Equity:Retained earnings                      $ x,xxx.xx
And:
Asset:RSP                         $ x,xxx.xx
   Asset:Bank                                          $ x,xxx.xx

If you don't repay a portion (then you have to take that portion into income):
Liability:Owing to RSP         $ x,xxx.xx
   Income:Revenue                                    $ x,xxx.xx

My reasoning for using retained earnings is that you are borrowing
from past earnings. Also, no other type of account makes sense to me.

Hope this helps.

-- 
David Harrison, BAccS, CGA