Keeping track of birthday money with double-entry accounting

Question

I'm trying to figure out how to keep track of my kids' birthday money in a double-entry accounting system (GnuCash).

Currently I am keeping track of the amounts as sub-accounts of my checking account (extrapolating from this answer), and if that's the appropriate way to do it, that can be the answer to the question. But lately I've been thinking I should treat these amounts as liabilities, since I am obligated to provide the money whenever my kids want to spend it.

I just can't quite figure out how to do the entries.

Grandparents send birthday money to the checking account:

Credit Income:Gifts

Debit Assets:Checking Account

Credit Liability:Birthday Money

Debit ... Some arbitrary expense account for indicating a gift liability?

Kids spend their money from the checking account to buy a book:

Credit: Checking Account

Debit Expenses:Book

Credit ... ?

Debit Liability:Birthday Money

Kids spend money from my cash (which I don't track in the software)

Debit Expenses:Book

Debit Liability:Birthday Money

Is there a solution here, or is it better just to use sub-accounts?

Answer 1

You should just need two entries in each scenario:

Grandparents send birthday money to the checking account:

• Debit Assets:Checking Account

• Credit Liability:Birthday Money

(it's not "income" to you, so it goes straight to a liability)

Kids spend their money from the checking account to buy a book:

• Credit: Checking Account

• Debit Liability:Birthday Money

If you want to track the expense and asset, then you could create "income" and "expense" accounts for the kids, but then you don't need your liability account. From your perspective all you've done is decrease your liability.

Kids spend money from my cash (which I don't track in the software)

• Credit Expenses:Misc (or cash)

• Debit Liability:Birthday Money

Use whatever "expense" account you would use to track, say, an ATM withdrawal.

Answer 2

Don't try some complex system of double entry-accounting. Just open bank accounts in their name. The money that they get from relatives can start earning interest. Yes I know that interest rates are low in the United States, but if my kids were young I would do the same thing. The interest they earn will be credited to their account.

Having the separate accounts also helps if they are old enough to make some spending decisions, they will know that they have money.

It is possible to open bank accounts even with very young kids. My credit union has always allowed parents to link to their minor children's accounts. That makes it easy to move money if the gift is cash, the gift check is made out to the parents, or if the child is spending some of their money.

Having separate bank accounts also should allow the creation of bank sub-accounts within the child's account if you want to separate the money for different purposes.