Every month I have to pay a certain amount as social insurance. It is my debt - I have to pay regardless of my income. What should be the source of this debt? Opening balance from equities branch? Other?

The system works like this: I'm self-employed. And there is an option: I can pay social-insurance as certain fraction of my income, but no one does so, since there is another option: You pay fixed amount, every month, which is much less. It works similarly to fixed tax. If You have company, You are obliged to pay every month. This is liability. For month X i have to pay until 10th of month X+1. Until I pay I want to have it in my liabilities - it definitely reduces my net worth. So I created dedicated liability account. But don't know what should be the other-side-acoount for it.

  • What in the world is 'social insurance'? Mar 4 '16 at 19:51
  • @JackSwayzeSr In the US, Unemployment Insurance and FICA would qualify for the term "social insurance".
    – Joe
    Mar 4 '16 at 20:10
  • 1
    I don't know whether it is proper term in English, but I mean money collected as a form of tax, which gives You (in theory) a state-guaranteed pension when You reach a certain age or You become unable to work due to disability.
    – ardabro
    Mar 5 '16 at 23:49

I think you misunderstand the purpose of the liability account. I would suggest you review the standard accounting model, but to give you a brief overview:

Income and expenses are money coming into and out of your possession. They are the pipes flowing into and out of your "box". Inside your box, you have assets (bank, savings, cash, etc) and liabilities (credit cards, unpaid debts, etc). Money can flow into and out of either asset or liability accounts, for example: deposit a payment (income to asset), buy office supplies with cash (asset to expense), pay a bill with credit card (liability to expense), customer pays one of your debts directly (income to liability). Paying off a debt with an asset does not affect your overall net worth, so paying a check to your credit card bill (asset to liability) doesn't decrease your total balance, it merely moves the value from one bucket to another.

Now to your question: Mandatory payments, such as taxes or insurance (or for that matter, utilities, rent, food- all things that "must" be bought occasionally) are not liabilities, instead they are all expenses. They might be paid FROM a liability account, if they are paid on credit for example, but the money still flows from liability to expense. In my own records I have Expense:Taxes and Expense:Insurance, with sub-accounts in each. Where the money comes from depends entirely on how I pay my bills, whether from cash or banks (asset) or whether it's a charge (liability). Sometimes you receive payments back from an insurance company. I find that rather than treating insurance premiums as a positive balance in a liability (with eventual payments as debits to the liability account), it is better to treat any payment from the insurance as income.

Hope that helps!

  • I understand. But in Your model You cannot decrease Your net worth in advance knowing, that You are obliged by government to pay until 10th of next month, so this money is actually not Yours today. I'd prefer to see this fact in my model. The same for taxes: If You sell something and have to pay tax, the tax amount in Your wallet isn't Yours at the moment You sign an agreement, despite the fact that You can pay later.
    – ardabro
    Mar 4 '16 at 23:03
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    @ardabro I understand your meaning. GnuCash allows you to account for future expenses. One method is to enter transactions with a future date (when the payment will be made). These transactions will show up below a blue line in the register, and show you what your balance would be if the money were withdrawn today. Another method is to use the "Scheduled Transactions" widget and configure your expected payments there. Either way, it's no different than writing a check that isn't cashed until later. Both methods will show your expected balance when you run a "Net Worth Report". Mar 8 '16 at 20:57

A tax liability account is a common thing.

In my own books I track US-based social insurance (Medicare and Social Security) using such an account. At the time I pay an employee, a tax liability is incurred, increasing my tax liability account; at the same time, on the other end of the double-entry, I increase a tax expense account.

Notably, though, the US IRS does not necessarily require that the tax is paid at the time it is incurred. In my case I incur a liability twice a month, but I only have to pay the taxes quarterly. So, between the time of incurring and the time of remitting/paying, the amount is held in the tax liability account. At the time that I remit payment to the IRS, the transaction will decrease both my checking account and also, on the other end of the double-entry, my liability account.

To answer your question in short, use an expense account for your other-side-account.

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