Loan Journals query

TiGeR KiNgS

Hi Forum,

How do you represent the following Loan account in the financial statements.
for both P&L and Balance Sheet (current creditors & long term creditors)

Loan drawn 50,000

Total Repayment (7,000)

Interest charged 2,500

Closing balance 45,500


Thanks,

TK

smcgiff

What's the term of the loan?

TiGeR KiNgS

smcgiff wrote: »

What's the term of the loan?

> 5 years
I only made up the figures above, just so I can see the postings for year 1

edit
i will need to know this for tomorrow. Sorry for limited time.

Triapin

TiGeR KiNgS wrote: »

Hi Forum,

How do you represent the following Loan account in the financial statements.
for both P&L and Balance Sheet (current creditors & long term creditors)

Loan drawn 50,000

Total Repayment (7,000)

Interest charged 2,500

Closing balance 45,500


Thanks,

TK

Loan Drawn
Dr Bank [BS] 50,000
Cr Loan Creditor [BS] 50,000

Repayment
Dr Loan Creditor [BS] 7,000
Cr Bank [BS] 7,000

Interest charged
Dr Interest Expense [P/L] 2,500
Cr Loan Creditor [BS] 2.500

Therefore, there is a credit loan balance of 45,500 in total. This figure should be divided between current and non current (i.e due in less than a year and more than a year)

TiGeR KiNgS

Triapin wrote: »

Loan Drawn
Dr Bank [BS] 50,000
Cr Loan Creditor [BS] 50,000

Repayment
Dr Loan Creditor [BS] 7,000
Cr Bank [BS] 7,000

Interest charged
Dr Interest Expense [P/L] 2,500
Cr Loan Creditor [BS] 2.500

Therefore, there is a credit loan balance of 45,500 in total. This figure should be divided between current and non current (i.e due in less than a year and more than a year)

Great thanks,
what are the figures for the current and non current split ?

barneystinson

TiGeR KiNgS wrote: »

Great thanks,
what are the figures for the current and non current split ?

Current is the amount due <12 months.

As in, you Dr. the loan creditor with the next 12months' payments, and Cr. a "loan creditor <12months", which is the current liability.

TiGeR KiNgS

barneystinson wrote: »

Current is the amount due <12 months.

As in, you Dr. the loan creditor with the next 12months' payments, and Cr. a "loan creditor <12months", which is the current liability.

So is this correct ?

Current Liability €7,000

Non Current €38,500 (45,500 - 7,000)

smcgiff

I've put off responding to this to avoid highlighting my ignorance.

This is a practice type question, but I'm out of practice, for years.

The one thing that strikes me as wrong about your solution is that the €7k repayment takes account of the interest, but not the overall amount doesn't.

The amount you owe isn't just the capital, but the interest obligation.

Martin567

smcgiff wrote: »

I've put off responding to this to avoid highlighting my ignorance.

This is a practice type question, but I'm out of practice, for years.

The one thing that strikes me as wrong about your solution is that the €7k repayment takes account of the interest, but not the overall amount doesn't.

The amount you owe isn't just the capital, but the interest obligation.

Presumably then the current portion of the liability should be €4,500 (7,000-2,500) and the non current portion €41,000 (38,500+2,500). The total loan balance would remain €45,500 in the Balance Sheet. It would be wrong to increase the overall liability to accrue for future interest as that will only be applied to the P&L in the year it is incurred.

The actual interest charge will presumably reduce each year as the loan reduces but for the sake of simplicity I've assumed that it would remain €2,500 for the next year.

smcgiff

Martin567 wrote: »

Presumably then the current portion of the liability should be €4,500 (7,000-2,500) and the non current portion €41,000 (38,500+2,500). The total loan balance would remain €45,500 in the Balance Sheet. It would be wrong to increase the overall liability to accrue for future interest as that will only be applied to the P&L in the year it is incurred.

The actual interest charge will presumably reduce each year as the loan reduces but for the sake of simplicity I've assumed that it would remain €2,500 for the next year.

That looks closer to being right. Any practice accountants here, or does the software do it all now? :pac: