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Dan Barber
Level 1

How do I account for the government stimulus business loan of 40K?

 
Solved
Best answer April 28, 2020

Best Answers
Rochelley
Level 8

How do I account for the government stimulus business loan of 40K?

Hello @Dan Barber ,

 

You will need to set up a Long-Term Liability account in your COA for this loan, naming it appropriately (perhaps CEBA Loan for 'The Canada Emergency Business Account' Loan.  Your initial entry will be:

 

DR     Bank

CR     Loan Liability Account

 

Each time a payment is made, the entry will affect the accounts as follows:

 

CR    Bank

DR    Loan Liability Account

 

If the loan is repaid by December 31, 2022, 25% will be forgiven (up to $10,000).  If this is the case, the following JE would need to be made:

 

DR    Bank

CR    Other Income Account (not Sales income as it is not from operational activities)

 

If the loan is not repaid by December 31, 2022, the remaining balance will be converted to a three-year term loan at 5% interest.  At this point, you would need to get yourself an amortization schedule (a very good one is here:  https://www.cchwebsites.com/content/calculators/CASimpleLoan.html), beginning with the Loan Balance as of Dec 31, 22, and calculated with simple interest until the loan is paid off in full.  Let's say that you had only paid back $20,000 by Dec 31, 22.  Amortization would be as follows:

 

Loan Summary.PNG

 

Amortization Schedule.PNG

 

Of course there would be 36 payments in total.  You can originally set up your loan payments of $599.42 to recur each month.  But you would then have to go into each monthly payment and edit the payment to distribute amounts to the following accounts (using first payment in schedule as example):

 

DR    Interest Expense        $  83.33

DR    Loan Liability Acct     $516.09

CR    Bank                                                     $599.42

-------------------------------------------------------------------------

                                                $599.42         $599.42

 

Hope this helps :)

 

 

 

 

 

 

 

 

 

View solution in original post

10 Comments 10
Rochelley
Level 8

How do I account for the government stimulus business loan of 40K?

Hello @Dan Barber ,

 

You will need to set up a Long-Term Liability account in your COA for this loan, naming it appropriately (perhaps CEBA Loan for 'The Canada Emergency Business Account' Loan.  Your initial entry will be:

 

DR     Bank

CR     Loan Liability Account

 

Each time a payment is made, the entry will affect the accounts as follows:

 

CR    Bank

DR    Loan Liability Account

 

If the loan is repaid by December 31, 2022, 25% will be forgiven (up to $10,000).  If this is the case, the following JE would need to be made:

 

DR    Bank

CR    Other Income Account (not Sales income as it is not from operational activities)

 

If the loan is not repaid by December 31, 2022, the remaining balance will be converted to a three-year term loan at 5% interest.  At this point, you would need to get yourself an amortization schedule (a very good one is here:  https://www.cchwebsites.com/content/calculators/CASimpleLoan.html), beginning with the Loan Balance as of Dec 31, 22, and calculated with simple interest until the loan is paid off in full.  Let's say that you had only paid back $20,000 by Dec 31, 22.  Amortization would be as follows:

 

Loan Summary.PNG

 

Amortization Schedule.PNG

 

Of course there would be 36 payments in total.  You can originally set up your loan payments of $599.42 to recur each month.  But you would then have to go into each monthly payment and edit the payment to distribute amounts to the following accounts (using first payment in schedule as example):

 

DR    Interest Expense        $  83.33

DR    Loan Liability Acct     $516.09

CR    Bank                                                     $599.42

-------------------------------------------------------------------------

                                                $599.42         $599.42

 

Hope this helps :)

 

 

 

 

 

 

 

 

 

View solution in original post

Dan Barber
Level 1

How do I account for the government stimulus business loan of 40K?

Dear Rochelley

Thanks so much for your feedback and thorough explanation; it was very helpful. 

Dan

 

jmkentel
Level 3

How do I account for the government stimulus business loan of 40K?

When you set it up, do you put anything in the 'amount' field?  QBO Help says there will be two fields in the setup of the long-term liability, but there is only one.  Do I put the $40,000 there?  And if so, as a negative?

 

Here is the notes from the help menu:

 

Set up a loan in QuickBooks Online
54•Updated 1 minute ago
Learn how to record a loan in QuickBooks Online.

Did you recently get a loan? In QuickBooks Online, you can set up a liability account to record the loan and its payments.

