Re: Loans

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Re: Loans

jbw-4
This sounds good, however it seems using this correct accounting
practice that the only component of a loan repayment that can show up as
an expense is the interest. The capital component of each repayment
bypasses the expense account. In reality my monthly expenses (that come
out of my pocket) include a COMPLETE loan repayment. Having only the
interest component registered as an expense does not allow me to
accurately monitor my cash flow.

I am just a home user of GnuCash, so it becoming apparent that the only
way I can make sure my entire loan repayment shows up as an expense is
to forget trying to monitor the loan in detail and just have an expense
"loan repayment" that comes out of my pocket. This is caveman accounting
but I can't see any other way to keep accurate records of my monthly
cash flow. I would like to have kept track of the loan balance in my
accounts but I can't see how I can achieve this and follow the
accounting rules.

All I ever know is;
1) The loan balance.
2) The date interest is added to the loan balance and the amount added.
3) The date and total amount of my monthly repayment (interest/capital
split not known), which comes out of my pocket.

How can I monitor this loan correctly and also show the entire repayment
as an expense?  Alternatively if you cannot show capital repayment as an
expense, how do I manage my cash flow accurately when capital repayments
are not counted as expense?
Andrew


Andrew Sackville-West wrote:

>
>
> JBW wrote:
>
>> I'm trying to figure out how to handle my loans in GnuCash. I've read
>> the
>> tutorial but the method described does not really suit me.
>> The main problem is that the tutorial says loan interest should be
>> registered as an
>> Expense. This however is not the case with me. Interest charges and loan
>> repayments are two separate transactions of differing values. My
>> Expense is
>> the loan repayment, not the loan interest charge.
>
>
> the problem here is that you are not following standard accounting
> practices for keeping track of your loans.  AFAIK gnc doesn't handle
> this automatically and you will be stuck manually creating your
> transactions.
>
>>
>> For example, on the 10th April I want to move $500 from my Asset named
>> Bank Account to reduce my Liability named Mortgage Balance. But I
>> ALSO want this amount to show up as an Expense named Mortgage
>> Repayment. This little equation has three sides (Bank Account,
>> Mortgage Balance
>> & Mortgage Repayment), thus I am having trouble dealing with it.
>
>
> this is not double entry book-keeping. Follows is a simple description
> of how loans work. Read or not as you like.


> Here's how a loan works. You borrow money from a bank, say $1,000. you
> put that money in a box under your bed. That box of money is the
> bank's money. You're just keeping it for them for a while. So...
>  Every month you take out the box, pull out $100 of the BANKS money
> and pay it to the bank. Then you reach into your pocket and get out
> $1.43 of YOUR money(just making up numbers here) and pay it to the
> bank as interest.
>
> Remember, the box money is the banks money and the pocket change is
> your money. So in accounting, the way you represent this is simple.
> There are three accounts. First is the Liability account -- the amount
> of the banks money that you have. The second is the asset account --
> the box under the bed (this can be anything, cash in your checking
> account, the boat you bought with the money, the groceries you bought
> with the money and then ate. regardless, it is the banks money sitting
> in a box waiting for you to give it back). The third is the expense
> account for interest. this is the money that you pulled out of your
> pocket. This is the only money that is YOURS that is included in the
> transaction and thus the only one you can expense. When you make a
> payment, you are moving some of the banks money back to the bank and
> giving some of your money to the bank, this principal and interest and
> equals the total payment to the bank.
>
> If you have a loan that is accruing interest and adding it to the
> principal balance, then you enter an interest transaction in the
> liability register. That is an interest expense for say $2.53 accruing
> more liability. Using our example that means that you take $2.53 out
> of your pocket and put it in the box under the bed. Its now the banks
> money for you to repay later.
>
> Hope this helps,
>
> Andrew
>
>>
>> Then on the 20th April I want the Liabilty named Mortgage Balance to
>> increase by $450 (Loan interest levied), but there is not really a
>> balancing account that I can see. The balance of this Liability just
>> increases
>> when the Loan Interest is levied against my mortgage account. There
>> is no
>> Expense involved.
>>
>> Does Equity somehow play a part in handling the transactions in the way
>> I want?
>> How do I deal with these transactions in the way I want?
>> _______________________________________________
>> gnucash-user mailing list
>> [hidden email]
>> https://lists.gnucash.org/mailman/listinfo/gnucash-user
>>
>

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Re: Loans

Mark Johnson-2
There was a thread a few weeks back regarding the cash flow report.  If
you open the options dialog, you can select the accounts to report cash
flowing into and out of.  For example, with the proper selection of
accounts, I can show my car savings (a transfer between two asset
accounts) as a cash outflow.  Check the archives to find this thread.

