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Level 2

What offset account to use?

Our Corp borrowed $250K and I used a JE with credit to loan account, debit to (a bank account). Spent the $ for various things for the Corp. Now I'm JEing for paying the $ back. I debit the loan acct, is the offset account RE?

11 Comments
Level 12

Re: What offset account to use?

You should not be using JE for any of this. The original loan would best be handled by Deposit. Now payback by Check. Use of JE prevents proper tracking by name and bypasses a cruel vs cash although as a corporation you would be accrual by default and tax law. But if you insist A JE would be credit bank account and debit loan liability
Level 2

Re: What offset account to use?

I'm not understanding. The original $ is gone, it was a $250K loan from the owner that I tracked as "Loan from Owner". If I simply debit a bank account, there is no way to track the funds the Corp owes him. He also pays himself interest...so I have to track the amount and time he loans himself $.

For clarity: I have two QBs...in one I track Corp $, in another I track personal funds for tax purposes. So $ that Owner loans the Corp, I can't just Deposit because I need to keep track of what $ came from the Owner...hence, the JE. Then, that (original) Owner $, was spent on Corp expenses. NOW the Owner has taken $250K out of another CORP account to pay back the $ he borrowed, from himself. I have to account for the fact that the $ has been paid back, so I have to credit the loan account...but how?

I'm taking a Quickbooks course this month, but until then, I'm having to teach myself. I hope I was clear enough.

Level 12

Re: What offset account to use?

Details matter. And I quote your original post "Our Corp borrowed $250K" You said NOTHING about from whom the corporation borrowed so would not the logical assumption be from a bank????? Is this a true C Corporation? An S Corporation instead is passthrough like a LLC or sole proprietorship. Shareholder loans to a corporation are company liabilities and only when "real" money transfers from the shareholder to the corporation would there be a loan. Or in an LLC or S-corp with MULTIPLE owners and by terms of partnership agreement only can there be actual bonafide loans between owners and company - otherwise it is just equity movement and a single member LLC cannot pay himself interest (as far as I understand) maybe a single shareholder S corp can pay interest to owner but it still ends up on the K-1 So to start with you did debit (deposit) banking with the funds loaned by the owner, correct? And you cut checks to owner periodically for interest. Now you need to cut a check to owner to pay back the 250k, or record that the owner went to bank and transferred money from BUSINESS banking to PERSONAL banking. The liability loan account in the corporate books is still exactly like a loan from a bank. Money in = increased liability. Now, money out that reduces the loan is just that - money out which is banking which is a check, an ach or other movement of money OUTSIDE the corporation. Hence, using banking tools of Write Check and detail is the loan. A check in the amount of $250,000 HAS TO AFFECT a bank type account on its way out and will be deducted from the outstanding loan balance. Just like making a car payment, only bigger. The interest paid may or may not be a deductible expense depending on company entity type I referred to before. "NOW the Owner has taken $250K out of another CORP account to pay back the $ he borrowed, from himself. I have to account for the fact that the $ has been paid back, so I have to credit the loan account...but how?" This is exactly like I said in my first answer and does not vary. Write Check from the CORP banking account that the money was moved from and the detail line (expenditure line) is the loan account you have on the books. If the existing loan was $250k and the check is $250k then new balance will become zero And I repeat, a Journal Entry is not appropriate for "simple" money movement. If instead this is NOT a true corporation then there is no loan and it is just Owner Equity in and out and the "interest" would also be just equity out and not true interest Now in the owner's personal books the loan to the company is a Current Asset and is reduced when paid back. Interest collected is taxable to owner IF it is deductible to corporation
Level 12

Re: What offset account to use?

And if it is a true corporation it owes corporate income taxes and only dividends paid to shareholders are taxed at personal level. So lets really get on same page with entity type as it makes all the difference
Level 2

Re: What offset account to use?

First off, TY for the info, much appreciated. Second, it is a C-Corp, one owner/shareholder. His brother is a CPA and tells him what he can and can't do. I am going to have to log off and do some legal work, but I'll be back with DETAILS if you are still able to help later, I would be thrilled.

Level 2

Re: What offset account to use?

OK. It is a C-Corp, as I said. One shareholder/Prez,"P". I keep two separate QB, one is for personal, one is Corp. What happened was we needed $ to pay taxes at end of Corp year. I borrowed from a personal HELOC, $250K. I then used it to pay, among other things, a shareholder bonus, the Corp tax to IRS, and the tax on the bonus. The IRS got a bunch of $ that day. I originally did a JE with a debit to the Operating acct (here's the money coming in), and a credit to the account called "Loans from P", which keeps a running tab of what the Corp owes to P. How else can I keep track of the money P loans to the Corp? It seems that you don't want me to do a JE but I don't understand how I can just deposit money in an account without also explaining that it needs to be paid back. Can we start there? Maybe there is some better way to do this that I'm completely missing.

