Handling a car loan; trade-in/payoff, and new loan

[FireFly]

Lots of questions, hopefully a few answers.

In general the answer is, do it how you want :) Unfortunately GNUCash suffers from being very flexible, which is great, and terrible at the same time.

First off, this is all said with the understanding that I am not an accountant, I use GNUCash for personal use, and any advice is taken at your own risk.

Making sure I understand the situation

You had a Car (Lets call it Car 1) on which you had a $9200 Liability (Loan A)

You traded in the car and got a new Car (Car 2), paid off the $9200 Loan (doesn't really matter whether you or the dealer did that to me) and now have a new loan for X (Loan B)

So I'd expect a couple of things, assuming you got the car after may, I'd start off with the state of affairs having Loan A setup (with an opening balance from equity of $9200, assuming you made no payments after your starting date) and having a car that is worth X, I say X because I'm not sure if the Loan you got from the dealer was larger, or smaller, or the same as the loan you would have gotten if you had no trade in (and how exact you want to be).

The easiest situation is if the dealer was giving you $9200 for the trade in, in that case you would create an account for the new car with $0 balance, create an account for Loan B (again with 0 balance) and then have a transaction which was to buy the car, which I would expect to be something like

Account
Assets:Car 2	Increase $10,000 (or however much the car is "worth")
Assets:Bank	Decrease $A (however much you had to pay, or possibly this would be money against a credit card)
Liabilities:Loan B	Decrease $Y (amount of the loan, in this case $10,000-$A)
Assets:Car 1	Decrease $9,200
Liabilities:Loan A	Increase $9,200

This would leave you with 0 balance in the Car 1 Asset (since you don't have this anymore), 0 balance in Loan A (since you don't own this anymore) and then the right amount for the loan, and change to your bank account/credit card.

From accounting terms you really didn't have an expense, you changed one asset into another (and added a new liability) 

I guess technically every purchase of an item could be handled like this, but I've only used it for large purchases (Car/House) not smaller things (laptops, TV's, Food, etc)

If you didn't want to have it as an expense you could just have it as an expense:Auto:New Car (or something like that) but it wouldn't give such an accurate picture for assets.

Presuming you don't have a 0% Auto Loan, payments to the loan would be split, you'd have the amount coming from your account (whatever the monthly payment is) and then this would be split into two, one going into Liabilities:Loan B and the other going to Expense:Interest (or Expense:Loan:Interest or something like that).

Hope that helps some, I could probably knock up a fake example if you wanted of what I'd expect this to look like.

- James Duerr

E-mail: FireFlys_98 at yahoo.com
---------------------
Discover a lost art - play Marbles. May 2004
www.marillion.com


--- On Wed, 7/28/10, Jim B <gunmetalx at gmail.com> wrote:

> From: Jim B <gunmetalx at gmail.com>
> Subject: Handling a car loan; trade-in/payoff, and new loan
> To: gnucash-user at gnucash.org
> Date: Wednesday, July 28, 2010, 2:27 PM
> Hello,
> 
> My wife and I recently started using GNUCash for our
> finances and are
> back-filling data to May of this year.
> 
> In June we traded in a vehicle and took out a new loan for
> a new
> vehicle.  The car dealer paid off the remainder of the
> loan ($9200)
> directly to the bank who issued the previous auto
> loan.  I've read
> some of the archives and various articles on this topic but
> some
> things still aren't clear to me.
> 
> I'd have to go back years in order to entirely represent
> the old loan,
> and some of the detail just isn't available that far back
> for some of
> our other accounts, which is why we are settling on
> starting in May.
> So, I was thinking of creating the old auto loan with a
> starting
> balance of $9200 and also opening the new loan with the
> full loan
> amount as its starting balance.  We do need to have it
> represented
> somehow since our bank account shows some payments against
> this loan
> (right now they're categorized as Expenses:Miscellanous but
> I plan to
> change them once the loan account is created).
> 
> How can I represent the dealer's payoff for the old
> loan?  Do I create
> an Asset:Dealership account, and then transfer from it
> into the old loan's Liability account?  Or do I create an
> Asset:OldCar
> account (for the vehicle itself) and transfer from it into
> the Loan
> account, so that they effectively cancel each other out?
>  Whatever I
> end up doing, I'm trying to keep the reports useful.
> 
> And for the new loan, do I really need to have an
> Asset:NewCar (fixed
> asset for the new car) or is it recommended to just show
> the loan and
> bank accounts, ignoring the physical asset?  (I don't
> think I'd get
> much out of tracking depreciation, etc., I'm trying to keep
> it as
> simple as possible while still retaining the most important
> info
> regarding where our money's going.)
> 
> Also, I feel like adding Assets and Liabilities doesn't
> tell the whole
> story because this doesn't represent the fact that we made
> a purchase
> (expense) in the form of a new vehicle.  With credit
> cards, you have
> an expense as well as an increase in liability.  If I
> don't show the
> expense somehow (such as with an Expense:Auto?) then this
> would not be
> consistent with all other purchases.  At the same
> time, this large
> expense would overshadow other expenses in reports so there
> doesn't
> seem to be a perfect answer to this.  How are others
> handling this?
> Do you create an expense and then specifically omit the car
> purchase
> from expense reports when you want to see where else you're
> spending?
> 
> Thanks!
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