You say that you know the amount of the interest added.  I don't
understand why you don't then know the amount of the capital repaid each
month.  Surely, it's just your monthly payment minus the interest for
the month.  This should give you enough information to enter the split.

Mark

JBW wrote:

> This sounds good, however it seems using this correct accounting
> practice that the only component of a loan repayment that can show up
> as an expense is the interest. The capital component of each repayment
> bypasses the expense account. In reality my monthly expenses (that
> come out of my pocket) include a COMPLETE loan repayment. Having only
> the interest component registered as an expense does not allow me to
> accurately monitor my cash flow.
>
> I am just a home user of GnuCash, so it becoming apparent that the
> only way I can make sure my entire loan repayment shows up as an
> expense is to forget trying to monitor the loan in detail and just
> have an expense "loan repayment" that comes out of my pocket. This is
> caveman accounting but I can't see any other way to keep accurate
> records of my monthly cash flow. I would like to have kept track of
> the loan balance in my accounts but I can't see how I can achieve this
> and follow the accounting rules.
>
> All I ever know is;
> 1) The loan balance.
> 2) The date interest is added to the loan balance and the amount added.
> 3) The date and total amount of my monthly repayment (interest/capital
> split not known), which comes out of my pocket.
>
> How can I monitor this loan correctly and also show the entire
> repayment as an expense?  Alternatively if you cannot show capital
> repayment as an expense, how do I manage my cash flow accurately when
> capital repayments are not counted as expense?
> Andrew
>
>
> Andrew Sackville-West wrote:
>
>>
>>
>> JBW wrote:
>>
>>> I'm trying to figure out how to handle my loans in GnuCash. I've
>>> read the
>>> tutorial but the method described does not really suit me.
>>> The main problem is that the tutorial says loan interest should be
>>> registered as an
>>> Expense. This however is not the case with me. Interest charges and
>>> loan
>>> repayments are two separate transactions of differing values. My
>>> Expense is
>>> the loan repayment, not the loan interest charge.
>>
>>
>>
>> the problem here is that you are not following standard accounting
>> practices for keeping track of your loans.  AFAIK gnc doesn't handle
>> this automatically and you will be stuck manually creating your
>> transactions.
>>
>>>
>>> For example, on the 10th April I want to move $500 from my Asset named
>>> Bank Account to reduce my Liability named Mortgage Balance. But I
>>> ALSO want this amount to show up as an Expense named Mortgage
>>> Repayment. This little equation has three sides (Bank Account,
>>> Mortgage Balance
>>> & Mortgage Repayment), thus I am having trouble dealing with it.
>>
>>
>>
>> this is not double entry book-keeping. Follows is a simple
>> description of how loans work. Read or not as you like.
>
>
>
>> Here's how a loan works. You borrow money from a bank, say $1,000.
>> you put that money in a box under your bed. That box of money is the
>> bank's money. You're just keeping it for them for a while. So...
>>  Every month you take out the box, pull out $100 of the BANKS money
>> and pay it to the bank. Then you reach into your pocket and get out
>> $1.43 of YOUR money(just making up numbers here) and pay it to the
>> bank as interest.
>>
>> Remember, the box money is the banks money and the pocket change is
>> your money. So in accounting, the way you represent this is simple.
>> There are three accounts. First is the Liability account -- the
>> amount of the banks money that you have. The second is the asset
>> account -- the box under the bed (this can be anything, cash in your
>> checking account, the boat you bought with the money, the groceries
>> you bought with the money and then ate. regardless, it is the banks
>> money sitting in a box waiting for you to give it back). The third is
>> the expense account for interest. this is the money that you pulled
>> out of your pocket. This is the only money that is YOURS that is
>> included in the transaction and thus the only one you can expense.
>> When you make a payment, you are moving some of the banks money back
>> to the bank and giving some of your money to the bank, this principal
>> and interest and equals the total payment to the bank.
>>
>> If you have a loan that is accruing interest and adding it to the
>> principal balance, then you enter an interest transaction in the
>> liability register. That is an interest expense for say $2.53
>> accruing more liability. Using our example that means that you take
>> $2.53 out of your pocket and put it in the box under the bed. Its now
>> the banks money for you to repay later.
>>
>> Hope this helps,
>>
>> Andrew
>>
>>>
>>> Then on the 20th April I want the Liabilty named Mortgage Balance to
>>> increase by $450 (Loan interest levied), but there is not really a
>>> balancing account that I can see. The balance of this Liability just
>>> increases
>>> when the Loan Interest is levied against my mortgage account. There
>>> is no
>>> Expense involved.
>>>
>>> Does Equity somehow play a part in handling the transactions in the way
>>> I want?
>>> How do I deal with these transactions in the way I want?
>>> _______________________________________________
>>> gnucash-user mailing list
>>> [hidden email]
>>> https://lists.gnucash.org/mailman/listinfo/gnucash-user
>>>
>>
>
> _______________________________________________
> gnucash-user mailing list
> [hidden email]
> https://lists.gnucash.org/mailman/listinfo/gnucash-user
>
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Re: Loans

