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I use GnuCash for my personal accounting since 2008. As I am not a native English speaker, I struggle with the understanding of some GnuCash manual terms and explanations that I do not use in my daily life. I do not use credit cards and any form of money borrowing. That is why I am asking this question about the situation I have faced.

My current account structure looks like this:

  • Assets
    • Banking deposits
    • Debit cards
    • Cash
  • Income
    • Salary
    • Interest rate
  • Expense
    • Food
    • Car
    • Apartments

Say, I give money to someone as an interest-free loan. What type of account should I use/create for this transaction. What type of account should I use when I start to receive my money back in small amounts?

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Depending on how you view the loan, it could either be considered an Asset or a Liability. Since you are not charging interest, it might seem more intuitive to create an "Assets:Cash Loan" account, and transfer money to & from it (when you receive payments) like you would with a bank account.

Personally, I prefer to think of all loans as liabilities. Whether it's a debt which you owe someone, or a balance which someone else owes you, since it's an 'unsettled' amount I file it under "Liabilities:Loan". Either way, you record the initial balance as a debit from your bank, and then record payments as credits back to your primary account.

The only way that income or expenses ever gets involved would be if you charged interest (income) or if you forgave some or all of the loan (expense) at some point in the future.

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    I disagree. For Alexander Pozdneev this is clearly an asset, for the guy he gave the money to it is clearly a liability. If you lend money to someone this is certainly not a liability you have. You have an asset. – user24385 Aug 4 '15 at 6:01
  • @gojira As I stated in my answer, the money is unsettled and might never be paid back. Such a situation is hardly equivalent to a bank account or cash in hand. The differentiating factor is the amount of risk. – Derek_6424246 Aug 4 '15 at 15:59
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    What I find problematic is: "Personally, I prefer to think of all loans as liabilities". Of course you can think what you want, but in the double entry-bookkeeping context this simply makes no sense. This is like saying "I prefer to think of all transactions as income, irregardless whether they are income or expenses". Or "I prefer to think of all debits as credits". Simply makes no sense. A liability is something I have to pay back. I don't enter liabilities by lending money to others. – user24385 Aug 4 '15 at 16:07
  • @Derek_6424246 Thank you, the second paragraph is a key. I would add that I started to think of "a debt which you owe someone" as a "positive" liability, and "a balance which someone else owes you" as a "negative" liability. Currently, the liability account I created shows a negative amount, and it agrees with the Assets - Liabilities = Equity formula. – Alexander Pozdneev Aug 26 '15 at 18:50

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