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  Author:
  		Jon Lapham <lapham@extracta.com.br>
  	Updated	Bengt Thuree <bengt@thuree.com>
  Originally written by Carol Champagne.
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<chapter id="chapter_cc">
  <title>Credit Cards</title>

  <para>This chapter will show you how to manage your credit cards using
  GnuCash.</para>

  <sect1 id="cc-concepts1">
    <title>Concepts</title>

    <para>Since you probably write a check or make an electronic payment to
    the credit card company each month, you may think of your credit card bill
    as an expense - but it really is not an expense. Why? A credit card
    account is a short-term loan - you buy things on that loan account, and
    then you eventually have to pay back the money, often with interest (your
    finance charge). The purchases you make with that credit card are your
    expenses.</para>

    <para>You have a couple of options when entering credit card transactions,
    so choose the one that fits your desired level of detail. The simplest
    method is to simply track monthly payments to the credit card company.
    From your bank account, you enter a transfer of money each month to the
    credit card expense account. This will show you the amount of money you
    are paying each month to the credit card company, but it won't show you
    any information about your credit card balance or credit card
    purchases.</para>

    <para>A more complete way to track your credit card in GnuCash is to enter
    each purchase and payment as a separate transaction. Using the credit card
    account register, you enter your receipts throughout the month. When your
    credit card statement arrives, you reconcile the credit card account to
    the statement, and you enter your payment as a transfer of money from your
    checking account to your credit card account. This method gives you more
    information about your balance during the month and points out any
    discrepancies during reconciliation, but you will have to do more data
    entry.</para>
  </sect1>

  <sect1 id="cc-accounts1">
    <title>Setting Up Accounts</title>

    <para>To begin managing your credit cards in GnuCash, you should set up a
    "Liability" top level account and under this parent account create credit
    card type accounts for each credit card you use. If you are tracking only
    the payments you make to the credit card company, then all you need is a
    bank account and a credit card account to enter your transactions.</para>

    <para>The charges you make on your credit card are expenses, so you will
    have to setup these accounts under the top-level account called
    "Expenses". If you decide to keep a more detailed records of your
    purchases, you will need to create expense accounts for each kind of
    purchase you make. Since you will also be reconciling the balance to your
    credit card statements, you should also enter an opening balance in each
    credit card account. The easiest way to do this is to use your last
    statement balance as the opening balance.</para>

    <sect2 id="cc-accounts-simple2">
      <title>Simple Setup</title>

      <para>If you do not want to track each expense made on the credit card,
      you can setup a simple account hierarchy like this:</para>

      <literallayout>
-Assets
   -Bank
-Liabilities
   -Credit Card
-Expenses
   -Credit Card
   </literallayout>

      <para>In this example, if you enter your total amount charged per month
      as a transaction between <quote>Liabilities:Credit Card</quote> and
      <quote>Expenses:Credit Card</quote>. When you make a payment, you would
      enter a transaction between <quote>Assets:Bank</quote> and
      <quote>Liabilities:Credit Card</quote>.</para>

      <para>The obvious limitation of this simple credit card setup is that
      you cannot see where your money is going. All your credit card expenses
      are being entered in the Credit Card expense account. This is, however,
      very simple to setup and maintain.</para>
    </sect2>

    <sect2 id="cc-accounts-complete2">
      <title>Complete Setup</title>

      <para>If you want to track your expenses more completely, you should
      setup multiple expense accounts named for the various kinds of expenses
      you have. Each charge on your credit card is then entered as a separate
      transaction between your Credit Card liability account and a specific
      expense account. Below is an example of an account hierarchy for
      this:</para>

      <literallayout>
-Assets
    -Bank
-Liabilities
    -Credit Card
-Expenses
    -Food
    -Car
    -Clothes
    -Entertainment
    -Interest
    -Service
   </literallayout>

      <para>Clearly, you should enter specific expense accounts which fit your
      spending habits. The only difference with this setup as compared to the
      simple setup is that the expenses have been subdivided by groups. Also
      notice that there is an "Interest" expense, this is used for when your
      credit card charges interest on your monthly unpaid balance. The
      "Service" expense account is used to track service expenses associated
      with the credit card, such as the yearly usage fee if it exists. With
      this setup, you will be able to see where your money goes every month,
      grouped according to the expense accounts.</para>