Kevin T. Broderick
In reply to this post by jbw-4

On 30 May 2005, at 3:38 AM, JBW wrote:

> This sounds good, however it seems using this correct accounting  
> practice that the only component of a loan repayment that can show  
> up as an expense is the interest. The capital component of each  
> repayment bypasses the expense account. In reality my monthly  
> expenses (that come out of my pocket) include a COMPLETE loan  
> repayment. Having only the interest component registered as an  
> expense does not allow me to accurately monitor my cash flow.
>
> I am just a home user of GnuCash, so it becoming apparent that the  
> only way I can make sure my entire loan repayment shows up as an  
> expense is to forget trying to monitor the loan in detail and just  
> have an expense "loan repayment" that comes out of my pocket. This  
> is caveman accounting but I can't see any other way to keep  
> accurate records of my monthly cash flow. I would like to have kept  
> track of the loan balance in my accounts but I can't see how I can  
> achieve this and follow the accounting rules.
>
> All I ever know is;
> 1) The loan balance.
> 2) The date interest is added to the loan balance and the amount  
> added.
> 3) The date and total amount of my monthly repayment (interest/
> capital split not known), which comes out of my pocket.
>
> How can I monitor this loan correctly and also show the entire  
> repayment as an expense?  Alternatively if you cannot show capital  
> repayment as an expense, how do I manage my cash flow accurately  
> when capital repayments are not counted as expense?

Have you looked at the cashflow report?  You can track your income  
and expenses accurately (per the relevant generally-accepted  
accounting practices) and still track cashflow.  The cashflow report  
basically "draws a circle" that encompasses a set of accounts and  
displays transactions that cross the line of that circle.  You would  
have to either open multiples copies of the report to view different  
months or reload it with different options, though.

Personally, I find it useful to follow GAAP and to be able to track  
cashflow separately from profit/loss (or income vs. expense, if you  
prefer).  Among other reasons, I can look to see if the apparent  
buildup of money in my checking account represents a pattern of  
positive cashflow or just a temporary increase in cash-on-hand; if  
it's the former, then I know that I should probably increase the  
amount of money I'm putting towards debts (credit cards in  
particular, but student loans as well), while the latter might  
suggest that I either make a one-time increased payment or that I  
hold the cash in anticipation of upcoming cash-preferred expenses.

If you'd still prefer to consider the entire loan payment an expense,  
then yes, you're right, you need to just create an expense account  
called "loan" and put your entire payment there.  It's not following  
GAAP and it may make your taxes a tad more complicated (if the  
interest is in any way deductible, it's quite helpful to track it  
separately from the principal pay-down and know exactly how much  
interest one has paid during the year), but it can be done.

Kevin Broderick / [hidden email]

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Re: Loans

jbw-4
Thanks all, the fog is starting to lift. Customizing GnuCash reports
will allow transfers between Asset & Liabilty accounts to show up in
cash flow and income/expense reports (thanks Mr Johnson). One thing that
is still nagging at me is that if I follow correct accounting procedures
(as per Mr Sackville-West) to allow accurate monitoring of interest
charges (good point Mr Broderick), it seems I should show the capital
portion of loan repayments flowing from the Asset (Bank's money in box
under bed, as per analogy by Mr Sackville-West) to the Liability (Loan
Balance). This however does not represent the reality that both the
capital and interest portions of each loan repayment come from my
savings account. If I take the capital portion of the loan repayment
from the Asset (Box under bed) and send it to the Liabilty (Loan
balance), my Asset named Savings Account will not have the correct balance.


