Loans are split between current liability and long term liability. They don't just get recorded as long term
There is a split in the payments between the interest element which is expensed and the capital element that reduces the actual loan originally taken out.
Every year you do a transfer between current and long term liabilities for the amount of the loan that will be repaid within 12 months including the interest element that must be paid.
For the debits and credits on the loan.
The loan is taken in appropriate proportions initially to the Longterm and current liabilities :
Dr Bank
Cr Creditors Loans > 1 year
Cr Creditors Loans < 1 year
then the current liabilities are reduced over the year by :
Cr Bank
Dr Creditors Loans < 1 Year
Dr Expenses Interest
Note there will be a single payment for the loan to the provider of finance but that is split between capital and interest.
Over the year the current liability should be reduced to zero.
At period end you reset this by :
Cr Creditors Loans < 1 Year
Dr Creditors Loans > 1 year
Whch reduces long term liabilities and resets the current liabilities clock for the next year
Eventually the loan will be repaid and there will be no more interest to pay.
The quickbook questions are seperate and I'll leave that to someone such as Amanda to resolve.
kind regards,
Shaun.
p.s. edited because when you use < signs the site sometimes edits them out. Don't know why. Hope thatt hey stay in this time. (had to make them bullet points or the < signs also seem to make the post lose formatting and starts joining lines together.
-- Edited by Shamus on Sunday 11th of November 2012 01:37:20 AM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
It may well be rather dumb, but i just cant get my head round this.... ( and maybe because its late... )
Someone has a loan financed for the business. On the balance sheet this will appear as a LTL, as we all know. But when claiming the repayments for the loan interest as per HMRC's allowable expenses how does this work...
Because just doing a simple T-account for myself trying to work this out, it beacme apparent that the Loan would never 'fully' remove itself from the BS. :/ or am i missing a 3rd T-account i need to have??
(and 3rdly... how the heck do you account for this in Quickbooks?)
(and 4thly... how is AIA accounted for in the whole scheme of things when it comes to entering in QB, or would you just have to export final figures to excel and make the changes manually?)
Sorry for all the questions but my head just isn't working tonight! :(
Thanks for that Shaun, I think i get it now, i thought there might have to be another account in there somewhere! didn't realise though that it would be 2-3 more! lol
