How to track mortgage (liability) payments as part of expense reports

Beth Leonard beth at
Sun Jun 4 20:42:56 EDT 2006


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I guess the first thing to understand is that your
house is an Asset and the amount you borrowed to buy
it is a Liability.  The amount you pay in taxes and
interest on the loan are Expenses.  An expense report
won't tell you about reducing your liabilities.

I think most people choose to do it with split transactions
from the automatic bank withdrawl, but creating manual transactions
out of your liability account into the interest and taxes
expenses account is still correct.  (Usage note: use the
"Duplicate Transaction" feature for future months to simplify
your life with these complex transactions.)

Here is your problem:
> Now when I do an expense report, everything looks good- I can see how 
> much we're spending on groceries, utilities, interest, etc- but NOT the 
> payments for mortgage principle.

The morgage principal is not an expense, it is going to reduce
a liability.  It may feel like an expense as if you're paying
rent, but it's not.  It is reducing a liability.  You still
own the house as an asset.

If you want to know about your monthy cash flow, which includes
these liability payments, run a cash flow report, not an expense

I hope that helps.  Also, for net-worth type calculations, make
sure that your initial transactions setting up the liability
account for the loan and asset for the house came from Equity:Opening
Balances.  You shouldn't be using an adjustment account for those.

For example:
Equity:Opening Balances   -> Assets:House		$100,000.00
Equity:Opening Balances   -> Liabilities:Home loan	$80,000.00

With those two transactions, you should see in your Equity account
that you have a net worth of $20,000.  (Which was presumabely your
downpayment on the house.)  If your remaining loan amount was less,
you can add another transaction from Liabilities:Home Loan to 
Equity:Opening Balances, to reflect the actual value outstanding
on your loan.

I always get the credit:debit terms mixed up, so I find it's easiest
to initiate these transactions from the Assets:House account and the
Liabilities:Home Loan account.  Then you know what column to put the
money in.  (If you have "use accounting labels" turned off in 
preferences, otherwise they all say debit:credit)

On Mon, May 15, 2006 at 04:39:36PM -0700, womble wrote:
> Hi there-
> First, my thanks for all those involved with making this software.  It 
> 'just works', the importers (qif/ofx) are very good (considering what 
> they have to deal with as input), and it's straight forward to understand.
> However, there's one thing I'm having difficulty with: how to handle 
> mortgage payments, so that they show up as part of expense reports, 
> which I'm using to figure out where our money is disappearing to :)
> (My apologies if this has been covered before- I've looked at the 
> manual, and used Google, but so far I've not found anything helpful- I 
> may just be using the wrong terms though; I'm not an accountant!)
> This is what I've done:
> Created a liability account for the mortgage.
> Entered an initial transaction (from Equity:Opening Balances) for the 
> mortgage total.
> Entered an 'adjustment' transaction to make the current mortgage balance 
> match the official bank statement from the beginning of the period from 
> which I've started entering/importing data (Feb this year).
> I'm not really interested in tracking the above two transactions; 
> they're just informational to me.
> Our mortgage is paid for by an automatic payment at the bank.  This 
> payment covers principle reduction, interest, and local taxes.  As it's 
> an automatic payment at the bank, I haven't used GnuCash's scheduled 
> transaction feature.  All payments will appear when I import the next 
> OFX export from the bank.
> So when I import the OFX file, I assign (deposit) the automatic 
> withdrawals for the mortgage from our normal bank account (in)to the 
> Liabilities:Mortgage account in Gnucash.
> I then manually create transactions in the Liabilities:Mortgage account 
> in GnuCash which deduct interest and tax payments to the appropriate 
> expense accounts- Mortgage Interest, and local taxes (both expense 
> accounts.)
> (I realize that these second level manual transactions are redundant, 
> that I could create a split for the imported payment transactions.  But 
> I personally just find this easier to read as a summary for the main and 
> mortgage accounts- it effectively groups things in a way that makes 
> sense to (if not to anyone else.))
> Now when I do an expense report, everything looks good- I can see how 
> much we're spending on groceries, utilities, interest, etc- but NOT the 
> payments for mortgage principle.
> I could instead assign the automatic bank withdrawals to an expense 
> account (so they show up on the budget report) but then the liability 
> total won't be reduced- the expense reports will show what I want, but 
> the net worth reports won't.  If I then set up transactions from the 
> expense account to the liability account, I'll end up back at the 
> beginning- liability is reduced, but this expense account will have a 
> zero balance.
> Effectively, in this one case, I effectively want to 'double count' 
> these principle payments- but I realize this isn't particularly good 
> double-ledger book keeping. 
> So far the only way around this that I can see is to create a new equity 
> account like 'opening balances', called something like  'mortgage 
> fiddle', and create manual transactions mirroring the actual principle 
> reduction, with the destination being the liability account.
> Is there a better way to do this- so that you can both track liability 
> (loan) repayments as an expense and also have them reduce the loan 
> principal?  i.e. have both expense and asset reports being correct?
> Thanks in advance for any suggestions-
> Julian
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+                             Beth Leonard                          +
+       O say, does that star-spangled banner yet wave              +
+       O'er the land of the free and the home of the brave?        +

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