Kevin T. Broderick wrote:

>
> On 30 May 2005, at 3:38 AM, JBW wrote:
>
>> This sounds good, however it seems using this correct accounting  
>> practice that the only component of a loan repayment that can show  
>> up as an expense is the interest. The capital component of each  
>> repayment bypasses the expense account. In reality my monthly  
>> expenses (that come out of my pocket) include a COMPLETE loan  
>> repayment. Having only the interest component registered as an  
>> expense does not allow me to accurately monitor my cash flow.
>>
>> I am just a home user of GnuCash, so it becoming apparent that the  
>> only way I can make sure my entire loan repayment shows up as an  
>> expense is to forget trying to monitor the loan in detail and just  
>> have an expense "loan repayment" that comes out of my pocket. This  
>> is caveman accounting but I can't see any other way to keep  accurate
>> records of my monthly cash flow. I would like to have kept  track of
>> the loan balance in my accounts but I can't see how I can  achieve
>> this and follow the accounting rules.
>>
>> All I ever know is;
>> 1) The loan balance.
>> 2) The date interest is added to the loan balance and the amount  added.
>> 3) The date and total amount of my monthly repayment (interest/
>> capital split not known), which comes out of my pocket.
>>
>> How can I monitor this loan correctly and also show the entire  
>> repayment as an expense?  Alternatively if you cannot show capital  
>> repayment as an expense, how do I manage my cash flow accurately  
>> when capital repayments are not counted as expense?
>
>
> Have you looked at the cashflow report?  You can track your income  
> and expenses accurately (per the relevant generally-accepted  
> accounting practices) and still track cashflow.  The cashflow report  
> basically "draws a circle" that encompasses a set of accounts and  
> displays transactions that cross the line of that circle.  You would  
> have to either open multiples copies of the report to view different  
> months or reload it with different options, though.
>
> Personally, I find it useful to follow GAAP and to be able to track  
> cashflow separately from profit/loss (or income vs. expense, if you  
> prefer).  Among other reasons, I can look to see if the apparent  
> buildup of money in my checking account represents a pattern of  
> positive cashflow or just a temporary increase in cash-on-hand; if  
> it's the former, then I know that I should probably increase the  
> amount of money I'm putting towards debts (credit cards in  
> particular, but student loans as well), while the latter might  
> suggest that I either make a one-time increased payment or that I  
> hold the cash in anticipation of upcoming cash-preferred expenses.
>
> If you'd still prefer to consider the entire loan payment an expense,  
> then yes, you're right, you need to just create an expense account  
> called "loan" and put your entire payment there.  It's not following  
> GAAP and it may make your taxes a tad more complicated (if the  
> interest is in any way deductible, it's quite helpful to track it  
> separately from the principal pay-down and know exactly how much  
> interest one has paid during the year), but it can be done.
>
> Kevin Broderick / [hidden email]

>
>
###########################
Mr Sackville-West's response to my initial questions shown below;

JBW wrote:

> I'm trying to figure out how to handle my loans in GnuCash. I've read the
> tutorial but the method described does not really suit me.
> The main problem is that the tutorial says loan interest should be
> registered as an
> Expense. This however is not the case with me. Interest charges and loan
> repayments are two separate transactions of differing values. My
> Expense is
> the loan repayment, not the loan interest charge.




the problem here is that you are not following standard accounting
practices for keeping track of your loans.  AFAIK gnc doesn't handle
this automatically and you will be stuck manually creating your
transactions.

>
> For example, on the 10th April I want to move $500 from my Asset named
> Bank Account to reduce my Liability named Mortgage Balance. But I
> ALSO want this amount to show up as an Expense named Mortgage
> Repayment. This little equation has three sides (Bank Account,
> Mortgage Balance
> & Mortgage Repayment), thus I am having trouble dealing with it.




this is not double entry book-keeping. Follows is a simple description
of how loans work. Read or not as you like.



