On Fri, May 01, 2009 at 03:25:46PM -0700, Derek Mahar wrote: > > 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?
I'm no accounting genius, but I'm pretty sure the answer is "You Don't". The process, as I understand things, is that you "open the books" at some given date, and the value of all your assets/liabilities as at that date are entered as your opening balances. There's no such thing as "pre-existing income/expenses" -- if you want to record those, you open your books as at an earlier date, and record the income or expenditure as it happened (in accordance with accounting rules regarding when a revenue or expense is to be recorded). In the case of your loan, opening your books on May 1, you would record the value of the loan as an asset of $310 ($500 principal + $10 interest - $200 in repayments). Revenue and expenses start at zero. My gut tells me that repayments would be recorded as a reduction in the loan asset but a corresponding increase in your cash or bank account asset, and interest would be recorded as revenue and an increase in the loan asset -- but I'd get an accountant's advice on that one if this is more than a hypothetical, as when you can book the revenue on a loan (and how exactly it needs to be accounted for in tax and such) would be a local legal thing. The link posted here yesterday to a page about the accounting equation, http://www.quickmba.com/accounting/fin/equation/ will probably help you a little more here. I found it educational, at any rate. - Matt (Who charges a friend interest, anyway?) -- When the revolution comes, they won't be able to FIND the wall. -- Brian Kantor, in the Monastery