Step 1: Set up a liability account to record what you owe
First, set up a liability account to record the loan:

Select Settings ⚙, then select Chart of Accounts.
Select New to create a new account.
From the Account Type ▼ drop-down menu, select Long-Term Liabilities. Note: If you plan to pay off the loan by the end of the current fiscal year, select Other Current Liability instead.
From the Detail Type ▼ dropdown, select Notes Payable.
Give the account a relevant name, like "Loan for a car."
Choose when you want to start tracking your finances. In the Balance field, enter the amount in the account, and determine the as of date. Enter today's date if you want to start tracking immediately.
Enter the full loan amount as a negative amount in the Amount field. Since the future payments to the bank are a liability for your business, the amount should be negative.
Select Save and close..

LauraAB
QuickBooks Team

How do I account for the government stimulus business loan of 40K?

Hello again, jmkentel,

 

Once again, thanks for bringing it to my attention that the steps outlined in the article for how to set up a loan in QuickBooks Online aren't lining up with what you see in your QuickBooks. I've responded to your other post about the missing Amount field here: How do you set up a loan? I just want to make sure you see that response so you know you can continue your setup without that field.

 

Feel free to let me know if you have further questions and I'm confident Rochelley can also offer some great insights if you need it, too.

 

Take care!

Rochelley
Level 8

How do I account for the government stimulus business loan of 40K?

Hello @jmkentel ,

 

First of all, the instructions in the Help Files are wrong as far as entering a negative balance into the loan set-up.  It's already a Liability account, so by virtue of the account type, a positive number means that there is a liability owing.  If you put a positive number in there and then go to the JE that is created by that opening balance entry, you will see that the loan amount is on the CR side of the JE.  This is so because Liability increases are always CR and decreases are always DR.  So do not put a negative number in there.

 

Having said that, my advice would be to leave the amount blank in the liability account set-up, and set up a proper JE once the account has been created.  See my steps in above post on how to record the initial loan from the bank.

 

The problem with entering the amount in the account set-up is that it leaves you with an entry to the Opening Balance Equity Account, which you will then have to reverse with a DR to the bank anyways.  That will work as well, but I find messing around with the Opening Balance Equity account is just confusing for a lot of people.  BTW, the balance in the OBE should always be $0.00.

 

However, if you do choose to enter a positive amount into the set-up of the loan liability account, you will have to make the following JE immediately afterwards:

 

DR         Bank

CR         Opening Balance Equity

 

Then you would continue with your monthly payment entries as noted in above post, where you are DR the loan account and CR the bank.

 

Good luck!

jmkentel
Level 3

How do I account for the government stimulus business loan of 40K?

I thought that a negative number was very strange!  Thank you so much...you are the bomb :)  You should write the instructions for QBO (this is not the first time I have found that the help menu is wrong!)

hotelguru2020
Level 1

How do I account for the government stimulus business loan of 40K?

Thanks for the details on how to set up.  How do I account for a Loan Discount?  My accountant wants me to make an AJE to adjust CEBA and RRRF loan to Future Value on the date of loan received. 

Please help. 

Tammy_H
QuickBooks Team

How do I account for the government stimulus business loan of 40K?

Hi hotelguru2020,

 

Thank you for reaching out in the QuickBooks Community with your question. Creating adjusting entries is often a part of your bookkeeping process. I can guide you to the right support.

 

I'm able to provide you the technical support for creating a journal entry. I have a couple of articles that go over setting up the loan and creating journal entries:

Your entry will increase/decrease the accounts that your accountant has indicated. Your accountant is a specialist in their field and best suited to advise you of the amounts and accounts that the adjusting entries will affect. Every company has its own chart of accounts, and your accountant is familiar with how yours is set up.

 

If you have any other questions, please reach out. I'm here to help. Have a great day!

Lord Sloth
Level 2

How do I account for the government stimulus business loan of 40K?

Nobody has mention that 10K if you borrowed 40K, or 20K if you borrowed 60K; must be counted as income in the tax year you received your CEBA.  The same applies for CEWS and this must be declared for the tax year for the cews claim period, not when you actually received the CEWS money.  So remember to include the CEBA and CEWS as other income per CRA rules.

 

Of cource, you will receive a credit for CEBA,if you don't pay back the 30K or 40K back by the end of 2022, but hey who is going to throw away free money.

 

Google Taxing the CEBA and CEWS for more information.

 

 

Inglewood
Level 1

How do I account for the government stimulus business loan of 40K?

Hi,

I was reading the thread below.... and perhaps this was already answered but may not be clear to me.

 

how does the RRRF funding should be classified in COA? and when deducting from that amount for operating expenses or previous loan what category should it be?

 

Also, if the RRRF is paid prior to Dec 2022, how should that payment be classified and the forgivable amount be classified, since that will be taxable?

 

Appreciate any input

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