Here's how a loan works. You borrow money from a bank, say $1,000. you
put that money in a box under your bed. That box of money is the bank's
money. You're just keeping it for them for a while. So...
 Every month you take out the box, pull out $100 of the BANKS money and
pay it to the bank. Then you reach into your pocket and get out $1.43 of
YOUR money(just making up numbers here) and pay it to the bank as interest.

Remember, the box money is the banks money and the pocket change is your
money. So in accounting, the way you represent this is simple. There are
three accounts. First is the Liability account -- the amount of the
banks money that you have. The second is the asset account -- the box
under the bed (this can be anything, cash in your checking account, the
boat you bought with the money, the groceries you bought with the money
and then ate. regardless, it is the banks money sitting in a box waiting
for you to give it back). The third is the expense account for interest.
this is the money that you pulled out of your pocket. This is the only
money that is YOURS that is included in the transaction and thus the
only one you can expense. When you make a payment, you are moving some
of the banks money back to the bank and giving some of your money to the
bank, this principal and interest and equals the total payment to the bank.

If you have a loan that is accruing interest and adding it to the
principal balance, then you enter an interest transaction in the
liability register. That is an interest expense for say $2.53 accruing
more liability. Using our example that means that you take $2.53 out of
your pocket and put it in the box under the bed. Its now the banks money
for you to repay later.

Hope this helps,

Andrew


Then on the 20th April I want the Liabilty named Mortgage Balance to
increase by $450 (Loan interest levied), but there is not really a
balancing account that I can see. The balance of this Liability just
increases
when the Loan Interest is levied against my mortgage account. There is no
Expense involved.

Does Equity somehow play a part in handling the transactions in the way
I want?
How do I deal with these transactions in the way I want?
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Re: Loans

Andrew Sackville-West
You take the analogy too far. In actual practice, you would show the
money coming from your savings account to the liability. THe box under
the bed was to show why its not an expense ;)

A

JBW wrote:

