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J
jbrase
February 3, 2023
Question

Seed/Angel Investor (not a partner/owner) - How to record the loan?

  • February 3, 2023
  • 5 replies
  • 34 views

The company I am doing the books for (for free) is an LLC - S Corp (with three partners). He had an investor (close friend) who loaned him money with an agreement to pay back with interest (I have the details of the loan showing the loan repayment schedule, short term loan).  This loan was made prior to opening the bank account (by about three months) but payments don't start until this month. I know what account to set up for the loan but what chart of account is involved if I don't have the bank account to credit because it didn't go into the bank account, it went into start up costs. Also as an aside, I know how to split the payment for principal and interest. Thanks in advance!

5 replies

Rustler
Rustler
Level 15
February 3, 2023

Several ways to do this, but since you know what the money was spent on, I think this is the easiest way.
Create the loan liability account in the chart of accounts

Use a journal entry
list each expense account and enter the amount spent as a debit
list the loan liability account and enter the total amount as a credit
save

J
jbraseAuthor
February 3, 2023

Thank you Ruslter, is there an account I can use as a "holding account" for the total amount of the loan before I apply it to each expense?  I need to go through all the receipts to see what goes to what/who after I get the company up to date with what is just on the bank account (the Partner's also paid for things out of pocket prior to opening the bank account, I know how to record those).  

Rustler
Rustler
Level 15
February 6, 2023

 is there an account I can use as a "holding account" for the total amount of the loan before I apply it to each expense?  I need to go through all the receipts to see what goes to what/who after I get the company up to date with what is just on the bank account (the Partner's also paid for things out of pocket prior to opening the bank account, I know how to record those).  

 

You could make a cash type bank account title it partners or something, deposit the funds and use the partner liability account as the source account for the deposit.  Then enter checks, do not print, for each expense

Rainflurry
Rainflurry
Level 11
February 3, 2023

@jbrase 

 

I would just add that the IRS limits the amount of start-up costs that can be expensed. 

 

Per the IRS:

Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amortized.

    J
    jbraseAuthor
    February 3, 2023

    I knew there was a limit but I wasn't sure how much it was. Thank you for that added information!

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