      <para>The rest of this chapter will assume you are using the complete
      setup.</para>
    </sect2>
  </sect1>

  <sect1 id="cc-entercharge1">
    <title>Entering Charges</title>

    <para>Entering your charges provides you with a more complete picture of
    your spending habits. Charges on a credit card are tracked as a
    transaction between the credit card liability account and the appropriate
    expense account.</para>

    <para>When you swipe that credit card through the machine at a store, you
    are transferring money from your credit card company to that merchant.
    This transaction increases the amount of money you owe the credit card
    company. If you keep track of these types of transactions, you can
    reconcile your credit card account with your monthly statement, and you
    should quickly spot any transactions that look suspicious. So how should
    you account for charges to your credit card?</para>

    <para>One way is to manually enter all your receipts, either throughout
    the month or all at once. This can be time-consuming, but it is probably
    the best way to make sure that all of your charges are authorized. If you
    consistently enter all your receipts, you can quickly catch any errors or
    unauthorized transactions during your monthly reconciliation.</para>

    <para>Another way is to import a credit card statement directly into your
    account. If your credit card company supports a QIF file format for its
    statements, you have the option of directly importing the statement. This
    type of import is covered in the <xref linkend="basics-import1"></xref>, 
    and it is a
    convenient way to track your purchases without having to manually enter
    all your receipts.</para>
  </sect1>

  <sect1 id="cc-enterpay1">
    <title>Entering Payments</title>

    <para>Most payments to your credit card bill are entered as transfers from
    a bank account (asset) to the credit card account (liability). When you
    pay the monthly bill, you are withdrawing money from a bank account to pay
    down the credit card balance. This transaction decreases both your bank
    account balance and the amount of credit card debt you owe.</para>

    <para>When you return a purchase, you receive a refund on your credit
    card. This is another type of payment in that it decreases the amount of
    credit card debt you owe. If you recorded the original purchase
    transaction as a transfer from the credit card account to the expense, you
    now simply reverse that transaction: transfer the money back from the
    expense to the credit card account. This transaction decreases both the
    expense account balance and the credit card account balance. For example,
    if you originally recorded a credit card purchase of clothing, the
    transaction is a transfer from the credit card account to the clothing
    expense account. If you then return that clothing for a refund, you simply
    transfer the money back from the clothing expense account to the credit
    card account.</para>

    <note>
      <para>A common mistake is to enter a refund as income. It is not income,
      but rather a "negative expense". That is why you must transfer money
      from the expense account to your credit card when you receive a
      refund.</para>
    </note>

    <para>To clarify this, lets run through an example. You bought some Jeans
    for $74.99 on your VISA card, but realized 1 day later that they are to
    big and want to return them. The shop gracefully agrees, and refunds your
    credit card.</para>

    <orderedlist>
      <listitem>
        <para>Start with opening the previous datafile we stored
        (<filename>gcashdata_5</filename>), and store it as
        <filename>gcashdata_6</filename>.</para>
      </listitem>

      <listitem>
        <para>Open the <guilabel>Liabilities:Visa</guilabel> account register
        and enter a simple 2 account transaction to pay the $74.99 jeans
        purchase. The <guilabel>Transfer</guilabel> account should be
        <guilabel>Expenses:Clothes</guilabel> and you
        <guilabel>Charge</guilabel> your Visa account with the $74.99.</para>

        <note>
          <para>Since we had not created the Expense:Clothes account
          previously, GnuCash will prompt us to create it. Just remember to
          create it as an Expense account</para>
        </note>
      </listitem>

      <listitem>
        <para>Enter the refund in one of the following way.</para>

        <itemizedlist>
          <listitem>
            <para>Enter the same transaction as the purchase transaction, but
            instead of a "Charge" amount, use a "Payment" amount in the Credit
            Card account register.</para>
          </listitem>

          <listitem>
            <para>Select the purchase transaction you want to refund (that is
            the Jeans transaction in our case), and selecting
            <guimenu>Transaction</guimenu> -&gt; <guisubmenu>Add Reversing
            Transaction</guisubmenu>. Modify the date as needed.</para>
          </listitem>
        </itemizedlist>

