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Accounting for loans

Retail Business provides a fair amount of flexibility when it comes to dealing with loans.  When setting up loans, be aware of the following:

1.  Loans are non-taxable.  Set up a loan ledger account as non-taxable and not subject to G.S.T.  Set up only one loan account.  It doesn't matter have many loans you have.  There will only be one transaction for each (a deposit) - ignoring repayments.  When you enter the loan deposit include a description that explains what the loan is for.

2.  Once you have set up the loan account go to Balance Sheet - Control and link the loan account to the control account.  This ensures all loans are dealt with correctly for accounting purposes.  That is they appear in the correct place on the trial balance and balance sheet and previous year's loans are also accounted for correctly.

3.  You can set up separate ledger accounts for loan repayments.  This is because loan repayments are included in the profit and loss and therefore affect your income for tax purposes.  If you have separate departments, and have taken out a loan for each (eg rental properites), you can set up a loan repayment account for each department a loan relates to. 

4. Set up a loan adjustment journal .  This journal is used to adjust down the value of the loan as you make repayments.  The loan account is to be debited (decreased in value), the loan repayment account credited (also decreased in value because it is an expense account).  At the end of each year run a journal report for each loan repayment account during the year.  Total the value of all repayments.  Enter that total as a debit (decrease) against the loan account, and credit (increase) to the loan repayments account.  Doing this has the effect of decreasing the loan(s) balance by the total value of all repayments during the previous year.

5.  The trial balance and balance sheet will include a line for the loan account.  The value of the loan(s) will have been decreased by the total amount entered as loan repayments.  Only the current year's adjustment value is printed.