Loans

[JBW]

This sounds good, however it seems using this correct accounting 
practice that the only component of a loan repayment that can show up as 
an expense is the interest. The capital component of each repayment 
bypasses the expense account. In reality my monthly expenses (that come 
out of my pocket) include a COMPLETE loan repayment. Having only the 
interest component registered as an expense does not allow me to 
accurately monitor my cash flow.

I am just a home user of GnuCash, so it becoming apparent that the only 
way I can make sure my entire loan repayment shows up as an expense is 
to forget trying to monitor the loan in detail and just have an expense 
"loan repayment" that comes out of my pocket. This is caveman accounting 
but I can't see any other way to keep accurate records of my monthly 
cash flow. I would like to have kept track of the loan balance in my 
accounts but I can't see how I can achieve this and follow the 
accounting rules.

All I ever know is;
1) The loan balance.
2) The date interest is added to the loan balance and the amount added.
3) The date and total amount of my monthly repayment (interest/capital 
split not known), which comes out of my pocket.

How can I monitor this loan correctly and also show the entire repayment 
as an expense?  Alternatively if you cannot show capital repayment as an 
expense, how do I manage my cash flow accurately when capital repayments 
are not counted as expense?
Andrew


Andrew Sackville-West wrote:

>
>
> 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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>>
>