In double entry accounting, how do I enter a loan?

Question

I have taken an accounting course several years ago, but I'm a little rusty. I'm using GnuCash, double entry accounting software.

I have a loan from a friend, so no interest. I have paid about half the loan off and have spent all the money from the loan years ago. However, now I have decided to start using GnuCash to track my finances.

How do I enter this loan? I'm confused as to which accounts to enter this in, since I have no assets from the loan, they have all been spent. As of now I only have the liability. So where does the other entry go?

Answer 1

Typically in GnuCash, account balances that exist at the beginning of the time you're keeping records for are balanced by entries in an Equity account “Equity:Opening Balances”, which is part of the default set of accounts created for you. This account is really just a placeholder so that everything balances, and that's perfectly normal.

So, just enter “Equity:Opening Balances” as the “other entry” when entering the first, opening balance, transaction in your Liability account for the loan. If you have not already created the liability account, then just use the “Opening Balance” tab of the New Account window to enter the initial balance as you create the account.

(Disclaimer: I have no formal knowledge of accounting; I just use GnuCash and read the users' mailing list.)

Answer 2

Generally loan goes against an asset, in your case though it appear that you don't have any fixed assets related to this loan. So it seems like you got a cash loan (current asset/checking account?) which you spent (expenses). Since you're doing it retroactively, you'll probably just put totals in the expenses without detailing them.