Managing Credit Cards and Loans

In this tutorial, we introduce a new type of account: Liabilities.

A Liability represents money you owe to someone else. The most common example is a Credit Card. Unlike a Debit card (which pulls money directly from your Assets), a Credit Card increases your debt, which you pay off later.

Step 1: Defining a Credit Card Account

Credit cards live under the Liabilities hierarchy. Let’s open an account for a Visa card.

Add this to your main.beancount:

2000-01-01 open Liabilities:CreditCard:Visa

Step 2: Buying with Credit

When you swipe your credit card, two things happen:

You incur an Expense (e.g., you bought dinner).
You incur a Liability (you now owe the bank money).

In Beancount, Liabilities are generally recorded as negative numbers, just like Income.

Assets are positive (What you own).
Liabilities are negative (What you owe).

However, unlike Income, we don’t usually talk about “increasing negative debt.” We just say the balance gets “more negative.”

Let’s record a 0 dinner on the Visa card:

2024-02-14 * "Romantic Bistro" "Valentine's Dinner"
  Expenses:Food:Dining           50.00 USD
  Liabilities:CreditCard:Visa   -50.00 USD

Notice:

Expense is Positive (+50).
Liability is Negative (-50).
Sum is Zero.

If you run bean-report main.beancount balances, your Visa account will show -50.00 USD. This means you owe 0.

Step 3: Buying More Stuff

Let’s buy something else. A 0 book.

2024-02-15 * "Bookstore" "New Novel"
  Expenses:Entertainment:Books   20.00 USD
  Liabilities:CreditCard:Visa   -20.00 USD

(Make sure you open Expenses:Entertainment:Books if you haven’t already!)

Your Visa balance is now -70.00 USD.

Step 4: Paying the Bill

A month later, you receive your credit card statement. It says you owe 0. You pay it from your Checking account.

This transaction is a Transfer. You are moving money from an Asset to a Liability.

Checking Account decreases (-70).
Credit Card debt decreases (moves from -70 back towards 0, so +70).

2024-03-15 * "Chase Bank" "Paying off Visa bill"
  Liabilities:CreditCard:Visa    70.00 USD
  Assets:Checking:Chase         -70.00 USD

After this transaction:

Your Checking account has 0 less.
Your Visa account balance is 0.00 USD. You are debt-free!

Common Confusion

New users often ask: “Why do I record the expense when I buy the item? Why not when I pay the bill?”

In double-entry accounting (and accrual accounting), you record the expense when it happens.

Feb 14: You ate the dinner. That is when you “spent” the value.
Mar 15: You moved cash to satisfy the debt. That is just a transfer of funds.

This gives you a more accurate picture of your spending. If you only recorded expenses when you paid the bill, it would look like you spent /run/current-system/sw/bin/bash in February and 0 on “Credit Card Bill” in March. That doesn’t tell you what you bought!

Summary

Spending: Increase Expense (+), Increase Debt (-).
Paying Bill: Decrease Debt (+), Decrease Asset (-).
Liabilities usually have negative balances.

Next, we will learn how to make sure these numbers match your actual bank statements using Balance Assertions.

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