<?xml version="1.0" encoding="UTF-8"?>
<!DOCTYPE chapter SYSTEM "gnc-gui-C.dtd">
<!-- (Do not remove this comment block.)
  Version: 2.0.0
  Last modified: July 9th 2006
  Maintainers:
    Chris Lyttle <chris@wilddev.net>
  Author:
    Jon Lapham <lapham@extracta.com.br>
    Updated	Bengt Thuree <bengt@thuree.com>
  Originally written by Carol Champagne.
  Translators:
    (translators put your name and email here)
-->
<chapter id="chapter_cc">
  <title>Credit Cards</title>

  <para>This chapter will show you how to manage your credit cards using &app;.
  </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&rsquo;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 &app; 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 &app;, you should set up a <guilabel>Liability</guilabel> 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 set up these accounts
      under the top-level account called <guilabel>Expenses</guilabel>. 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 set up a simple account
        hierarchy like this:
      </para>
<screen>
-Assets
   -Bank
-Liabilities
   -Credit Card
-Expenses
   -Credit Card</screen>
      <para>In this example, if you enter your total amount charged per month as a transaction between
        <emphasis>Liabilities:Credit Card</emphasis> and <emphasis>Expenses:Credit Card</emphasis>.
        When you make a payment, you would enter a transaction between
        <emphasis>Assets:Bank</emphasis> and <emphasis>Liabilities:Credit Card</emphasis>.
      </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 set up 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 set up 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>
<screen>
-Assets
    -Bank
-Liabilities
    -Credit Card
-Expenses
    -Food
    -Car
    -Clothes
    -Entertainment
    -Interest
    -Service</screen>
      <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 <quote>Interest</quote> expense, this is
        used for when your credit card charges interest on your monthly unpaid balance. The
        <quote>Service</quote> 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 pay for goods or services with your credit card, you are telling the credit card company to
      pay the merchant for you. This transaction will increase the amount of money you owe the
      credit card company, and the credit card balance will increase. The other side of these
      transactions will in most cases be an expense account. For example, if you buy clothing from a
      store with your credit card for $50, you would be transferring that money from the credit
      account into Expenses:Clothing.
    </para>

    <para>Entering these transactions into &app; allows you to track how much you owe the credit card company,
      as well as provides you a better picture of your overall accounts. It also allows you to
      monitor your account and ensure that fraud is avoided.
    </para>

    <para>Adding transactions to a credit card account is similar to entering transactions in other accounts.
      You can enter them manually, or import them from your credit card company using a compatible
      import format.
    </para>

    <para>For assistance with entering transactions, see Chapter 6 of the Help manual and
      <xref linkend="chapter_txns"></xref>.
    </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 <quote>negative
        expense</quote>. 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, let&rsquo;s run through an example. You bought some jeans for $74.99 on your VISA
      card, but realized one day later that they are too 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 <emphasis>Liabilities:Visa</emphasis> account register and enter a simple 2 account
          transaction to pay the $74.99 jeans purchase. The <guilabel>Transfer</guilabel> account
          should be <emphasis>Expenses:Clothes</emphasis> and you <guilabel>Charge</guilabel> your
          <emphasis>Visa</emphasis> account with the $74.99.
        </para>

        <note>
          <para>Since we had not created the <emphasis>Expenses:Clothes</emphasis> account previously, &app; will
            prompt us to create it. Just remember to create it as an <guilabel>Expense</guilabel>
            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 <quote>Charge</quote>
              amount, use a <quote>Payment</quote> 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
              <menuchoice>
                <guimenu>Transaction</guimenu><guisubmenu>Add Reversing Transaction</guisubmenu>
              </menuchoice>
              . 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"
                           srccredit="Bengt Thuree"/>
            </imageobject>

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

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

        <para>And the <emphasis>Expenses:Clothes</emphasis> register should look something like this:
        </para>

        <screenshot id="cc-Reversing-Transaction-2">
          <mediaobject>
            <imageobject>
              <imagedata fileref="figures/cc_Reversing_Transaction_2.png"
                           srccredit="Bengt Thuree"/>
            </imageobject>

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

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

      <listitem>
        <para>Save the &app; 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 &app;, let&rsquo;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 &app; 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"
                     srccredit="Bengt Thuree"/>
          </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&rsquo;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"
                       srccredit="Bengt Thuree"/>
          </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. &app; 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"
                       srccredit="Bengt Thuree"/>
          </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"
                       srccredit="Bengt Thuree"/>
          </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 &app;&rsquo;s built-in reconciliation application. Highlight the credit
        card account and click on
        <menuchoice>
          <guimenu>Actions</guimenu> <guimenuitem>Reconcile...</guimenuitem>
        </menuchoice>
        . 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&rsquo;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"
                       srccredit="Bengt Thuree"/>
          </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 &app; account and the credit card statement. For this
        example, as shown in the figure below, there is a $300 difference between your &app;
        accounts and the credit card statement.
      </para>

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

          <textobject>
            <phrase>&app; main window</phrase>
          </textobject>

          <caption>
            <para>&app; 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 &app; data file (<filename>gcashdata_6</filename>).
      </para>
    </sect2>

    <sect2 id="cc-puttoget-reports">
      <title>Reports</title>

      <para>As we did in the previous chapters, let&rsquo;s have a look at a <guilabel>Cash Flow</guilabel>, and
        a <guilabel>Transaction</guilabel> Report.
      </para>

      <orderedlist>
        <listitem>
          <para>First let&rsquo;s 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
            <menuchoice>
              <guimenu>Reports</guimenu> <guisubmenu>Income &amp; Expense</guisubmenu>
              <guimenuitem>Cash Flow</guimenuitem>
            </menuchoice>
            .
          </para>

          <screenshot id="cc-puttoget2-Cash">
            <mediaobject>
              <imageobject>
                <imagedata fileref="figures/cc_CashFlow.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 let&rsquo;s have a look at corresponding transaction report for the Visa account.
          </para>

          <para>Select the transaction report from
            <menuchoice>
              <guimenu>Reports</guimenu> <guimenuitem>Transaction Report</guimenuitem>
            </menuchoice>
            .
          </para>

          <screenshot id="cc-puttoget2-TransactionRptVisa">
            <mediaobject>
              <imageobject>
                <imagedata fileref="figures/cc_TransactionRptVisa.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 let&rsquo;s change the transaction report to only show the various Expenses accounts.
          </para>

          <screenshot id="cc-puttoget2-TransactionRptExpenses">
            <mediaobject>
              <imageobject>
                <imagedata fileref="figures/cc_TransactionRptExpenses.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>
