Under what accounting head should this account be created?

[Buddha Buck]

Sure, but there are a couple of things to keep in mind:

1) In traditional bookkeeping practice, "accounts payable" (A/P) is a
liability account, and "accounts receivable" (A/P) is an asset account.
There's nothing particularly special about them. It isn't uncommon to have
multiple A/P or A/R accounts for special purposes, like separating out one
class of customers or vendors for separate reporting.

So creating an asset account called "Friends A/R" or a liability account
called "Friends A/P" is no big deal.

2) The GnuCash built-in account type called "Accounts Payable" or "Accounts
Receivable" are a special type of Liability and Asset account,
respectively, but with added hooks into the "Business Methods" portion of
GnuCash. They play nicely with invoices, bills, payments, customers, and
vendors. And the business methods don't mix well with non-business uses of
those accounts -- they expect those accounts to be their playground, as it
were.

So the general recommendation is to not use the A/R or A/P account types
when creating new accounts unless you are using the business methods of
GnuCash to manage them, and to stay away from them otherwise.

3) From a more fundamental aspect, A/R and A/P are, as has been mentioned,
a facet of "accrual basis" accounting, which is concerned with the
recognition of income and expenses when the goods or services are
received/given, not when the money is received or given. The question
accrual accounting is trying to solve is "If the glazier fixes your window
on December 24th, and you pay the bill on January 3rd, which tax year do
you report the expense?".

But your scenario doesn't involve expenses or income; it's purely loans to
and from friends. A loan received is a liability; a loan given in an asset.
A/P and A/R are unimportant to that set of transactions.

On Tue, Jul 14, 2015 at 4:54 PM nosherwan <nosherwanh at gmail.com> wrote:

> thanks a lot josh.
> So you mean you create it as an asset account and not as an accounts
> receivable account?
> Wouldn't it be better if you more often than not owe something to others
> you create it as an accounts* payable*? and if someone more often than not
> owes you you create it as accounts *receivable*? what do you think about
> this?
>
> Regards,
> Nosherwan
>
>
>
>
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