loan explanation

[T. Howell-Cintron]

Yawar & Others,

Thank you for your advice.  I'm still a little lost, likely because I'm
not up on accounting terminology, GC, and.. well.. I'm not the brightest
crayon in the box.  I know what's meant by the date/description you
mention but hazy on the rest.  Hopefully you can clarify.

Yawar Amin wrote:
> T. Howell-Cintron wrote:
>> I've tried following the guide and documentation but get lost along the
>> way because of the complications involved in dealing with interest and
>> the accumulation of assets.  I'm hoping someone on the list can set me
>> straight.
>>
>> The situation is this:
>>
>> I've been given a $1000 loan, interest free, and that I'm to repay at my
>> leisure.  This transaction took place before I started using GC.  At any
>> point I may borrow even more money from the same source.
>>   
> 
> For the initial loan:
> 
> Date: whenever you got the loan initially
> Description: who/where you got the loan from
> Debit Assets:Checking $1,000
> Credit Liabilities:Loan $1,000

Debit assets?  So my Assets:Checking should have a transaction that
deposits said $1000 - from what source?  (The Liabilities:Loan?)
Likewise with the Liabilities:Loan it should read an increase of $1000 -
from what source?

>> I would like to track my payments from Assets:Checking to the loan,
>> Liabilities:Loan,
> 
> For each payment:
> 
> Date: date of payment
> Description: who/where you got the loan from
> Debit Liabilities:Loan $how much you repaid at that point
> Credit Assets:Checking $same amount

Liabilities:Loan should have a decrease of the amount I paid, and show
the transfer from my Assets:Checking account, right?

>> but I'd also like to track how the money loaned was
>> spent (ie, $100 goes to Expenses:Computer).
> 
> Date: date of purchase
> Description: name of the computer shop
> Debit Expenses:Computer $100
> Credit Assets:Checking $100

Then enter a transaction in my Expenses:Computer account that reflects
an expense of $X coming from my Assets:Checking account? .. or should
that be from my Liabilities:Loan account?

>> And, as I said, I'd like to have the
>> ability to add more to the loan on-the-fly.
> 
> Date: date borrowed more
> Description: who/where you got the loan from
> Debit Assets:Checking $how much you borrowed
> Credit Liabilities:Loan $same amount

So Assets:Checking should show a deposit of $X and Liabilities:Loan
should show an increase of the same amount?

>> I created the Liabilities:Loan and entered an increase of $1000, but
>> then suspected it should have been a decrease of $1000,
> 
> I think for liability accounts, `increase' means credit, and `decrease'
> means debit. In this case, you're on the right track.

Increase = additional loan, decrease = loan repayment, right?

> As you can see above, the money is credited to the loan account and
> debited to the asset account. Or, it increases the amount of the loan
> and also increases the amount in your checking account. Yeah,
> double-entry accounting is a bit counter-intuitive. It took me quite a
> while to get used to this.

I think I'm understanding the end result, I'm just hazy on how to get
there.  It makes sense that as the amount of the loan increases I'd have
more money available in my Assets:Checking account, but what do I
attribute the Liabilities:Loan increase to?  The money doesn't just come
from nowhere (although I wish it did. :)

> Final tip: enter all the transactions in the General Ledger (Tools >
> General Ledger), so you don't need to worry about which account you're
> entering transactions into. Of course, you can enter any transaction in
> any account window and it'll automatically get put into the right
> windows, but I won't get into that here.

I'm going to try tinkering with the General Ledger, which seems more
like what you'd encounter in a paper-and-pencil operation anyway.  It's
just so foreign to me that I'm sure it will take me a bit to get used to.

All in all I'm very happy with GnuCash and look forward to using it to
manage my personal finances from here on out.  I've used MS Money and
Quicken but neither gave me the control I wanted, had clumsy interfaces,
and were above all an EXPENSIVE option for what little they provide.

-- Tom