Amortization
Imagine you pay for your annual car insurance in a single payment of $600. If you record this as a one-time expense, your books for that month will show a large cost, while the next 11 months will show zero insurance expense. This distorts your monthly financial picture, making it difficult to understand your true operational costs and budget effectively.
The solution is amortization: the accounting practice of spreading a single cost over the time period it benefits. This tutorial will show you how to implement amortization seamlessly in Beancount using a Fava plugin.
What is Amortization?
Amortization is the process of incrementally expensing the cost of an intangible asset or a prepaid item over its useful life.
Key Benefits:
- Accurate Reporting: Smooths out large expenses for a more realistic view of monthly profitability.
- Better Budgeting: Allows you to budget for a consistent monthly expense rather than a large, irregular one.
- Clearer Cash Flow Analysis: Separates the timing of a cash payment from the recognition of the expense.
The Beancount Solution: fava.plugins.amortize_over
Beancount, with the Fava web interface, provides a simple yet powerful plugin to automate amortization.
Step 1: Enable the Plugin
First, you must enable the plugin by adding the following line to the top of your Beancount file:
plugin "fava.plugins.amortize_over"
Important: Virtual Transactions Be aware that this plugin generates virtual postings. They appear dynamically in Fava's reports and in tools like
bean-report
(if the plugin is loaded), but they are not written back into your.bean
file. Your source file remains unchanged.