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I have been trying to figure out how to use GnuCash / double-entry accounting in order to correctly enter the following situation:

I have asset accounts for my bank account and for 529 accounts for my kids.

My parents wanted to donate to one of the kids' accounts for a gift. I made the donation from my bank account and later they sent me the money.

My initial plan was to do something like:

DR Assets:Bank account
CR Assets:Kids account
CR Assets:Money owed by parents
DR ?????

I realized that I didn't know how to make it balance. How should I record the money owed by my parents, and then how do I record once they paid me back?

I'm sure this is a very simple question, but somehow I've never run into it.

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2 Answers 2

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I think one confusing factor here is that your child's account is considered part of your own set of books. So it's listed as one of your assets even though it's not really.

If they had their own set of books, things would be more clear. You would record the transaction as follows:

Your books DR CR
Assets:Money owed by parents $100
Assets:Bank account $100

The lucky beneficiary would then record the following in their separate books:

Child's books DR CR
Assets:My (kid's) account $100
Income:Gift from grandparents $100

Now, since the books you are keeping actually combine your child's and your own, the two transactions have to be combined to yield something like:

Your combined family books DR CR
Assets:Money owed by parents $100
Assets:Kid's account $100
Assets:Bank account $100
Income:Parents' gift to child $100

That last entry is the one you were missing, because you didn't realize a component of the transaction was actually income from the point of view of your child, which has to be recorded in your books as well their assets (Kid's account) for things to balance.

Finally, when your parent reimburse you, say by handing you money during the weekend family lunch, you would record the usual:

Your combined family books DR CR
Assets:Cash in wallet $100
Assets:Money owed by parent $100
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Treat this as 2 separate transactions. Transaction 1: You transfer the gift amount from your account to your kids account. Transaction 2: You receive The gift amount from your parents to your account.

Transaction 1 you already have handled.

Transaction 2 would be the gift amount (received) DR balanced by The gift amount (income) CR.

To account for a future, expected gift, you can treat the gift as a receivable asset. Effectively, your "accounts receivable" would show an asset for the gift amount due. On receipt of the gift amount, you balance that account against the income of the paid amount.

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  • What if I wanted the first transaction to include some sort of liability, so that I could remember that my parents promised the money to me?
    – Jeremy
    Jun 2, 2022 at 16:14
  • Using a cash payment as an example, you would record it as (gift amount) receivable. Then, once the gift is paid to you, you mark the income (cash) and balance it against the receivable account. Same as if a business had paid an active invoice to you.
    – GOATNine
    Jun 2, 2022 at 16:59
  • Thank you for the help, but I still don't get it. Could you be a bit more explicit? Wouldn't the Assets:Money Owed by Parents be the receivable account? It seems like transaction 1 should include a Credit to the Money Owed by Parents account, but what is the debit that balances that?
    – Jeremy
    Jun 4, 2022 at 13:16
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    Transaction 1 is the transaction between your account and your kids account. It's a completely separate transaction form the one between your parents account and your account. If your parents do not gift you that money as they said they would, it would not change the transaction of you transferring money to your kids. For the second transaction, since the money is not received yet, it's considered a receivable asset, similar to how a business invoice works. Upon receipt, the asset moves from receivable to realized (income), which is represented by a transaction on its own.
    – GOATNine
    Jun 6, 2022 at 12:49

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