        <para>After reversing the transaction, your credit card account should
        look something like this </para>
        <screenshot id="cc-Reversing-Transaction-1">
            <mediaobject>
              <imageobject>
                <imagedata fileref="figures/cc_Reversing_Transaction_1.png"
                           format="PNG" srccredit="Bengt  Thuree" ></imagedata>
              </imageobject>

              <textobject>
                <phrase>Refunded a credit card purchase</phrase>
              </textobject>

              <caption>
                <para>This image shows <guilabel>Liability:Credit Card -
                Register</guilabel> after reversing a purchase
                transaction.</para>
              </caption>
            </mediaobject>
          </screenshot>

        <para>and the <guilabel>Expenses:Clothes</guilabel> register should
        look something like this </para>
        <screenshot id="cc-Reversing-Transaction-2">
            <mediaobject>
              <imageobject>
                <imagedata fileref="figures/cc_Reversing_Transaction_2.png"
                           format="PNG" srccredit="Bengt  Thuree" ></imagedata>
              </imageobject>

              <textobject>
                <phrase>Refunded a credit card purchase</phrase>
              </textobject>

              <caption>
                <para>This image shows <guilabel>Expenses:Clothes</guilabel>
                register after reversing a purchase transaction.</para>
              </caption>
            </mediaobject>
          </screenshot>
      </listitem>

      <listitem>
        <para>Save the GnuCash data file.</para>
      </listitem>
    </orderedlist>
  </sect1>

  <sect1 id="cc-together1">
    <title>Putting It All Together</title>

    <para>Now that we have covered the basic ideas behind the various
    transactions you must make to successfully track your credit card in
    GnuCash, let's go through an example. In this example, we will make credit
    card purchases, refund two of the purchases, get charged interest on
    the unpaid balance, reconcile the credit card account, and finally make a
    partial payoff of the credit card.</para>

    <sect2 id="cc-puttoget-openfile">
      <title>Open GnuCash file</title>

      <para>Start with opening the previous datafile we stored,
      <filename>gcashdata_5</filename>, and store it as
      <filename>gcashdata_6</filename> directly. The main window should look
      something like this: </para>

    <screenshot id="cc-accounts">
      <mediaobject>
        <imageobject>
          <imagedata fileref="figures/cc_accounts.png" format="PNG"
                     srccredit="Bengt Thuree" ></imagedata>
        </imageobject>

        <textobject>
          <phrase>Starting account structure</phrase>
        </textobject>

        <caption>
          <para>Starting account structure for tracking a credit card in the
          putting it all together example.</para>
        </caption>
      </mediaobject>
    </screenshot>
    </sect2>

    <sect2 id="cc-together-purchases2">
      <title>Purchases</title>

      <para>Let's make some purchases on our visa card. Start by buying $25
      worth of food from the Greasy Spoon Cafe, $100 worth of clothing from
      Faux Pas Fashions, $25 worth of gasoline from Premium Gasoline, $125
      worth of groceries and household items from Groceries R Us (split
      between $85 in groceries and $40 in household items) and finally, $60
      worth of household items from CheapMart.</para>

      <para>We also redo the exercise in previous chapter, with purchasing
      a pair of Jeans for $74.99 on April 3, and refund them two days later.</para>

      <para>The register window for the credit card liability should look like this:</para>

      <screenshot id="cc-purchases">
        <mediaobject>
          <imageobject>
            <imagedata fileref="figures/cc_purchases.png" format="PNG"
                       srccredit="Bengt Thuree" ></imagedata>
          </imageobject>

          <textobject>
            <phrase>Initial credit card purchases</phrase>
          </textobject>

          <caption>
            <para>Initial credit card purchases.</para>
          </caption>
        </mediaobject>
      </screenshot>
    </sect2>

