Transfers Between Checking and Savings

[Ian Konen]

On Fri, Mar 15, 2013 at 12:35 PM, Michael Hendry
<hendry.michael at gmail.com>wrote:

>
> On 15 Mar 2013, at 14:24, Mark Phillips <mark at phillipsmarketing.biz>
> wrote:
>
> > I make periodic transfers from savings to checking. However, I just make
> > the transfers as deposit in checking and withdrawal from savings. When I
> > run an income/expense report, those transfers do not show up, obviously.
> > So, I created an income account called Transfers from Savings, and
> whenever
> > I transfer money I deposit in the checking account and credit the income
> > account. But what is the corresponding transaction in the savings
> > account? Or, is there a better way to do this?
> >
> > The reason I want to do this is that I am managing my elderly parents
> > accounts, and the other siblings want to see detailed financial reports.
> > Since my parents are living off their savings and a few other income
> > sources, I want to show the transfers from savings as income for them. Is
> > there a better way to do this?
> >
> > Also, once I figure out how to show the transfers as income, (unless
> there
> > is an accounting reason not to do this!), how do I change the reconciled
> > transactions that go straight from savings to checking without the
> > intermediate income accounts?
> >
> > Thanks,
> >
> > Mark
>
> As an elderly parent myself, I have a similar problem to solve.
>
> Some years ago, my wife and I invested some of our savings in a Loan
> Trust, with our children as beneficiaries.
>
> We take a regular monthly sum from this trust fund, calculated to return
> our "loan" over a twenty year period, without interest. Any interest
> generated by the fund is reinvested, and in practice it is keeping the
> value of the fund level. Assuming we survive the twenty years, we'll have
> recovered the loan we made to the trust, and the money remaining in the
> trust will be outside our estates for Inheritance Tax purposes.
>
> I have treated this fund as a Current Asset, receiving its opening balance
> from the Opening Balances Account.
>
> When the monthly payment of £x comes into my current account, I deal with
> it as a split transaction, taking £x from the Loan Trust account (Current
> Asset) into my current bank account, but at the same time taking £x from
> Opening Balances and transferring it into an Income Account which I've
> called "Pseudo Income".
>
> As we're treating this regular transfer of cash into our current bank
> account as part of our monthly income, this makes sense for budgeting, but
> I suspect it doesn't follow standard book-keeping practice!
>
> You obviously want to distinguish between income (which is subject to
> income tax) and expenditure from savings (which isn't), which is why I've
> called it "Pseudo Income".
>
> Michael
>
>
You need an income account from which you transfer funds to your asset
account whenever the interest is compounded.  If you ran the home finances
setup wizard, GnuCash created by default Income:Interest Income:Checking
Interest as well as ...:Savings Interest and ...:Other Interest in addition
to the corresponding asset accounts.  Earned interest is recorded by
transfering funds from an income:interest account to an asset account.  You
could use one of the default interest income accounts or create a specific
Income account for the interest earned on the Loan Trust.

If it seems odd to you that your one asset (the loan trust) needs two
accounts in GnuCash (the asset account and the interest account) it's
because you're not used to double entry book keeping and you're thinking of
the word "account" in the vernacular...a thing you open at a bank that
holds money.  In double entry accounting, income and expenses are also
accounts and they are separate from the corresponding asset account even if
there's a logical pairing (bank statements may add to the confusion because
one letter from the bank tells you about both earned interest and current
asset levels, but it's really just showing you the asset account side of a
series of transfers, some of which may have come from an interest account).
 The balance in your Assets:CurrentAsset:Loan Trust should represent the
current value of the asset, while the balance on the income account is how
much interest you've earned since the beginning of the accounting period.

I'm guessing you started moving money from opening balances into an income
account because you thought the income account should show a positive
balance over time.  Income accounts acquire a red or negative balance when
you input income correctly.  I found that counterintuitive as well when I
started trying to keep my books, but it's correct.  The whole point of
double entry is that every transaction is balanced, and if you add all
sides of all transactions at any point in time they should all add to zero.
 So if all you had was one asset and one income stream, the asset balance
goes up as the income balance goes down (or up in magnitude but red
colored).  The balance you're probably interested in...the one you think of
as "the balance" is only the balance on the asset account.  If I guessed
wrong about how you cam up with "psuedo income", then I've got no idea what
you're thinking :-).

I'm not an accountant, so apologies to the pros if I've incorrectly
conflated a "red" balance with a "negative" balance.

-- 
Ian Konen
iankonen at gmail.com
www.linkedin.com/in/iankonen
978-821-6498