2009/5/1 Derek Mahar <[email protected]>:
>
> On May 1, 5:54 pm, Derek Mahar <[email protected]> wrote:
>> How do you specify an opening balance for an income or expense
>> account?
>
> The specific case that I'm considering is how to specify the account
> opening balances as a result of a loan to a friend after that friend
> has already made one or more payments, each of which includes both
> interest and principal. For example, suppose that in January of this
> year I loaned $500 to a friend and since then, my friend has already
> repaid $200 plus $10 in interest. How do I specify the opening
> balance transaction on May 1 so that I take both the principal and
> interest payments into account?
>
> Derek
When you give the loan, the transaction will be something like:
Dr (debit) Loan $500
Cr (credit) Cash $500
So, you take $500 out of cash, and give it to your friend.
Suppose your friend pays you $210 at the end of April, being $200
repayment of principal, and $10 interest. The double-entry would be:
Dr Cash $210
Cr InterestRecd $10
Cr Loan $200
So, the Loan will show a debit balance of $300 - which is the
principal outstanding. This is correct.
Suppose, as at 1 Jan 2009, you had $1000 cash, and to balance this you
had an "equity" balance of $1000 to exactly match this. I doubt I
would call it equity if it were a personal set of accounts. I just use
the term Open for my own set of accounts ... it is an accumulated
balance brought forward.
Now, suppose I were to create an "extended trial balance" as at 30 Apr
2009. It would look like this:
Cash 710 (debit balance)
IntRecd -10
Loan 300
Open -1000
Debits are positive, credits are negative. Note that the sum total of
the above is 0. This is what we expect if we've done our double-entry
bookkeeping correctly.
If I wanted to "close off" the accounts at the end of Apr 2009, so
that I started with a fresh P&L account at 1 May, then I would shift
all the P&L items to the opening balance. So I would debit IntRecid
with 10, and credit Open. My new extended trial balance would look
like this:
Cash 710
Loan 300
Open -1010
The sum total is 0. Hurrah. My yin still balances my yang, and the
eternal Tao is in harmony.
In terms of a profit and loss account for the period 1 jan 2009 to 30
apr 2009, it might look like this:
Interest received 10
-----
Profit for period 10
====
... a fairly bland P&L. If I were to produce a balance sheet for that
date (meaning 30 apr), it might look like this:
Loans to friends 300
Cash on hand 710
------
Balance c/d 1010
====
Represented by:
Balance B/d 1000
Profit for period 10
------
Balance c/d 1010
====
The UK and US tend to show their balance sheets slightly differently,
and you can do all sorts of slicing and dicing depending on whether
you think loans/liabilities are long or short, whether you have equity
accounts, and all sorts.
Hope that helps.