    <sect2 id="cc-together-refund2">
      <title>Refund</title>

      <para>Now suppose that on April 15th you return the clothes you bought
      on April 11th from Faux Pas Fashions and they give you credit back on
      your credit card. Enter a transaction for the credit card refund for the
      full $100 amount. Remember to use the same transfer account you used for
      the original purchase, and enter the amount under the Payment column.
      GnuCash will automatically complete the name and transfer account for
      you, but it will also automatically enter the $100 in the Charge column.
      You will need to reenter the amount in the Payment column. The
      transaction looks like this:</para>

      <screenshot id="cc-refund">
        <mediaobject>
          <imageobject>
            <imagedata fileref="figures/cc_refund.png" format="PNG"
                       srccredit="Bengt Thuree" ></imagedata>
          </imageobject>

          <textobject>
            <phrase>Item return transaction</phrase>
          </textobject>

          <caption>
            <para>Returning clothes to Faux Pas Fashions, refund to credit
            card.</para>
          </caption>
        </mediaobject>
      </screenshot>
    </sect2>

    <sect2 id="cc-together-interest2">
      <title>Interest Charge</title>

      <para>After the month of spending, unfortunately, the credit card bill
      arrives in the mail or you access it on-line through the internet. You
      have been charged $20 in interest on the last day of April because of
      the balance you carried from the previous month. This gets entered into
      the credit card account as an expense.</para>

      <screenshot id="cc-interest">
        <mediaobject>
          <imageobject>
            <imagedata fileref="figures/cc_interest.png" format="PNG"
                       srccredit="Bengt Thuree" ></imagedata>
          </imageobject>

          <textobject>
            <phrase>Interest charge</phrase>
          </textobject>

          <caption>
            <para>Interest charge.</para>
          </caption>
        </mediaobject>
      </screenshot>
    </sect2>

    <sect2 id="cc-together-reconcile2">
      <title>Reconciliation</title>

      <para>When your credit card bill arrives you should reconcile your
      credit card account to this document. This is done using GnuCash's
      built-in reconciliation application. Highlight the credit card account
      and click on <guimenu>Actions</guimenu> -&gt;
      <guimenu>Reconcile...</guimenu>. This reconciliation procedure is
      described in detail in the <xref linkend="txns-reconcile1"></xref>, 
      but we will step
      through the process here as well. For this example, let's assume that
      the credit card statement is dated May 1st, with a final balance of
      $455. Enter these values in to the initial Reconcile window as shown
      here.</para>

      <screenshot id="cc-reconcile-init">
        <mediaobject>
          <imageobject>
            <imagedata fileref="figures/cc_reconcile_init.png" format="PNG"
                       srccredit="Bengt Thuree" ></imagedata>
          </imageobject>

          <textobject>
            <phrase>Initial reconcile window</phrase>
          </textobject>

          <caption>
            <para>Initial account reconciliation window.</para>
          </caption>
        </mediaobject>
      </screenshot>

      <para>During the reconciliation process, you check off each transaction
      in the account as you confirm that the transaction appears in both your
      GnuCash account and the credit card statement. For this example, as
      shown in the figure below, there is a $300 difference between your
      GnuCash accounts and the credit card statement.</para>

      <screenshot id="cc-reconcile">
        <mediaobject>
          <imageobject>
            <imagedata fileref="figures/cc_reconcile.png" format="PNG"
                       srccredit="Bengt Thuree" ></imagedata>
          </imageobject>

          <textobject>
            <phrase>Main reconcile window</phrase>
          </textobject>

          <caption>
            <para>Main account reconciliation window, demonstrating a
            discrepancy of $300.</para>
          </caption>
        </mediaobject>
      </screenshot>

      <para>Some investigation uncovers that you forgot to record a payment
      you made on March 5th to the credit card company for $300, you
      must enter this payment transaction from your bank account to the credit
      card. Now the credit card statement and your GnuCash account can be
      reconciled, with a balance of $455.</para>
    </sect2>

    <sect2 id="cc-together-payment2">
      <title>Payment</title>

      <para>Assuming you have completed reconciliation of your credit card
      account, you need to make a payment to the credit card company. In this
      example, we owe $455 but will make a partial payment of $300 again this
      month. To do so, enter a transaction from your bank account to the
      credit card account for $300, which should reduce your credit card
      balance to $155. Your credit card account register should now appear
      like this:</para>

