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Handling Loans

There are two basic scenarios when dealing with loans:

  • The bank/finance company sends you the money which you deposit into your bank account; and

  • You are purchasing an asset/paying a debt and the bank/finance company pays your supplier directly.

Receiving Money

The accounts you will need for this are:

In the General Ledger:

  • Interest expense account in the profit and loss; and

  • Loan account in non-current liabilities in the balance sheet.

In Cadzow 2000:

  • Stock code & analysis code to represent the movement on the loan account;

  • Stock code & analysis code to represent interest expense.

To enter the transactions:

  1. Create an invoice to the bank for the full value of the loan using the loan account stock code (remember the loan value will consist of 0% GST).

    At this point, the loan appears as a debit in accounts receivable and a credit in the loan account, so no net change has occurred on the balance sheet.

  2. When the money arrives, enter the receipt in the normal way.

    At this point, the debit in accounts receivable turns into a debit at bank.

  3. Whatever you do with the money can be dealt with as normal.

  4. To make a repayment, enter a purchase which consists of one line item to represent the principal portion (the same stock code as the original loan entry) and one line item to represent the interest. Pay the purchase as normal. Note both items will be 0% GST as there will no input tax credits arising from such a payment.

    It is likely any loan repayment notifications will not show a split between principal and interest, but you should be able to calculate this from your loan agreement.

Purchasing an Asset

The accounts you will need for this are:

In the General Ledger:

  • Interest expense account in the profit and loss;

  • Loan account in non-current liabilities in the balance sheet; and

  • Asset account in non-current assets.

In Cadzow 2000:

  • Stock code & analysis code to represent the movement on the loan account;

  • Stock code & analysis code to represent interest expense; and

  • Stock code and analysis code to represent asset purchase.

To enter the transactions:

  1. Create an invoice to the bank for the full value of the loan using the loan account stock code (remember the loan value will consist of 0% GST).

    At this point, the loan appears as a debit in accounts receivable and a credit in the loan account, so no net change has occurred on the balance sheet.

  2. Purchase the asset from the supplier.

    At this point, the bank appears as a “debtor” and the supplier appears as a “creditor”.

  3. Use Transfer Adjustments to adjust the balance of the bank's debtor account against the supplier's creditor account.

    If the loan amount and the asset value are not the same, the difference will be your own money, and this can be handled as such.

  4. To make a repayment, enter a purchase which consists of one line item to represent the principal portion (the same stock code as the original loan entry) and one line item to represent the interest. Pay the purchase as normal. Note both items will be 0% GST as there will no input tax credits arising from such a payment.

    It is likely any loan repayments will not show a split between principal and interest, but you should be able to calculate this from your loan agreement.

Paying a Debt

In this scenario, the loan funds are sent directly to a creditor. The procedure for handling this is the same as purchasing an asset, except there is no asset to purchase and the debt is already in the accounts payable system. Simply adjust the creditor's balance against the bank's loan account balance.

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