a person or Entity (with no Customer/Supplier relation) has given a loan to your Company which needs to be paid back over a given period (let’s say 12 Installments over a period of 2 years (so one installment each quarter).
how can you set this up in the accounting? Logically there is a liability which needs to be balanced out over time, so there should be a payable account involved. However as soon you want to use a payable account in a journal entry ERPNext requires a “party” to be added.
As a workaround I was thinking to use a Shareholder as a party (which is not correct though, because there are no shares of the company being issued against a loan, …
As far as I know there is no way to create a Party Type (which would be the next idea that came up)
Has anyone handled such a scenario successfully and can advise on a way to do this?
Loan from non supplier entities can be handled in similar way. For example, create a liability account - Loan from Bank XYZ. Interest payment is booked under interest expense and loan repayment, would credit bank and debit loan account.
Generally Supplier is a party that supplies a good or service - would not mix the two.
To me that sounds more logical then the “Supplier” workaround.
The downside in using a Shareholder as Party is that such a loan does not appear on the “Accounts Payable” report which by default only allows “Suppliers” instead of all Parties of type Payable.
Do you have any suggestion to overcome that problem? I am lacking the know-how on adjusting the A/P report in a way that it includes all “payable” Parties.
Generally, Accounts Payable is used for Suppliers or other entities actively engaged in trade activity. Loans are categorized as liability and can still be payable in short time. So it is not in good form to include Loans under Accounts Payable.
Having said that, you can make a group on COA called A/P and have two accounts under it - Trade Payables and Loans Payable. Journal entries accordingly.
ERPNext will show individual and group totals and you will still have separation of accounts.
Actually, it shouldn’t appear under Accounts Payable. At the time of booking the loan you are free to override the balance sheet account where the liability should be reflected with a Loan Liability account.
So you’re booking against the supplier so that you have a named party to whom you owe a loan and can distinguish it from other parties that have also given you loans but on the balance sheet it reflects under loan liabilities.
that’s what I am doing. And I couldn’t say why it should be different. An existing loan is a liability and it’s important that, when looking at your Accounts Payable Report, you should be able to see how much money in total the company owes (no matter to whom) in order to make financial decisions based on that information I’d say.
Can you kindly elaborate why in your opinion, a loan should not be shown as a liability on an Accounts Payable report?
Liabilities are also a “Payable” for the company - and you can build a report to include them. Loans and A/P both fall under a liabilities account. As I understand it - Accounts Payable term is used (per GAAP?) generally for “Trade” Payables. Loans are generally separated - do not know the case for your country. It may have something to do with who stands first in line in case of collections.
I agree that Loan from Shareholders should not appear in Accounts Payable but in LIabilities under Loans. My question what should be the Account Type in Chart of Account for Loan from Shareholders. If we use Payable it reflect under payable and if we use as Equity it reflects as Assest. I am confused as where it has to be appear so it correctly reflect in the Cash Flow and other Financial Statements. Appreciate if someone can help in this regard.
There should be a certain legislative act regarding these types of scenarios. Or you can get in touch with a lawyer or a financial advisor. Those are professionals in this field, so I am confident that they will be able to help you. Moreover, you can also check out the www.greedyrates.ca website. These guys are researching the financial field, so you can find something related to your problem.
Many conditions have been created for this type of credit. Basically, they are aimed at the fact that if you start a company and need a loan, you can pay a percentage of the profits. This percentage will be set by the bank itself based on the potential income of your company. If the firm takes out a loan for its own needs, the rate can be assigned at the regular income tax rate. There may be additional nuances that depend on the type of loan. You might want to contact Mortgage Advisor Coventry for help. I think the broker will be able to find the right solution or even take advantage of their personal discounts with the bank.