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ky222
Level 1

Equity Accounts- Loan to another company by member distribution

Hi  everyone, 

 

Here is my situation: my previous bookkeeper recorded a journal entry like this in 2018 Debit $80K member distribution and credit $80K Loan to ABC company. Then in this year, we received back the total outstanding balance of the loan $80K without interest. My supervisor recorded the received payment as bank deposit. Now here is the question, I need to write the check for member distribution $50k to the members but the journal entry back in 2018 already did that. I know that something is wrong with the previous journal entry but I cannot find out where is wrong. Please guide me to solve the problems. Thanks in advance.

Solved
Best answer December 08, 2020

Best Answers
john-pero
Community Champion

Equity Accounts- Loan to another company by member distribution

Is ABC one of the members? It would not have been a loan, just draw. To loan money you need to pay out money and tge original JE did not affect your company banking. In fact as i see it you essentially loaned one of tge member's equity to ABC.  ABC should repay the loaning member equity, which in turn would be deposited. 

 

A deposit (addition to banking) does not happen in a vacuum. Some account had to be the opposite. Newton's Laws. Debit banking = Credit income, new loan to you, or repayment of a current asset loann out on your books 

 

The journal entry in 2018 should have been debit loan as current asset and credit a check paid out. By posting the loan as a credit your company BORROWED from ABC, instead of loaning to. In essence you increased member equity at same time instead of distributing it.

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1 Comment 1
john-pero
Community Champion

Equity Accounts- Loan to another company by member distribution

Is ABC one of the members? It would not have been a loan, just draw. To loan money you need to pay out money and tge original JE did not affect your company banking. In fact as i see it you essentially loaned one of tge member's equity to ABC.  ABC should repay the loaning member equity, which in turn would be deposited. 

 

A deposit (addition to banking) does not happen in a vacuum. Some account had to be the opposite. Newton's Laws. Debit banking = Credit income, new loan to you, or repayment of a current asset loann out on your books 

 

The journal entry in 2018 should have been debit loan as current asset and credit a check paid out. By posting the loan as a credit your company BORROWED from ABC, instead of loaning to. In essence you increased member equity at same time instead of distributing it.

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