Loans

[Andrew Sackville-West]

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

the problem here is that you are not following standard accounting 
practices for keeping track of your loans.  AFAIK gnc doesn't handle 
this automatically and you will be stuck manually creating your 
transactions.
> 
> 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 (Bank Account, Mortgage 
> Balance
> & Mortgage Repayment), thus I am having trouble dealing with it.

this is not double entry book-keeping. Follows is a simple description 
of how loans work. Read or not as you like.

Here's how a loan works. You borrow money from a bank, say $1,000. you 
put that money in a box under your bed. That box of money is the bank's 
money. You're just keeping it for them for a while. So...
  Every month you take out the box, pull out $100 of the BANKS money and 
pay it to the bank. Then you reach into your pocket and get out $1.43 of 
YOUR money(just making up numbers here) and pay it to the bank as interest.

Remember, the box money is the banks money and the pocket change is your 
money. So in accounting, the way you represent this is simple. There are 
three accounts. First is the Liability account -- the amount of the 
banks money that you have. The second is the asset account -- the box 
under the bed (this can be anything, cash in your checking account, the 
boat you bought with the money, the groceries you bought with the money 
and then ate. regardless, it is the banks money sitting in a box waiting 
for you to give it back). The third is the expense account for interest. 
this is the money that you pulled out of your pocket. This is the only 
money that is YOURS that is included in the transaction and thus the 
only one you can expense. When you make a payment, you are moving some 
of the banks money back to the bank and giving some of your money to the 
bank, this principal and interest and equals the total payment to the bank.

If you have a loan that is accruing interest and adding it to the 
principal balance, then you enter an interest transaction in the 
liability register. That is an interest expense for say $2.53 accruing 
more liability. Using our example that means that you take $2.53 out of 
your pocket and put it in the box under the bed. Its now the banks money 
for you to repay later.

Hope this helps,

Andrew
> 
> Then on the 20th April I want the Liabilty named Mortgage Balance to
> increase by $450 (Loan interest levied), but there is not really a
> balancing account that I can see. The balance of this Liability just 
> increases
> when the Loan Interest is levied against my mortgage account. There is no
> Expense involved.
> 
> Does Equity somehow play a part in handling the transactions in the way
> I want?
> How do I deal with these transactions in the way I want?
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