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Hello oh wise ones.
Going back to my previous thread (taken over bookkeeping for small retail outlet from seriously bad Acct, have stripped Sage back for new financial year and doing it properly this time) am i slightly confuzzled. It could be a "Wood for the Trees" syndrome...
The retail outlet has received 3 loans from local authorities over the past few years, and is paying each of them off using monthly direct debit. Of course, there is interest on each loan.
Previously, the Acct set up the intial loan receipts, DD payments and interest charges via the Bank Account function in Sage, so each loan has/had its own separate Bank ref (12**). However, I am now not so sure that this is correct. All payments for the loans were recorded using Transfer between bank accounts. Therefore, nothing ever hit the 2300 Loan account.
I reckon the receipt of each loan should have been recorded as a bank receipt (into 3 Bank Accounts 12**), nominal code to 2300. This would then show as a credit in the 2300 Loan account.
As each DD was paid out of the main current account, tfr between 1200 and 12** then journal between the 12** accounts and the 2300 account, thus reducing the balance in the 2300 account. To record the interest (which only touches the 12** accounts, not the 1200 account), BP out of the 12**, nominal code to 790* (interest on loans).
I have the statements for each of the 3 loans, and although the Acct kept the 12** bank balances correct on a year-to year basis, I'm concerned that nothing shows in the 2300 Loans account.
Which is the "better" way to record the loans? Or are both ways equally as accurate?
Yours confused,
Helen x
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I've not used sage in a while (since passing the last assessment) so I will try to answer your question without nominal codes. I would set a loan up as it's own bank account. So the initial transaction would be CR Bank Account (loan) debit Bank Account (current). Each month I would then show a payment from the Bank Account (current) to the Bank Account (loan). When the statement came in for the loan account from the bank I would expense the interest so CR Bank Account (loan) and Debit Expenses of loan interest or similar.
If I read the question right this seems to be how the accountant set it up. Not to say any other way would be wrong, but this is how I would do it.
Kris
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- Companion Fellow PM.Dip
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Hi Helen
Using Sage. I think the accountant has set it up correctly and I would do the same.
What you need to check though in the CHART of ACCOUNT COA in Company module that those 3 bank accounts Loans
are sitting in the short term or long term creditors which ever is more applicable.
Loan accounts are a form of a bank account and it is easier to enter the interest and transfers and also more importantly interest . It also allows you to reconcile to the Loan Company or Bank Statement.
As I say the important issues in the Sage Balance Sheet is those code in COA are sittiing in the Short term or Long Term Creditors depending how long the loan is for.
Edited at 23 Nov 2011 04:01 PM GMT
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- Member PM.Dip
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Hi Helen
I would use a nominal code in the 2300 to set up each loan so you can easily identify and reconcile the balance when necessary. I believe to avoid confusion it is best if the NC1200 codes should only be used for "real" banking accounts, eg, current, deposit, petty cash, credit cards, merchant accts etc. (and of course the contra account).
When the loan was originally given it was probably either physically received into the bank account [1] or directly paid against another item/purchase, eg., paid to a supplier direct to purchase equipment like you would with a hire purchase facility without the money appearing in the company bank acct [2].
If it is [1] then I would bank receipt the original loan money in the sage bank account using the appropriate NC2300 loan code because the money really was received into the bank per the bank reconciliation.
The journal transaction sage would make would be Dr Bank / Cr Loan Code 2300 (or 2301 or 2301 etc).
If it is [2] with the loan funds going directly to the "supplier" I would make the journal to create the loan liability in the appropriate NC2300 code and then account for the new asset (if equipment was purchased, for example).
The journal transaction would be along the line of Dr the appropriate asset code in the 0010 to 0050 section / Cr Loan Code 2300 etc but of course there may be VAT to be accounted for more than one item. Actually Sage has skeleton journals and a guide on doing this [Hire Purchase] in Sage Help which was most useful the first time I did it for reassurance.
Of course there is the unmentioned option[3]. If the loan money was not received into the company bank account where it would have been bank reconciled to the bank statement or is not directly attributable to a business purchase - where did the money go?
Then regarding the monthly repayments, in Sage, I would make a bank payment [BP] from the sage bank acct [probably NC1200 if you have only one real active bank acct] for the whole DD amount against the relevant nominal code eg NC2300 etc for each loan payment to reduce the loan balance and probably make this a recurring payment in Sage if the amount is indeed the same each month.
If the loan repayment DD included interest, then using the loan interest statement or interest stated in the loan agreement, I would journal the interest element between the NC2300 Loan Code and the Interest Expense code being around NC 7904 [depending on how your Sage codes are set up, called Loan Interest].
The journal being Dr Loan Interest [eg.NC7904] / Cr Loan Code [eg. NC2300].
If the Loan Payments DD is Interest Only for a period of time I simply make the Bank Payment DD to the Loan Interest expense code and the Loan Liability remains intact in the NC 2300... code until you start to repay the balance.
I hope that makes sense. I love reading the posts on the forum and learn something new every day so I thought it was about time I stopped "lurking" and made a contribution. I just hope I have given the right advice but am always open to being corrected.
Best wishes.
Janet
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- Companion Fellow PM.Dip
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Hi Helen
All the answers are good and correct here.
I mentioned about the COA of accounts in sage as I think using the bank codes requires less entries then other methods. Make sure they are clearly named and marked. Also the accountant was avoiding the need for journals . Hence my view that what he has done is also correct and I have done the similar in many cases. It depends on the knowledge of who is doing the daily books in the company, but journals do tend to confuse a non bookkeeper . I not sure if you do all the books are just going in to check the books.
For me producing accounts as long as the accounts are clearly named and they appear in the correct position on the balance sheet then it is fine.
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There's nothing wrong with Janet's advice at all.
But I like an easy life, so I do the same as Sarah, if the intial loan was from the bank then I put it in the 12** range. Then at the year end, if a balance sheet is to be drawn up, I make a note in the working papers for the accountant showing the amount repayable in the next 12months.
Ultimately, it's only a disclosure issue and I'd personally focus on the easiest way to keep the bank rec's straight.
Edited at 23 Nov 2011 11:51 PM GMT
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- Companion Fellow PM.Dip
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Hi Tony
They were grants but they are still a form of bank account. So as long as it is clear.
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- Member PM.Dip
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Morning all.
Gosh, now I feel like I have been doing things the hard way but I guess
that's because my first "proper" client had about 23 loans and HP
agreements and changed actual banks about 4 times so I would possibly
have run out of useful bank codes! That was a bit of a baptism by fire.
:-)
Still, very useful feedback, as always and food for thought. Guess
that's why I am "addicted" to the Forum.
Thanks
Janet
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- Member PM.Dip
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ADSECsaid:
“Morning all.
Gosh, now I feel like I have been doing things the hard way but I guess
that's because my first "proper" client had about 23 loans and HP
agreements and changed actual banks about 4 times so I would possibly
have run out of useful bank codes! That was a bit of a baptism by fire.
:-)
Still, very useful feedback, as always and food for thought. Guess
that's why I am "addicted" to the Forum.
Thanks
Janet”
Janet I would use your method too as I'm an old fashioned Sage user form before the Bank module had evolved to where it is now (gosh aged 36 I feel like such a dinosaur!). Perhaps I'll try the alternative next time I need to...
Note to self - embrace the change, don't fear it!
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