[GNC] Credit Card Format Good?

[Peter West]

Hi,

I can’t be of much help, because my accounts setup is different from yours, but if you run Reports > Assets & Liabilities > Balance Sheet, the Balance Sheet will show total assets, total liabilities and total equity. It also shows the sum of Total Liabilities and Total Equity. The sheet is in balance if this last sum is equal to Total Assets. That is, if

Assets = Liabilities + Equity.

That is the basic accounting equation of double-entry book-keeping. In order to balance, the sign (+ve or -ve) of the Asset accounts must be the opposite of both Liabilities and Equities. By convention, the Assets are debit accounts, therefore the Equity and Liability accounts must be credit accounts. That means that increases in an Asset are debits, while decreases are credits; and increases in Liabilities (or Equity) are credits, while decreases are debits.

Income increases assets; an increase in an asset is a debit; therefore the balancing entry for income must be a credit.
Expenses decrease assets; a decrease in an asset is a credit; therefore the balancing entry for expenses must be a debit.

I’m not sure about your Expense, Rebate, Payment and Charge columns, but in my setup I could have

Expenses: (Dr)
	Credit Card:
		Purchases:
		Charges:
	Cash purchases:

Liabilities: (Cr)
	Credit Card Pending:

Assets: (Dr)
	Cash at Bank:
	
If I purchase fuel for cash, say $30, I would enter the transaction as a $30 debit under Expenses: Cash purchases, and a corresponding $30 credit (here a reduction) in Assets: Cash at Bank.

If I purchase the same amount of fuel on my credit card, I would enter the transaction as a $30 debit under Expenses: Credit Card: Purchases, and a corresponding $30 credit (here an increase) in Liabilities: Credit Card Pending.

Let’s say that is my total credit card bill, which I pay on time, without incurring interest charges (a common situation here in Australia.) I enter the payment transaction as a $30 credit (here a reduction) in Assets: Cash at Bank, and a corresponding $30 debit (here also a reduction) in Liabilities: Credit Card Pending.

Notice that this final $30 debit in Liabilities: Credit Card Pending balances and nullifies the preceding $30 credit from the original CC purchase, leaving the $30 credit (reduction) in Assets: Cash at Bank and the $30 debit (increase) in Expenses, although now it comes under Credit Card: Purchases rather than under Cash purchases.

This points out a problem with the arrangement of accounts. To track individual categories of expenditure, in this case fuel, I need to have two fuel expenses accounts: Expenses: Credit Card: Purchases: Fuel and Expenses: Cash purchases: Fuel.

This is not a problem if you never buy any trackable items using cash, but in general you would just have something like
Expenses: Transport: Fuel
and your fuel expenses can be recorded directly against that account, whether you pay by cash (and enter a Cash at Bank credit) or by credit card (and enter a Credit Card Pending credit).

Peter


--
Peter West
pbw at pbw.id.au
“Woe to you, when all people speak well of you, for so their fathers did to the false prophets.”

> On 16 Sep 2019, at 11:03 am, <ornd25 at tutanota.com> <ornd25 at tutanota.com> wrote:
> 
> I've just recently started with GnuCash and decided to treat credit cards as liabilities rather than expenses as I did previously. To that end I've migrated my accounts, but since I don't know how the result should appear I'd like to ask if I have it done properly.
> 
> Right now I've set it up simply, without tracking individual purchases, but if I've done it right, I can begin to track individual purchases next month.
> 
> Expense:Credit Card Charge Account
> Expense:Credit Card (Column "Tot Expense") $5
> Liabilities:Credit Card-L (Column "Tot Rebate") $5
> 
> Liabilities Account
> Entry 1
> Credit Card-L Account
> Bills:Credit Card Charge (Column "Payment") $5
> Liabilities:Credit Cards - L (Column "Charge") $5
> 
> Entry 2
> Credit Card-L Account
> Liabilities:Credit Cards - L (Column "Payment") $5
> Checking account   (Column "Charge") $5
> 
> Expenses no longer balance; Liabilities balance, but I suppose they would if I'd done it completely backwards. Is this done properly or backwards?
> 
> 
> 
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