We started using a loan for the business from the Pledged Asset line to cover some business expenses. The loan was got through the owner personal bank account, because at that time the business bank account had not been opened. I added “Pledged Asset line” bank account into QB in “banking” to get the transactions in QB. I also created a Long Term Liability type account in QB called "Pledged Asset line CS".
1. When the loan was initiated in the Pledged asset line, in QB the transfer was reflected as "received" and in the bank statement the transaction is reflected as "debit". I don’t see any transaction in Pledged asset line Acct. as “spent” when that amount was sent to our business checking account.
2. Owner transfer the money from the Pledget asset line account to the business checking account, transaction registered in QB as "received" in the checking business account. I fee was charged from the bank "Domestic Income Wire" , which is reflected in QB as "spent".
3. Owner transfer the money from the business checking account to another account to make a 1st down payment, transaction registered in QB as "spent" in the checking business account. I fee was charged from the bank "Domestic Wire" , which is reflected in QB as "spent".
For your reference, I am attaching a file with the transactions reflected in QB.
How can I categorized all this transactions in both account in QB (Pledged Asset line) and Business checking account?
Than you in advance for your support with this!
First, money needs to flow from the personal account to the business account. The money should have been recorded as equity because it was personal money being put into the business. Most business owners call this contributed capital or an equity contribution. This means the business does not owe anything, the owner just made an investment in the business. The business owner should consult with their personal Accountant for advice to correct the accounting.
Thank for your prompt reply.
If I understood correctly, I should handle it as owner contribution (equity) instead of as loan in my business Chase account. Is that right? In that way, how can I manage the monthly interests and principal payments for the loan?
In my personal account (PAL) how can I handle that transaction? does it mean sense to manage PAL in QB. Please note that the PAL is the credit line from our personal bank account, and the loan will be used only for business purpose.
@SavvyAcccountant I am thinking to handle the transactions as below.. could you please let me know if it is right?
Transaction in Business checking bank acct.:
Transfer from PAL to Business Chec. Acct. $8,000.00
"*Option 1: Add to account ""Loan from shareholders""-long term liabilities
*Option 2: Record TRANFERS, with transfer account ""PAL Account"""
"Transfer from Business Chec. Acct to Escrow Acct.
for downpayment on business purchase" $8,000.00
*Add to account "Business Purchase"-Other current assets
Transfer to PAL Acct to cover monthly Interest for loan $80.00
*Add to account "Interest payable account"-Expense
Transfer to PAL Acct to cover principal payment for loan $500.00
*Add to account "Loan from shareholders"-long term liabilities
Payment to reduce the loan or long term Liab. (principal)
I have added the "Pledged Asset Line" PAL bank account in QB. I am not sure, if there is any benefits at all. Note it is the from the personal bank account where the owners got the loan. Currently it only has one transaction, 8k USD, as "received". There is not any transaction as "spent" when the money was transfer from that account to the business checking bank account. Do it means sense to keep the Pledged account in QB?
Thanks a lot for your ongoing support.
As I noted previously, you need to have the owner's Accountant advise here. I would not have handled the transaction as you have noted. As this was a personal and not a business loan, so I would NOT record it as a business loan or record the interest expense as a business expense.
It does not matter that all the money received from the personal loan is being invested in the business. I would have simply booked the money transferred into the business owner's checking account from their personal account to the Equity account "Owner Investment". The repayment of their personal loan would be part of their personal financial liabilities.
However, it is an option to record the money as a liability for the business, but this is an entirely different accounting process that the business owner's Accountant should advise on.