How to close out a square capital loan

What were all the Loan Payments classified as that they didn't lower the amount in the Loan Liability Acct when paid?  

And I'd want to find out about the mystery total change and what the loan was reclassified to?  I get that the odds of getting audited are pretty low, but if you ever are, not having this all cleaned up correctly might come back to bit you.

The loan payments were never entered because the client was previously tracking "income" based only on their bank payouts from square - those come out net of all fees, sales tax etc and net of any loan repayment.  So assuming the client reaches some minimum sales threshold on a given day, then Square takes an automatic payment.

Here's the movements:

Previous balance in Square loan acct 34,500.00

Deposit to Square loan account 32,807.47, balance now 67,307.47

Journal: DR Square loan 37,919.20 CR Sales 37,919.20 (to reclass Square loan interest); DR Contractors 2,973.48 CR Salary & Wage exp 2973.20; DR Square loan 1,750.00 CR 1,750.00 Salary & Wage exp (to reclass square payments)

Balance at 12/31/21 27,683.27

So I'm guessing they took some of this Square loan and journaled it to Sales income/Salary & Wage exp, because the Square loan payments "take up" some sales, and therefore the clients income was understated? 

Also I am now thinking I need to account for additional sales this year, as they paid this loan off?

The loan payments were never entered because the client was previously tracking "income" based only on their bank payouts from square - those come out net of all fees, sales tax etc and net of any loan repayment.  So assuming the client reaches some minimum sales threshold on a given day, then Square takes an automatic payment.

Here's the movements:

Previous balance in Square loan acct 34,500.00

Deposit to Square loan account 32,807.47, balance now 67,307.47

Journal: DR Square loan 37,919.20 CR Sales 37,919.20 (to reclass Square loan interest); DR Contractors 2,973.48 CR Salary & Wage exp 2973.20; DR Square loan 1,750.00 CR 1,750.00 Salary & Wage exp (to reclass square payments)

Balance at 12/31/21 27,683.27

So I'm guessing they took some of this Square loan and journaled it to Sales income/Salary & Wage exp, because the Square loan payments "take up" some sales, and therefore the clients income was understated? 

Also I am now thinking I need to account for additional sales this year, as they paid this loan off?

The loan payments were never entered because the client was previously tracking "income" based only on their bank payouts from square - those come out net of all fees, sales tax etc and net of any loan repayment.  So assuming the client reaches some minimum sales threshold on a given day, then Square takes an automatic payment.

Here's the movements:

Previous balance in Square loan acct 34,500.00

Deposit to Square loan account 32,807.47, balance now 67,307.47

Journal: DR Square loan 37,919.20 CR Sales 37,919.20 (to reclass Square loan interest); DR Contractors 2,973.48 CR Salary & Wage exp 2973.20; DR Square loan 1,750.00 CR 1,750.00 Salary & Wage exp (to reclass square payments)

Balance at 12/31/21 27,683.27

So I'm guessing they took some of this Square loan and journaled it to Sales income/Salary & Wage exp, because the Square loan payments "take up" some sales, and therefore the clients income was understated? 

Also I am now thinking I need to account for additional sales this year, as they paid this loan off?

@jeremyebrock 

The two entries that increased the loan payable ($34,500 & $32,807.47) make sense.

The entry for $32,807.47 that reduced (debited) the loan payable and increased (credited) sales also makes sense since the payouts were net of the loan payments.

The entry for $1,750 that debited the loan payable and credited salary & wage expense is odd.  A loan payment that reduced salary & wage expense?  Maybe they meant to credit sales?

Agreed with you that leaves a journal entry to debit the remaining loan payable and credit sales for $27,638.27.

Where was the interest expense in all of this?  Where that was expensed?

I agree with @Rainflurry that the crediting Sales & Wages seems strange.  But at least there are entries to bring down the loan.  I would ask the CPA that made the entry if only for clarification and a better understanding of how they are adjusting the Accts.  And I do see the Interest Credit going against Sales.

Does the Square Statement you get show the Principal Payments and the Interests payments?  Going forward I would make the correct entries until the loan is paid off.  Each month show the Square Principal payment against your Square Loan Liability Acct.  And the Loan Interest against your Loan Interest Expense Acct.

So, this is working capital loan so the interest is essentially front-loaded I think.  The original loan agreement shows the deposit of 32,807.47 added to their previous loan balance, to get a total of 46,000.  The loan fee - the interest as I understand it - is 6095.00.  So the total loan balance is thus 52095.00.

