Assets are money that you have, and Liabilities are money that you owe. “Liabilities” is just a more inclusive name for Debts.
An Asset is typically increased by transferring money from an Income account, such as when you get paid. Here is a typical entry:
2004/09/29 My Employer Assets:Checking $500.00 Income:Salary
Money, here, comes from an Income account belonging to “My Employer”, and is transferred to your checking account. The money is now yours, which makes it an Asset.
Liabilities track money owed to others. This can happen when you borrow money to buy something, or if you owe someone money. Here is an example of increasing a MasterCard liability by spending money with it:
2004/09/30 Restaurant Expenses:Dining $25.00 Liabilities:MasterCard
The Dining account balance now shows $25 spent on Dining, and a corresponding $25 owed on the MasterCard—and therefore shown as $-25.00. The MasterCard liability shows up as negative because it offsets the value of your assets.
The combined total of your Assets and Liabilities is your net worth. So to see your current net worth, use this command:
ledger balance ^assets ^liabilities
Relatedly, your Income accounts show up negative, because they transfer money from an account in order to increase your assets. Your Expenses show up positive because that is where the money went to. The combined total of Income and Expenses is your cash flow. A positive cash flow means you are spending more than you make, since income is always a negative figure. To see your current cash flow, use this command:
ledger balance ^income ^expenses
Another common question to ask of your expenses is: How much do I spend each month on X? Ledger provides a simple way of displaying monthly totals for any account. Here is an example that summarizes your monthly automobile expenses:
ledger -M register expenses:auto
This assumes, of course, that you use account names like ‘Expenses:Auto:Gas’ and ‘Expenses:Auto:Repair’.
Sometimes you will want to spend money on behalf of someone else, which will eventually get repaid. Since the money is still “yours”, it is really an asset. And since the expenditure was for someone else, you don't want it contaminating your Expenses reports. You will need to keep an account for tracking reimbursements.
This is fairly easy to do in ledger. When spending the money, spend it to your Assets:Reimbursements, using a different account for each person or business that you spend money for. For example:
2004/09/29 Circuit City Assets:Reimbursements:Company XYZ $100.00 Liabilities:MasterCard
This shows $100.00 spent on a MasterCard at Circuit City, with the expense was made on behalf of Company XYZ. Later, when Company XYZ pays the amount back, the money will transfer from that reimbursement account back to a regular asset account:
2004/09/29 Company XYZ Assets:Checking $100.00 Assets:Reimbursements:Company XYZ
This deposits the money owed from Company XYZ into a checking account, presumably because they paid the amount back with a check.
But what to do if you run your own business, and you want to keep track of expenses made on your own behalf, while still tracking everything in a single ledger file? This is more complex, because you need to track two separate things: 1) The fact that the money should be reimbursed to you, and 2) What the expense account was, so that you can later determine where your company is spending its money.
This kind of transaction is best handled with mirrored transactions in two different files, one for your personal accounts, and one for your company accounts. But keeping them in one file involves the same kinds of transactions, so those are what is shown here. First, the personal entry, which shows the need for reimbursement:
2004/09/29 Circuit City Assets:Reimbursements:Company XYZ $100.00 Liabilities:MasterCard
This is the same as above, except that you own Company XYZ, and are keeping track of its expenses in the same ledger file. This entry should be immediately followed by an equivalent entry, which shows the kind of expense, and also notes the fact that $100.00 is now payable to you:
2004/09/29 Circuit City Company XYZ:Expenses:Computer:Software $100.00 Company XYZ:Accounts Payable:Your Name
This second entry shows that Company XYZ has just spent $100.00 on software, and that this $100.00 came from Your Name, which must be paid back.
These two entries can also be merged, to make things a little clearer. Note that all amounts must be specified now:
2004/09/29 Circuit City Assets:Reimbursements:Company XYZ $100.00 Liabilities:MasterCard $-100.00 Company XYZ:Expenses:Computer:Software $100.00 Company XYZ:Accounts Payable:Your Name $-100.00
To “pay back” the reimbursement, just reverse the order of everything, except this time drawing the money from a company asset, paying it to accounts payable, and then drawing it again from the reimbursement account, and paying it to your personal asset account. It's easier shown than said:
2004/10/15 Company XYZ Assets:Checking $100.00 Assets:Reimbursements:Company XYZ $-100.00 Company XYZ:Accounts Payable:Your Name $100.00 Company XYZ:Assets:Checking $-100.00
And now the reimbursements account is paid off, accounts payable is paid off, and $100.00 has been effectively transferred from the company's checking account to your personal checking account. The money simply “waited”—in both ‘Assets:Reimbursements:Company XYZ’, and ‘Company XYZ:Accounts Payable:Your Name’—until such time as it could be paid off.
The value of tracking expenses from both sides like that is that you do not contaminate your personal expense report with expenses made on behalf of others, while at the same time making it possible to generate accurate reports of your company's expenditures. It is more verbose than just paying for things with your personal assets, but it gives you a very accurate information trail.
The advantage to keep these doubled entries together is that they always stay in sync. The advantage to keeping them apart is that it clarifies the transfer's point of view. To keep the transactions in separate files, just separate the two entries that were joined above. For example, for both the expense and the pay-back shown above, the following four entries would be created. Two in your personal ledger file:
2004/09/29 Circuit City Assets:Reimbursements:Company XYZ $100.00 Liabilities:MasterCard $-100.00 2004/10/15 Company XYZ Assets:Checking $100.00 Assets:Reimbursements:Company XYZ $-100.00
And two in your company ledger file:
!account Company XYZ 2004/09/29 Circuit City Expenses:Computer:Software $100.00 Accounts Payable:Your Name $-100.00 2004/10/15 Company XYZ Accounts Payable:Your Name $100.00 Assets:Checking $-100.00 !end
(Note: The ‘!account’ above means that all accounts mentioned in the file are children of that account. In this case it means that all activity in the file relates to Company XYZ).
After creating these entries, you will always know that $100.00 was spent using your MasterCard on behalf of Company XYZ, and that Company XYZ spent the money on computer software and paid it back about two weeks later.