[GNC] non-currency liabilities

Sun Aug 2 20:00:36 EDT 2020

To Dann F et al.  -- In my opinion, the informal College Fund you describe
is neither a liability nor a short-term asset, but rather is a long-term
asset, in my opinion.  I am not an expert about how personal financial
accounting should be done, where that is different from business
accounting.  But is like retirement funds and I think it should be
accounted for the same way, which is (i think):  just stated as one of your
assets, but clearly labelled as to its purpose.  I think it should be
included under a Long Term Assets "placeholder account" in GnuCash. I'd
like to see some examples of proper statements for individual financial
reporting though.  If done that way in GnuCash, then increases (decreases)
in value from stock market fluctuations would be included as gains (losses)
within the regular Income Statement of each period.  And for tax purposes,
that would be proper:  you will have to pay income tax on the gains,
because it is only an informal, personally-defined thing of yours.

For businesses, in more full-fledged accounting systems, GAAP accounting
would allow the gains (losses) to be kept aside, and only reported in what
is called the Other Comprehensive Income statement.

If you really had a formal, contractual, legal obligation to pay for the
entire college education of a current minor, I suppose that could be
reflected in a long-term liability, at the estimated present value of the
future cost which must be paid.  Like how for firms having a defined
benefit pension program will have an estimated Pension Liability.  And they
will also have a Pension Assets account, which hopefully should be similar
in magnitude.  And there are requirements for how to show re-estimates of
the pension liability, etc.  But in your case, I don't believe you have an
absolute obligation to pay all the college costs no matter what they might
turn out to be;  it sounds like you are taking on a moral obligation to pay
whatever funds have accumulated in your college fund account.

If the purpose of creating a liability would be to highlight the value and
its restricted purpose, i don't think that is necessary:  statement of the
asset, properly labelled as to its purpose, suffices.

But better than doing an informal program of your own, if u are in the U.S.
you could get tax benefits from using a formal 529 plan:
"529 plans are named after Section 529 of the Internal Revenue Code (IRC),
which was added in 1996 to authorize tax-free status for 'qualified tuition
programs'. Earnings in 529 plans accumulate on a tax-deferred basis and
distributions are not taxed federally when used for qualified higher
education expenses
<https://www.savingforcollege.com/article/what-you-can-pay-for-with-a-529-plan>.
The definition of qualified higher education expenses was expanded in 2015
to include computers, in 2017 to include up to $10,000 annually in K-12
tuition and in 2019 to include student loan payments and costs of
apprenticeship programs. " from SavingForCollege.com

Somewhat similarly, a nonprofit may have a restricted asset, e.g. the
invested funds received from a foundation or other donor, which may only be
spent for a specified purpose.  Simple accounting for this (as opposed to
full formal Funds Flow Accounting for nonprofits and governments which is
more complicated) would show the asset, sensibly labelled, on a regular
balance sheet for the nonprofit.  If job costing were available, it would
be designated as a job, and in each period an income statement (or Revenues
less Expenses) statement would show new receipts of funds from the donor
and perhaps interest earnings, and it would document eligible expenses.

Hope this helps
Don

On Sun, Aug 2, 2020 at 4:53 PM Stephen M. Butler <kg7je at arrl.net> wrote:

> On 8/2/20 8:35 AM, dann frazier wrote:
> > Thanks David - yeah, negative share balances are possible. But it's
> > seemingly not possible to track shares in a Liability account.
>
>
> You can always treat Liabilities as a negative Asset.
>
>
> >
> > On Sun, Aug 2, 2020 at 2:41 AM David Carlson
> > <david.carlson.417 at gmail.com> wrote:
> >> I meant no requirement to have a positive share balance.  You should be
> able to have a negative share balance in a security account.
> >>
> >> On Sun, Aug 2, 2020 at 3:37 AM David Carlson <
> david.carlson.417 at gmail.com> wrote:
> >>> I believe there is no restriction to have a positive number of shares
> of a security.  After all, it is common to sell stock short (Against the
> box) or not.
> >>>
> >>> David Carlson
> >>>
> >>> On Sun, Aug 2, 2020 at 2:48 AM dann frazier <dannf at dannf.org> wrote:
> >>>> Hi,
> >>>>
> >>>>   I'm trying to figure out the right way to represent a non-currency
> >>>> debt in gnucash. That is, I'd like to be able to record that I *owe*
> >>>> 20 shares of FooFund. I thought I'd just create a Mutual Fund
> >>>> Liability account, but apparently Mutual Funds and Liabilities are
> >>>> mutually exclusive. Is that restriction by design?
> >>>>
> >>>>   One of the reasons I want to do this is for a college fund. I'd like
> >>>> to keep track of the fund value in an account, but also "keep it off
> >>>> the books" in a sense when it comes to Asset vs. Liability
> >>>> calculations, as I consider it both something I have and something I
> >>>> owe. I tried doing this by creating an Asset account and a Liability
> >>>> account that grow together, and cancel each other out, but I couldn't
> >>>> get that to work since it won't let me make the Liability a security.
> >>>> Is there a better way to do this?
> >>>>
> >>>>   -dann
> >>>> _______________________________________________
>
> --
> Stephen M Butler, PMP, PSM
> Stephen.M.Butler51 at gmail.com
> kg7je at arrl.net
> 253-350-0166
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