I think the accountant effectively amortized a portion of the interest.  There is no breakout of the principal or interest.  My sense here is that they reduced the loan balance and debited the loan payable, by crediting salary/wage exp, because then it goes straight into "income" to the partnership - because this is a working capital loan, the repayments get taken out prior to their daily payouts.  What that means to me is that their sales income is actually understated, because of those repayments taken out at source.

Given that 1750 of 6095 was debited, could  that leaves 4345 remaining that I can credit to interest.  IF that is correct, what do I do with the remaining 23293.27 to zero out the loan?

The loan statement does not show any principal or interest breakdown.  Only repayments and "refunds" - the refund is only given if they did not reach a certain sales threshold, as I understand it.

The loan is now paid off.  SO given that 1750 was expensed last year, I am assuming I can expense the remaining 4345 to interest, which leaves the loan balance at 23293.27 - but I am not sure how to characterize this in order to zero out the loan.

@jeremyebrock 

Is it possible the initial entry(ies) for the loan included a debit entry of $6,095 for the loan fee?  That would be needed to get the bank statement to reconcile since the loan deposit amount of $46,000 was deposited into the bank account and not the "total amount owed" of $52,095, correct?

No entry specifically for 6095.00, and the notation on the journal as I noted above (actually 1705.00 not 1750.00) was "reclass square payments", and the notation for the rest of the 37919.20 was "reclass Square Interest".

No entry for 6095.00 specifically.  The notation in the journal as I noted above was for the 1705.00 was "reclass Square payments" and also for the 37919.20 was "reclass square loan interest".

@jeremyebrock 

What are the entries for the loan deposits?  Have they been reconciled and do they match the bank statements?  It doesn't make sense that the deposits to increase the loan payable include the $6,095 fee.  Your loan amount was $46,000, they didn't deposit $52,095 into the bank account, correct?  

In looking at Square's info on their loans, what's confusing is that they include their fee in the "Balance remaining" on their statements, but that is not the same as the loan amount you carry on your books.  The loan payable was $46,000 and each payment should have allocated 13.25% ($6,095 / $46,000) to the finance fee expense, IMO.        

Correct, the only deposit for this loan was 32807.  the previous deposits were for earlier loans that were then rolled into this eventual total of 46000.00.  I've been told elsewhere that the 6095 is the interest, but Square calls it a fee, so it makes sense that it was not deposited.  

The loan was actually 15.25%. The loan deposits were reconciled but in any case they were last year. 

I'm looking for a solution for the remaining interest 6095-1705 = 4390, and where to categorize the rest of the loan balance ...to sales?  

Correct, the only deposit for this loan was 32807.  the previous deposits were for earlier loans that were then rolled into this eventual total of 46000.00.  I've been told elsewhere that the 6095 is the interest, but Square calls it a fee, so it makes sense that it was not deposited.  

The loan was actually 15.25%. The loan deposits were reconciled but in any case they were last year. 

I'm looking for a solution for the remaining interest 6095-1705 = 4390, and where to categorize the rest of the loan balance ...to sales?  

Can anyone help with a solution?  I need to zero out this loan. Needing some details on how to do that if you can.

Still looking for a solution.  Everything I know is posted in this thread, can anyone give me a reasonably acceptable solution as to how to zero out this loan.

Regretfully, I'm not sure if anyone here can help you.

Loans are not Categorized against Sales.  There should be a Loan Liability Acct and a Loan Interest Expense Acct.  All Loan Payments would be split against those two Accounts and eventual the Principal Acct will come down to $0.  (Possibly some other entries for fees depending how the loan was set up.)

I would say the best way to resolve it is for the CPA that made the first Adjustment to make additional Adjustments so that QBs matches up with how they reported Income and Expenses on the taxes.

Thanks anyway.  Speaking to the CPA isn't an option at this point.  I appreciate your feedback and I'm aware of how it should be done; nevertheless this is what I have to work with.  I am clearly missing some sales income, because that's what was used to make the automatic payments, but there appears to be no way to download this that I am/the cllient is aware of.

If the old CPA is not in the picture any more, have this on your list if questions/issues for the new one. 

I'd bring it up in one of your first meetings, it's probably not something to bring up at Tax time.  The entries just need to match with Tax filing so that it was adjusted properly and should not be an issue once the new person gets a feel for the business.