how to setup a revolving credit facility account

[David Latham]

Thanks Robert,

It looks like this might be the best way to go about it.  I still find
it unfortunate that there is no way to record the available credit
because: It is in fact an asset.  The bank treat this available credit
as equity.  If I were to take another loan, the bank would take this
difference between the current value of the reducing revolver and the
balance of the revolver (Available credit) as being equity.

I have considered treating it as a cash asset and simply having a
liability account that records the reduction in the reducing revolver as
an adjustment.  It would not be perfect, but it gets closer to the goal.
I could then record the total amount of the liability and reduce from it
the reduction amount (this is the portion of the monthly payment to the
facility that does not include interest.  Its calculated as being the
difference between the current available credit and the new available
credit after the payment is made...)

I guess there is not really a perfect way to handle this in GNU CASH.  I
would like to be able to create a split account.  Show a portion in
Liabilities and the balance in Assets.  The combined value is the the
total reducing amount...

I have provided a link below to a description of the facility:
http://www.sovereign.co.nz/section3.asp

Thanks all for your help.

Best regards,


David Latham


On Sun, 2007-06-03 at 20:06 -0500, Robert Ramsdell wrote:
> David,
> 
> The way I see it, you have three accounts here:
> Assets:Home to record the value of your home
> Liabilities: Mortgage to record you fixed interest mortgage
> Liabilities: Revolving credit for the revolving line
> 
> If you treat the revolving line like a checking account then:
> 
> salary will be a transfer from income:salary -> liabilities:Revolving
> groceries will be a transfer from
> liabilities:Revolving->expenses:groceries
> interest on the loan will be a transfer from
> liabilities:Revolving->expenses:interest
> payments from the revolver to the mortgage will be transfers from
> liabilities:Revolving->liabilities:Mortgage
> 
> The equity in your home will be the difference between the value of
> assets:home and the two liabilities.
> 
> Note that gnucash does not have the facility to keep track of the
> available credit.  However, this is not really an asset such as cash...
> 
> Robert
> 
> On Sat, 2007-06-02 at 13:31 +1200, David Latham wrote: 
> > Thanks Ariel,
> > 
> > I will try to explain it a little bit better.
> > 
> > The revolving credit account is a type of home loan.
> > 
> > When I look at my balance on on line banking, I have an available
> > balance and a balance outstanding for the same account.  The available
> > balance is really the portion of the loan that I can draw down on.  The
> > way it works is like this:
> > 
> > Example: 
> > # Opening Total outstanding balance = 30,000 [LIABILITY]
> > # Salary into account.  > Total outstanding balance is now 25,000
> > [REDUCED LIABILITY]
> >         Available balance is now 5,000 [INCREASED EQUITY AND CURRENT
> > ASSET (CASH)]
> > # Spend some money on Groceries = 100 [EXPENSE]
> >         Available balance is now 4,900 [REDUCED CASH]
> >         Outstanding on loan is now 25,100 [NET LIABILITY]
> > # Net equity = 4,900 = current cash.  (The loan is a combination of a
> > cash account and a liability account.)
> > 
> > Note: in order to service this loan, the bank charge interest.  The
> > interest is calculated daily so the longer I keep my funds in the
> > account the less interest I have to pay.  The other thing that happens
> > is that over the period of the loan, maximum amount available for cash
> > is reduced.  The idea is that after 3 years or so, I transfer the loan
> > to the fixed interest portion of my home loan and draw down another
> > 30,000 for the revolving credit facility... :)  Its all in an effort to
> > reduce the time spent paying back the loan and therefor the total
> > interest paid...  Hopefully it will work.  My broker said it would and
> > hes a good man.  (don't worry, Ive done my due diligence and researched
> > it all myself)
> > 
> > I know that I can always link the cash account with the liability
> > portion, but then I loose the ability to generate reports on things like
> > groceries and income etc.
> > 
> > At the end of any given cycle I would like to be able to get a report
> > that has these figures in it:
> > 
> > Current Account: 4,900
> > Liability              : 25,100
> > Groceries          : 100
> > Salary               : 5000
> > 
> > The problem with a credit card is that Available credit is not really an
> > asset.  Or am I wrong in this.  A credit card facility is, so far as I
> > know, a liability.  The difference with a revolving credit facility is
> > that, because its a type of home loan, any payments made into the
> > account can be interpreted as an INCREASE in equity.  ( These payments
> > immediately contribute to the home loan, thus reducing the outstanding
> > amount on the loan, thus increasing personal equity. )
> > 
> > See what I mean?
> > 
> > Thanks again, and looking forward to seeing how it all works.
> 
> 
> 
>