How to get a payment on a liability to show as an expense (Q Mac)

JoeGuitar88

Hello, I have a hospital bill that I am paying over time as agreed to by the hospital. I have set up the amount I owe the hospital, let's call it $5,000, as a "Liability" account under Debt. I make my payment to the hospital each month ($250) from my checking account.

In my checking account register, I log the payment transaction as a transfer to the Hospital Liability account, and put the category as Medical Expense. In the Liability account, the liability balance is reduced by each payment amount that shows up as a transfer from checking, but the payment does not show on my Expense report since the report nets out the two transactions (-$250 in checking and +$250 in liability account nets to $0), thus the $250 payment doesn't show up as a Medical Expense.

I understand the situation behind the scenes for the report, but does anyone have an idea about how I can track the balance I owe to the Hospital as a Liability, or debt, and at the same time record the payments as a Medical Expense? Thank you.

jacobs

JoeGuitar88 said:

The monthly payment shows up under Transfers rather than in the expense category, despite the fact that the category for the payment is set to Medical Expense. I have tried all three of the exclude/include transfers, same result. I understand all the accounting issues as I have an accounting background, so I suppose I am trying to do something Quicken isn't built to do. In essence, this is just a bill I am paying over time and it is not technically a loan.

Transfers is Quicken's compromise way of saying "this isn't really an expense, but we'll list it as this separate category so you can consider it an expense if you want to." So Transafers are separate, not under any specific category, but since know what the transfers are for.

Since you note that this is not really a loan and just an expense you are paying over time, I agree with @Frankx that you should probably just record it in Quicken as an ordinary expense, not a transfer to a liability account. If you wish to see the liability as a reminder of what you still owe, you can manually adjust the balance over the 20 months you're paying the bills.

If you really want to automate this, though, here's a hack that will let you do so:

1. Go back to your first payment from your checking account, and edit it so it's simply a -$250 transfer from checking to the liability account, with no category.
2. Add a split line for -$250 to the medical expense category you want to use for this expense. 
3. Quicken will think you want the transaction to remain $250, so it will set the first split lien (the Transfer) to zero; edit the Amount on the first split line back to -$250.
4. This will create a third split line with the amount being a positive $250. Use the category "Adjustment".
5. Repeat this edit for any additional payments you've made. Going forward, you can make this a scheduled transaction, so you don't have to enter the transaction with 3 split lines every month. 

So now you have a transaction for $250 to the liability account, $250 to medical expense, and -$250 to "Adjustment". "Adjustment is a special Quicken category with will not appear in any report. It's therefore useful when you want to make money appear or disappear out of thin air. That's what we've done here: made the $250 appear in two places (the transfer and an expense) yet the total expense remains $250, not $500. Magic!

Frankx

Hi @JoeGuitar88,

Apparently, when you initially setup the liability account (in your example it would be the $5,000.00 amount) you likely used a Category such as "Doctor", "Hospital" or "Medical Care" for the other half of the entry.  It was at that time that the expense was "recorded" in Quicken.  In accounting terminology, you incurred the full "medical expense" when you setup that "Hospital Liability" in Quicken.  As such, all the subsequent payments are simply reducing the debt or liability account, and if you were to record it as a medical expense each month, you would be "double counting" the medical expense category.

One way that you could have taken when you initially setup the "Hospital Liability" (and I think you may still be able to do this with a backdated transaction now) would have been to record an entry "back to that same account" in Quicken.  The entry would be made in the liability account with an "increase" to the account of $5,000.00 and then a making a "category" entry of square brackets around the liability account's name - ( such as: [Hospitality Liability]  ).  This is called a "recording a transfer back into the same account".  Before you try this, make sure you backup your Quicken datafile, just in case you aren't happy with the result.

I think the other option would be to make a second monthly entry, each month, in the register for the payment amount and post it to some miscellaneous income category (which will overstate your income by the same amount) or some other category that such as a miscellaneous expense account that won't affect your tax reporting.

Hope this helps.

Frankx 

jacobs

Quicken Mac doesn't allow transfers to the same account as the transaction, as @Frankx suggested above. (That works in Quicken Windows, but not Quicken Mac.) So let me suggest two ways you can achieve what you want:

For the original transaction creating the $5,000 liability, use the category of Adjustment. This makes the liability appear out of thin air, with no expense or cash flow. Doing that, each payment can be categorized as an expense.