> Thanks all, the fog is starting to lift. Customizing GnuCash reports
> will allow transfers between Asset & Liabilty accounts to show up in
> cash flow and income/expense reports (thanks Mr Johnson). One thing that
> is still nagging at me is that if I follow correct accounting procedures
> (as per Mr Sackville-West) to allow accurate monitoring of interest
> charges (good point Mr Broderick), it seems I should show the capital
> portion of loan repayments flowing from the Asset (Bank's money in box
> under bed, as per analogy by Mr Sackville-West) to the Liability (Loan
> Balance). This however does not represent the reality that both the
> capital and interest portions of each loan repayment come from my
> savings account. If I take the capital portion of the loan repayment
> from the Asset (Box under bed) and send it to the Liabilty (Loan
> balance), my Asset named Savings Account will not have the correct balance.
>
>
> Kevin T. Broderick wrote:
>
>>
>> On 30 May 2005, at 3:38 AM, JBW wrote:
>>
>>> This sounds good, however it seems using this correct accounting  
>>> practice that the only component of a loan repayment that can show  
>>> up as an expense is the interest. The capital component of each  
>>> repayment bypasses the expense account. In reality my monthly  
>>> expenses (that come out of my pocket) include a COMPLETE loan  
>>> repayment. Having only the interest component registered as an  
>>> expense does not allow me to accurately monitor my cash flow.
>>>
>>> I am just a home user of GnuCash, so it becoming apparent that the  
>>> only way I can make sure my entire loan repayment shows up as an  
>>> expense is to forget trying to monitor the loan in detail and just  
>>> have an expense "loan repayment" that comes out of my pocket. This  
>>> is caveman accounting but I can't see any other way to keep  accurate
>>> records of my monthly cash flow. I would like to have kept  track of
>>> the loan balance in my accounts but I can't see how I can  achieve
>>> this and follow the accounting rules.
>>>
>>> All I ever know is;
>>> 1) The loan balance.
>>> 2) The date interest is added to the loan balance and the amount  added.
>>> 3) The date and total amount of my monthly repayment (interest/
>>> capital split not known), which comes out of my pocket.
>>>
>>> How can I monitor this loan correctly and also show the entire  
>>> repayment as an expense?  Alternatively if you cannot show capital  
>>> repayment as an expense, how do I manage my cash flow accurately  
>>> when capital repayments are not counted as expense?
>>
>>
>>
>> Have you looked at the cashflow report?  You can track your income  
>> and expenses accurately (per the relevant generally-accepted  
>> accounting practices) and still track cashflow.  The cashflow report  
>> basically "draws a circle" that encompasses a set of accounts and  
>> displays transactions that cross the line of that circle.  You would  
>> have to either open multiples copies of the report to view different  
>> months or reload it with different options, though.
>>
>> Personally, I find it useful to follow GAAP and to be able to track  
>> cashflow separately from profit/loss (or income vs. expense, if you  
>> prefer).  Among other reasons, I can look to see if the apparent  
>> buildup of money in my checking account represents a pattern of  
>> positive cashflow or just a temporary increase in cash-on-hand; if  
>> it's the former, then I know that I should probably increase the  
>> amount of money I'm putting towards debts (credit cards in  
>> particular, but student loans as well), while the latter might  
>> suggest that I either make a one-time increased payment or that I  
>> hold the cash in anticipation of upcoming cash-preferred expenses.
>>
>> If you'd still prefer to consider the entire loan payment an expense,  
>> then yes, you're right, you need to just create an expense account  
>> called "loan" and put your entire payment there.  It's not following  
>> GAAP and it may make your taxes a tad more complicated (if the  
>> interest is in any way deductible, it's quite helpful to track it  
>> separately from the principal pay-down and know exactly how much  
>> interest one has paid during the year), but it can be done.
>>
>> Kevin Broderick / [hidden email]
>
>
>>
>>
> ###########################
> Mr Sackville-West's response to my initial questions shown below;
>
> JBW wrote:
>
>> I'm trying to figure out how to handle my loans in GnuCash. I've read the
>> tutorial but the method described does not really suit me.
>> The main problem is that the tutorial says loan interest should be
>> registered as an
>> Expense. This however is not the case with me. Interest charges and loan
>> repayments are two separate transactions of differing values. My
>> Expense is
>> the loan repayment, not the loan interest charge.
>
>
>
>
>
> the problem here is that you are not following standard accounting
> practices for keeping track of your loans.  AFAIK gnc doesn't handle
> this automatically and you will be stuck manually creating your
> transactions.
>
>>
>> For example, on the 10th April I want to move $500 from my Asset named
>> Bank Account to reduce my Liability named Mortgage Balance. But I
>> ALSO want this amount to show up as an Expense named Mortgage
>> Repayment. This little equation has three sides (Bank Account,
>> Mortgage Balance
>> & Mortgage Repayment), thus I am having trouble dealing with it.
>
>
>
>
>
> this is not double entry book-keeping. Follows is a simple description
> of how loans work. Read or not as you like.
>
>
>
> Here's how a loan works. You borrow money from a bank, say $1,000. you
> put that money in a box under your bed. That box of money is the bank's
> money. You're just keeping it for them for a while. So...
> Every month you take out the box, pull out $100 of the BANKS money and
> pay it to the bank. Then you reach into your pocket and get out $1.43 of
> YOUR money(just making up numbers here) and pay it to the bank as interest.
>
> Remember, the box money is the banks money and the pocket change is your
> money. So in accounting, the way you represent this is simple. There are
> three accounts. First is the Liability account -- the amount of the
> banks money that you have. The second is the asset account -- the box
> under the bed (this can be anything, cash in your checking account, the
> boat you bought with the money, the groceries you bought with the money
> and then ate. regardless, it is the banks money sitting in a box waiting
> for you to give it back). The third is the expense account for interest.
> this is the money that you pulled out of your pocket. This is the only
> money that is YOURS that is included in the transaction and thus the
> only one you can expense. When you make a payment, you are moving some
> of the banks money back to the bank and giving some of your money to the
> bank, this principal and interest and equals the total payment to the bank.
>
> If you have a loan that is accruing interest and adding it to the
> principal balance, then you enter an interest transaction in the
> liability register. That is an interest expense for say $2.53 accruing
> more liability. Using our example that means that you take $2.53 out of
> your pocket and put it in the box under the bed. Its now the banks money
> for you to repay later.
>
> Hope this helps,
>
> Andrew
>
>
> Then on the 20th April I want the Liabilty named Mortgage Balance to
> increase by $450 (Loan interest levied), but there is not really a
> balancing account that I can see. The balance of this Liability just
> increases
> when the Loan Interest is levied against my mortgage account. There is no
> Expense involved.
>
> Does Equity somehow play a part in handling the transactions in the way
> I want?
> How do I deal with these transactions in the way I want?
>
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Re: Loans

jbw-4
$$$$$$$$$$$$$$$$$$$$$
Thanks again. This highly informative saga has lead me to the following method of handling a loan in GnuCash.
I'll use some real numbers (I hope I used Dr & Cr appropriately, if not I think you should get the picture anyway);

