Hi, I'm new to double-entry, but have spent a day reading up on it and can do the basics. I have started using GnuCash and am trying to get to grips with it by using some basic examples; I hope someone can help me with the below:
Question: If my 3 housemates pay me £10 each for the internet bill, then later in the month I pay the internet bill (£40), how would I correctly debit and credit the various accounts with these transactions, including the £10 I "paid" into the Internet Expense account for my part of the bill?
I have set up an Internet Expense account, I have a single checking/current account. Do I need to create an Income Account for each of the three housemates? I'm very confused :-/
this is one of those where there are several different ways of doing the same thing.
The issue here is how does one keep track on whether the housemates (and you) are paying their fair share.
Firstly it would seem that you need to set up four capital accounts to show the contributions and current standing of the amounts paid into the arrangement.
Next set up a payments accounts (this is an uneccessary step but will help to get your head around matters).
Take any inputs from the four house mates to their individual capital accounts.
Transfer equal amounts from the capital accounts to the payments account.
Transfer out of the payments account to each bill that needs to be paid.
The key is that the amounts that should have been paid will on balancing off the capital accounts show either that someone has paid their contribution or not (the individuals capital account will be overdrawn).
I think that you were thinking along the right lines in your last paragraph but you also need an a capital account for yourself.
HTH,
Shaun.
P.S. welcome to the forum.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thanks Shaun, that make sense. I'll read up on the use of capital accounts. If I were not to use a payments account (as you state it's unnecessary), would I just create a 4-way split-payment (from the 4 capital accounts) each for a quarter of the total bill? or am I missing something there?
Thanks again,
Tim.
-- Edited by snuffy on Saturday 5th of November 2011 05:34:06 PM
without the payments account you just go straight from the capital account with equal amounts.
The reason that I mentioned a payments account is generally you would have capital accounts and bank. Contributors put their money into the bank (the double entry being the capital account and bank), bill comes in and gets put to the internet T account then money comes out of the bank to clear it (so again, nice double entry with everything tied up).
Taking the bank out of the equation another interim account makes the transactions easier to understand but ultimately the transaction is that the internet account is cleared from the capital accounts.
Personally I would still stick with some form of interim account even though strictly speaking it's not required. Just makes everything very simple and tidy and I'm one whose all for simple and tidy.
You may find the capital account called other things in your text books. The account that I'm refering to is simply the one (or in this case four) recording owners interests.
HTH,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
- 4 Capital Accounts for the named housemates, including myself, under the Equity Accounts heading, and also a Payments Account, again under the Equity Accounts heading (not sure if thats the correct location for them?);
- The associated incoming payment (Bank Account / Capital Account) to each of the 4 Capital Accounts;
- The 4 payments to the Payment Account (Capital Account / Payment Account);
- A single transfer to the Internet Expense Account (Payment Account / Expense Account).
- A single payment to the Internet provider (Bank Account / Internet Expense Account).
I think that's correct? The Capital and Payment accounts seem to balance back to zero.
What I can't figure out is where my payment to my named Capital Account comes from? (Bank Account --> Capital Account?), and if so, that's an extra line item in my Bank Account register that won't reconcile with my bank statement. Or does that not matter?
Thanks for your help, I appreciate your time helping a complete newbie like me.
Regards, Tim.
-- Edited by snuffy on Saturday 5th of November 2011 08:07:52 PM
-- Edited by snuffy on Saturday 5th of November 2011 08:18:11 PM
I think that you're doubling up some of the entries. Sorry, probably the way that I explained it. Sorry, been ages since I last thought in T accounts.
The entries to the capital account are the start point. It's the money introduced and the double entry is to transfer the owners capital into the bank account.
The confussion we've perhaps introduced in this scenario is the intermediate account which could quite as easily have been the bank. (I introduced it as an engine in the absence of the bank but if you are using a bank then it simplifies things).
Lets take one capital account to keep things simple and work through an example.
The owner introduces £100 into the business and then pays a bill for £20 from the bank.
1) introduce the Capital
Cr Capital Account £100 Dr Bank Account £100
The Capital Account has been used to feed the bank account which now holds the balance of £100. Because it exists in the Capital account we know that £100 is owed by the company to the owners of the company.
2) Bill arrives from the Internet which is paid from the bank account
Cr Bank Account £20 Dr Internet Expense Account £20
Ok, that's the basic principle of the transaction now lets expand that to cover this case using the payments account rather than a bank account (your first question made no mention of a bank account which is why we went for the intermediary account. We could also have gone directly from owners capital but this way is less messy).
1) Four housemates each introduce £10 capital
Cr Capital Account1 £10 Dr Payments Account £10
Cr Capital Account2 £10 Dr Payments Account £10
Cr Capital Account3 £10 Dr Payments Account £10
Cr Capital Account4 £10 Dr Payments Account £10
You now have four capital accounts and a payments account representing the buscuit tin with £40 in it. If a bank account had been used then instead of the payments account you would have said bank.
2) Pay the internet
Cr Payments Account £40 Dr Internet Expense Account £40
or, if you had been using a bank account this would have been
Cr Bank £40 Dr Internet Expense Account £40
Strictly speaking the Internet Expense Account should be balanced off against an account for the debt
Put the above into a trail balance and you get the following (hope it doesn't lose it's formatting):
Bank will have balanced out to zero (£40 in, £40 out)
P.S. Nope, the formatting didn't stick. Just reformatted using whited out characters to maintain the spacing.
-- Edited by Shamus on Saturday 5th of November 2011 10:00:59 PM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Sorry, you're right I didn't mention the bank account, I do everything via bank transfers so didn't even think to mention it. I understand why you spoke of the payments account now.
Now I get it! Thank you very much indeed!
Tim.
-- Edited by snuffy on Saturday 5th of November 2011 10:24:39 PM