I will throw in a warning here that Quicken Mac currently allows a transfer to also have a category, but the product manager has announced this capability will b removed from the program at some point in the future because it's really not correct accounting practice. In accounting, when you pay a loan, you are transferring g money from an asset (checking account) to a liability (the loan), so there is no expense involved -- it's just a flow of funds from one account to another. 

But if you do the transfer with a category of expense, it will work for now. But, you ask, how do you get the report correct? The key here is to exclude one side or the other of the transaction in any report, so it doesn't cancel out. For an income/expense report, then, you would edit the report, click on the Accounts tab and uncheck the liability account, then click on the Advanced tab, and select "Only include transfers with accounts outside of this report." That will make the report include the expense transaction in your checking account, while excluding the money coming into the liability account.

The other way to do it would be along the lines Frankx suggested, with a wrinkle. That is, you could record the full $5,000 creation of the liability as a medical expense. then each payment would be uncategorized -- just as transfer from checking to the liability. But you want too see that transfer on your expense report, right? So you'd do the same as I wrote above: make the report exclude the liability account, and include transfers to accounts outside the report. The payments on the loan will show up under Transfers, not medical expenses, but it will still be part of your total outflows on the expense report.

garysmith87

@jacobs

Quicken Mac not allowing transfers back to the same account is an incorrect statement.

I've done it for years when updating the value of my home. It works just fine. It works just fine in other accounts as well. Not sure what you have tried or have seen.

JoeGuitar88

Thank you all for the suggestions. I have tried the first method suggested by @jacobs but the monthly payment shows up under Transfers rather than in the expense category, despite the fact that the category for the payment is set to Medical Expense. I have tried all three of the exclude/include transfers, same result. I understand all the accounting issues as I have an accounting background, so I suppose I am trying to do something Quicken isn't built to do. In essence, this is just a bill I am paying over time and it is not technically a loan.

Looks like I will just have to not link the payment to the liability and remember to enter a payment separately in the liability account each time I make a payment.

Frankx

Hi again JoeGuitar88,

I agree with your assessment that since this isn't a loan in real life, it would not normally be something that one would ordinarily track within an application such as Quicken.  The good news is that since you are tracking the payments as you make them in Q, you will have accurate records of potentially deductible medical expenses for tax time. 

You might consider simply keeping a record of the pretend loan "offline" rather than actually tracking/ making entries for pretend loan in Quicken.

Take care,

Frankx

smayer97

jacobs said:

Quicken Mac doesn't allow transfers to the same account as the transaction, as @Frankx suggested above. (That works in Quicken Windows, but not Quicken Mac.)...

You are incorrect. Works just fine in current QMac.

jacobs

JoeGuitar88 said:

The monthly payment shows up under Transfers rather than in the expense category, despite the fact that the category for the payment is set to Medical Expense. I have tried all three of the exclude/include transfers, same result. I understand all the accounting issues as I have an accounting background, so I suppose I am trying to do something Quicken isn't built to do. In essence, this is just a bill I am paying over time and it is not technically a loan.

Transfers is Quicken's compromise way of saying "this isn't really an expense, but we'll list it as this separate category so you can consider it an expense if you want to." So Transafers are separate, not under any specific category, but since know what the transfers are for.

Since you note that this is not really a loan and just an expense you are paying over time, I agree with @Frankx that you should probably just record it in Quicken as an ordinary expense, not a transfer to a liability account. If you wish to see the liability as a reminder of what you still owe, you can manually adjust the balance over the 20 months you're paying the bills.

If you really want to automate this, though, here's a hack that will let you do so:

1. Go back to your first payment from your checking account, and edit it so it's simply a -$250 transfer from checking to the liability account, with no category.
2. Add a split line for -$250 to the medical expense category you want to use for this expense. 
3. Quicken will think you want the transaction to remain $250, so it will set the first split lien (the Transfer) to zero; edit the Amount on the first split line back to -$250.
4. This will create a third split line with the amount being a positive $250. Use the category "Adjustment".
5. Repeat this edit for any additional payments you've made. Going forward, you can make this a scheduled transaction, so you don't have to enter the transaction with 3 split lines every month. 

So now you have a transaction for $250 to the liability account, $250 to medical expense, and -$250 to "Adjustment". "Adjustment is a special Quicken category with will not appear in any report. It's therefore useful when you want to make money appear or disappear out of thin air. That's what we've done here: made the $250 appear in two places (the transfer and an expense) yet the total expense remains $250, not $500. Magic!