      <screenshot id="cc-payment">
        <mediaobject>
          <imageobject>
            <imagedata fileref="figures/cc_payment.png" format="PNG"
                       srccredit="Bengt Thuree" ></imagedata>
          </imageobject>

          <textobject>
            <phrase>Reconciliation and payment</phrase>
          </textobject>

          <caption>
            <para>Account register after account reconciliation and
            payment.</para>
          </caption>
        </mediaobject>
      </screenshot>

      <para>Go back to the main window and save your file
      (<filename>gcashdata_6</filename>). Your chart of accounts is steadily
      growing, and it should now look like this:</para>

      <screenshot id="cc-final">
        <mediaobject>
          <imageobject>
            <imagedata fileref="figures/cc_final.png" format="PNG"
                       srccredit="Bengt Thuree" ></imagedata>
          </imageobject>

          <textobject>
            <phrase>GnuCash main window</phrase>
          </textobject>

          <caption>
            <para>GnuCash Chart of Accounts after account reconciliation and
            payment.</para>
          </caption>
        </mediaobject>
      </screenshot>
    </sect2>
    
    <sect2 id="cc-puttoget-save">
      <title>Save file</title>
      <para>Last, save the GnuCash data file (<filename>gcashdata_6</filename>).</para>
    </sect2>
 
    <sect2 id="cc-puttoget-reports">
      <title>Reports</title>
            
      <para>As we did in the previous chapters, lets have a look at a 
        <guilabel>Cash Flow</guilabel>, and a <guilabel>Transaction</guilabel> Report.
      </para>   

      <orderedlist>
        <listitem>
          <para>First lets have a look at the <guilabel>Cash Flow</guilabel> report
          for the liability account <guilabel>Visa</guilabel> during the month of March.</para>
          <para>Select the cash flow report from <guimenu>Reports</guimenu> -&gt; 
            <guisubmenu>Income &amp; Expense</guisubmenu> -&gt; 
            <guimenuitem>Cash Flow</guimenuitem>
          </para>
      
      	  <screenshot id="cc-puttoget2-Cash">
            <mediaobject>
              <imageobject>
                <imagedata fileref="figures/cc_CashFlow.png" format="PNG"
                           srccredit="Bengt Thuree" />
              </imageobject>

              <textobject>
                <phrase>Cash Flow report for the month of March</phrase>
              </textobject>

              <caption>
                <para>This image shows the Cash Flow report after 
                <xref linkend="chapter_cc"></xref>.</para>
              </caption>
            </mediaobject>
          </screenshot>
        </listitem>

        <listitem>
          <para>Now lets have a look at corresponding transaction report for the Visa 
            account.
          </para>
          <para>Select the transaction report from <guimenu>Reports</guimenu> -&gt; 
            <guimenuitem>Transaction Report</guimenuitem>
          </para>
          
      	  <screenshot id="cc-puttoget2-TransactionRptVisa">
            <mediaobject>
              <imageobject>
                <imagedata fileref="figures/cc_TransactionRptVisa.png" 
                           format="PNG" srccredit="Bengt Thuree" />
              </imageobject>

              <textobject>
                <phrase>Transaction Report for the Visa account during March/April</phrase>
              </textobject>

              <caption>
                <para>This image shows the Transaction Report for the Visa account
                  during March/April.
                </para>
              </caption>
            </mediaobject>
          </screenshot>
          
        </listitem>
 
          
        <listitem>
          <para>Now lets change the transaction report to only show the various
            Expenses account.
          </para>
          
      	  <screenshot id="cc-puttoget2-TransactionRptExpenses">
            <mediaobject>
              <imageobject>
                <imagedata fileref="figures/cc_TransactionRptExpenses.png" 
                           format="PNG" srccredit="Bengt Thuree" />
              </imageobject>

              <textobject>
                <phrase>Transaction Report for the Expenses accounts during April</phrase>
              </textobject>

              <caption>
                <para>This image shows the Transaction Report for the various Expense accounts
                  during April.
                </para>
              </caption>
            </mediaobject>
          </screenshot>
          
        </listitem>
        
      </orderedlist>
    </sect2> 
 
    
  </sect1>
</chapter>