DATE LOAN TRANSACTION DESCRIPTION
LOAN DEBIT LOAN CREDIT LOAN BALANCE -Dr
GNU-CASH ACCOUNT TRANSACTION Asset:Savings Account GNU-CASH ACCOUNT TRANSACTION Liability:Loan Balance GNU-CASH ACCOUNT TRANSACTION Expense:Loan Interest
31 Mar
Interest added
$18.02

$1,960.78

$18.02 Dr $18.02 Cr
13 Apr
Repayment

$67.00
$1,893.78
$67.00 Dr
$67.00 Cr

27 Apr
Repayment

$67.00
$1,826.78
$67.00 Dr $67.00 Cr
30 Apr
Interest added
$16.34

$1,843.12

$16.34 Dr $16.34 Cr
11 May
Repayment

$67.00
$1,776.12
$67.00 Dr $67.00 Cr
25 May
Repayment

$67.00
$1,709.12
$67.00 Dr $67.00 Cr


THEN to make sure my monthly Income/Expense chart makes sense, I would have to manually re-configure this report in GnuCash as follows;
1) Manually remove the transactions from "Expense:Loan Interest" to "Liabilty:Loan Balance" from this report.
2) Manually add the transactions from "Asset:Savings Account" to "Liabilty:Loan Balance" to this report.

Does THIS method make sense from a practical AND accounting standpoint?

Regards
JBW
PS-I did an accounting unit at University years ago. I am as convinced now as I was then that I am one engineer missing the double entry accounting gene!
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Andrew Sackville-West wrote:
You take the analogy too far. In actual practice, you would show the money coming from your savings account to the liability. THe box under the bed was to show why its not an expense ;)

A

JBW wrote:
Thanks all, the fog is starting to lift. Customizing GnuCash reports will allow transfers between Asset & Liabilty accounts to show up in cash flow and income/expense reports (thanks Mr Johnson). One thing that is still nagging at me is that if I follow correct accounting procedures (as per Mr Sackville-West) to allow accurate monitoring of interest charges (good point Mr Broderick), it seems I should show the capital portion of loan repayments flowing from the Asset (Bank's money in box under bed, as per analogy by Mr Sackville-West) to the Liability (Loan Balance). This however does not represent the reality that both the capital and interest portions of each loan repayment come from my savings account. If I take the capital portion of the loan repayment from the Asset (Box under bed) and send it to the Liabilty (Loan balance), my Asset named Savings Account will not have the correct balance.


Kevin T. Broderick wrote:


On 30 May 2005, at 3:38 AM, JBW wrote:

This sounds good, however it seems using this correct accounting  practice that the only component of a loan repayment that can show  up as an expense is the interest. The capital component of each  repayment bypasses the expense account. In reality my monthly  expenses (that come out of my pocket) include a COMPLETE loan  repayment. Having only the interest component registered as an  expense does not allow me to accurately monitor my cash flow.

I am just a home user of GnuCash, so it becoming apparent that the  only way I can make sure my entire loan repayment shows up as an  expense is to forget trying to monitor the loan in detail and just  have an expense "loan repayment" that comes out of my pocket. This  is caveman accounting but I can't see any other way to keep  accurate records of my monthly cash flow. I would like to have kept  track of the loan balance in my accounts but I can't see how I can  achieve this and follow the accounting rules.

All I ever know is;
1) The loan balance.
2) The date interest is added to the loan balance and the amount  added.
3) The date and total amount of my monthly repayment (interest/ capital split not known), which comes out of my pocket.

How can I monitor this loan correctly and also show the entire  repayment as an expense?  Alternatively if you cannot show capital  repayment as an expense, how do I manage my cash flow accurately  when capital repayments are not counted as expense?



Have you looked at the cashflow report?  You can track your income  and expenses accurately (per the relevant generally-accepted  accounting practices) and still track cashflow.  The cashflow report  basically "draws a circle" that encompasses a set of accounts and  displays transactions that cross the line of that circle.  You would  have to either open multiples copies of the report to view different  months or reload it with different options, though.

