Opening the books with a Loan

Mike or Penny Novack stepbystepfarm at
Wed Nov 11 07:56:22 EST 2009

>>Suppose a business starts with zero assets. Suppose they only have a loan
>>for X dollars  to start.  This is obviously a liability.  How would they
>>open their books in GnuCash?
>>I've considered the following: In Opening Balances, decrease equity by X
>>and credit (increase) a liability account for X.  This would mean that
>>Assets would be zero, Liabilities would be X and Equity would be -X.
>>Okay, looks good so far to me.  Perhaps I'm missing something obvious in
>>accounting  in the next part. I run a balance sheet report and it tells me
>>that Total Liabilites & Equity = 0.   Shouldn't it be X or at least -X?
>I think you are missing part of the transaction - where has the money from the 
>loan gone?  In a bank somewhere? Under the floorboards?
No, it's possible that (at the very start) there are no cash assets. For 
example, the loan might have been to purchase an existing business. But 
in that case you are still missing the asset side of the transaction 
(it's called "good will", the intangible value of an ongoing business). 
As I keep saying, GnuCash or any other accounting is a tool, you still 
need to understand the fundamentals of accounting.


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