[GNC] Record Loan Interest

[Michael or Penny Novack]

On 5/5/2020 10:30 PM, flywire wrote:
> Thank you. The guide explains a credit card account is a short-term 
> loan. The Loans section probably needs a reference back to Credit Card 
> Putting It All Together section which clearly explains Interest and 
> Payments.
>
> Aaron describes it pretty well, a loan interest transaction generates 
> an expense interest-paid transaction at the same time. The Loan 
> payment (split as desired) from the bank account is an independent 
> transaction. The Income/Expenses reports and the Assets/Liabilities 
> registers work as expected so everyone's happy.
>
> With the part interest payment described by Aaron, the $1 is from 
> Liability:Principal.
>
THAT is why I used "line of credit" as an example instead of "credit 
card" though there are similarities.

Even if you are on a "cash basis", the interest expense is incurred when 
they bill it/add to principle. It is precisely because that is the way 
these loans work, that they EXPECT the interest to be "paid" by assuming 
more liability (added to principle). There is no real need for you to 
consider the debt partitioned into interest and principle (the balance 
of the interest expense account for this loan will give you that). Then 
when you make a payment, just affects bank account paid from and and the 
loan (principle). That is not a transaction affecting income/expense.

When would I partition? Probably only if a "conditional" loan with 
either interest or even a portion of principle forgiven when certain 
conditions were met. And I might "redo" a line of credit when/if the 
active (credit) part ends and becomes more like a mortgage << if not 
paid off prior or replaced by a new line of credit >> The reason for 
partitioning a "conditional" loan is that you expect to be meeting the 
conditions affecting forgiveness. Thus I went to university with NDF 
loans (LONG before gnucash existed, all computer software in infancy). 
The conditions of those loans were "no interest while continuing 
education" and "no interest and 10% principle forgiven every year 
teaching". If you had a loan like that today (and were meeting 
conditions) you might want to partition so you didn't have to record 
expense when "billed". Instead, when you had submitted proof of 
conditions met each year and been approved, would get notified what 
forgiven << and you would enter a so called "journal  transaction" to do 
the adjustment >>

Michael D Novack