Personally, I find it useful to follow GAAP and to be able to track  cashflow separately from profit/loss (or income vs. expense, if you  prefer).  Among other reasons, I can look to see if the apparent  buildup of money in my checking account represents a pattern of  positive cashflow or just a temporary increase in cash-on-hand; if  it's the former, then I know that I should probably increase the  amount of money I'm putting towards debts (credit cards in  particular, but student loans as well), while the latter might   suggest that I either make a one-time increased payment or that I  hold the cash in anticipation of upcoming cash-preferred expenses.

If you'd still prefer to consider the entire loan payment an expense,  then yes, you're right, you need to just create an expense account  called "loan" and put your entire payment there.  It's not following  GAAP and it may make your taxes a tad more complicated (if the  interest is in any way deductible, it's quite helpful to track it  separately from the principal pay-down and know exactly how much  interest one has paid during the year), but it can be done.

Kevin Broderick / [hidden email]




###########################
Mr Sackville-West's response to my initial questions shown below;

JBW wrote:

I'm trying to figure out how to handle my loans in GnuCash. I've read the
tutorial but the method described does not really suit me.
The main problem is that the tutorial says loan interest should be registered as an
Expense. This however is not the case with me. Interest charges and loan
repayments are two separate transactions of differing values. My Expense is
the loan repayment, not the loan interest charge.





the problem here is that you are not following standard accounting practices for keeping track of your loans.  AFAIK gnc doesn't handle this automatically and you will be stuck manually creating your transactions.


For example, on the 10th April I want to move $500 from my Asset named
Bank Account to reduce my Liability named Mortgage Balance. But I
ALSO want this amount to show up as an Expense named Mortgage
Repayment. This little equation has three sides (Bank Account, Mortgage Balance
& Mortgage Repayment), thus I am having trouble dealing with it.





this is not double entry book-keeping. Follows is a simple description of how loans work. Read or not as you like.



Here's how a loan works. You borrow money from a bank, say $1,000. you put that money in a box under your bed. That box of money is the bank's money. You're just keeping it for them for a while. So...
Every month you take out the box, pull out $100 of the BANKS money and pay it to the bank. Then you reach into your pocket and get out $1.43 of YOUR money(just making up numbers here) and pay it to the bank as interest.

Remember, the box money is the banks money and the pocket change is your money. So in accounting, the way you represent this is simple. There are three accounts. First is the Liability account -- the amount of the banks money that you have. The second is the asset account -- the box under the bed (this can be anything, cash in your checking account, the boat you bought with the money, the groceries you bought with the money and then ate. regardless, it is the banks money sitting in a box waiting for you to give it back). The third is the expense account for interest. this is the money that you pulled out of your pocket. This is the only money that is YOURS that is included in the transaction and thus the only one you can expense. When you make a payment, you are moving some of the banks money back to the bank and giving some of your money to the bank, this principal and interest and equals the total payment to the bank.

If you have a loan that is accruing interest and adding it to the principal balance, then you enter an interest transaction in the liability register. That is an interest expense for say $2.53 accruing more liability. Using our example that means that you take $2.53 out of your pocket and put it in the box under the bed. Its now the banks money for you to repay later.

Hope this helps,

Andrew


Then on the 20th April I want the Liabilty named Mortgage Balance to
increase by $450 (Loan interest levied), but there is not really a
balancing account that I can see. The balance of this Liability just increases
when the Loan Interest is levied against my mortgage account. There is no
Expense involved.

Does Equity somehow play a part in handling the transactions in the way
I want?
How do I deal with these transactions in the way I want?




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Re: Loans

David Harrison-2
On 6/4/05, JBW <[hidden email]> wrote:
>  $$$$$$$$$$$$$$$$$$$$$
>  Thanks again. This highly informative saga has lead me to the following
> method of handling a loan in GnuCash.
>  I'll use some real numbers (I hope I used Dr & Cr appropriately, if not I
> think you should get the picture anyway);

You've got the DR and CR backwards.  If your interested, there's a
explanation of DR and CR at
http://gnomesupport.org/wiki/index.php/GnuCashFaq#Q:_What_are_debits_and_credits.3F

<snip the chart>
>  
>  Does THIS method make sense from a practical AND accounting standpoint?

Other than the Dr and Cr reversal, your chart looks good.  By George,
I think you got it!!

>  
>  Regards
>  JBW
 
--
David Harrison, BAccS, CGA

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