The next step was beginning to pay it back: we took $120K from a Corp MM account, and put it in the Operating acct in order to partially pay back the $250K HELOC loan. That was just a simple transfer. However, when I pay the HELOC $120K, my "Loans from P" account also needs to be reduced by $120K, since the Corp now only owes $130K to P. I have a feeling that I need to restructure accounts or something but I have no idea what it is.

 

Level 12

Re: What offset account to use?

Accounting 101 Day 1 All of QuickBooks (except the online Self-Employed version) is double-entry bookkeeping (it is also accrual by default but that is Day 2) Double-entry is like Newton's Third Law broken down : for every action there is an opposite and equal reaction. In accounting terms : for every debit there is an opposite and equal credit. That is the essence of a journal entry, debits must equal credits. But checks and deposits in QB work exactly the same way. When you record a deposit into a bank account (an increase or debit of an asset) you must include the source, which can be from reduction of another asset, or income, or in this case an increased liability. Recording a deposit into banking from a loan does two things. 1. increases bank balance and 2. increases company debt. Your JE with a debit to operating account is a deposit. No need to change it although you will not be able to easily track it by the "vendor" name (which you should assign to the shareholder - second name has to be slightly different as there is a prohibition against identical names on more than one list in QB) and your JE's might not properly show correct dating - it is one of the perils of using JE when Deposit and Check tools exist. True, a deposit creates the equivalent of a JE in the background but a JE with more than one name on a line (in the "name" column) will never show up under anything other than the name on first line. A check (or a bank transfer out of checking) is a credit (on a JE) but requires a designation of purpose which incase of expenses is a debit to an expense account or in case of a loan payment is a debit against the loan balance. When you create a Deposit you cannot simply save it without explaining the source of the funds. Your source is "Loans from P". As a full C corp and if there are from time to time more funds borrowed from P you need to create sub-accounts in this loan account. Outstanding loans from shareholders need to be kept track of separately for each loan since there may be a chance of outstanding loan balance at fiscal year end. Thus a deposit to operating account from "Loans" mimics your JE but with the advantages of using the proper tools. Now the partial payback of money from the MM account (which should be on your books as a bank type account since money can move in and out somewhat freely) acts like a check even if it is a digital transfer. Check from MM for 120k payable to "P" with the line item "Loans from P" . Once saved the loan account will be 130k, and the MM account is 120k poorer than it was before. My guess is that you might have the MM account on the books not as bank type but instead, other current asset. You can edit the account type if need be. You can directly record money movement from bank account to bank account that are all corporate accounts as a transfer with no other explanation. It acts like a JE of debit one bank and credit the other. As a C corp (or even S) the sole shareholder, if involved in the day to day management of the corporation must be on payroll a d receive a W2. In the C all profit before distribution is taxed at corporate tax rate . Any and all distributions beyond W2 wages are also taxable at "P"'s individual tax rate on his 1040 (from a 1099-D) He also gets 1099-Int for interest income received on the loans. Interest is mandatory in a corporate setting and the IRS has minimum % and as well the amount paid cannot be so high as to be considered a method of evading corporate taxes - in other words you cannot pay P interest at 50% APR without throwing up red flags. In P's personal books the HELOC itself would not even appear although as a simple personal loan from a bank to P you can in personal books surely track it's balances. The interest paid by the corporation to P is taxable income to P but depending on several factors in tax law the interest P in turn pays the bank may or may not be fully deductible on his personal return
Level 2

Re: What offset account to use?

Sorry it took so long to thank you properly for all the info. Some of it I already "knew" but the difference is intellectual knowledge doesn't always translate into actually doing it. I wanted to give you some feedback on what I did and why, because part of my problem was I don't always have the language I need to explain what I am trying to do...essentially, I needed to re-structure my accounts correctly. I had my "Loans from P" account separated from it's "offset" account ("Due from Owner") that kept up with personal bills that had been paid by the Corporation...so, lessening the total loan amount. That was ONE issue.

I did what you suggested, though, and used a deposit for the original $250K, then a check for the partial pay back. Once the "Due from Owner" account was properly structured as a sub-account of "Loans from P", it all fell into place. Of course this is all happening in my CORP QB.

ON THE OTHER SIDE (Personal QB), I did a transfer from the HELOC to the "Loans to Corp" liability account. Now my issue is the $120K that came from the Corporate MM. That account isn't anywhere in the personal QB. I'm not sure how to handle that. For now, I did (my favorite) a JE that credits the "Loans to Corp" account and debits the HELOC, with where it came (MM#) from in the memo line. What is the proper way to account for the Corp MM? It literally is Corporate money and I don't want it to show up in the Personal QB.

I didn't understand everything you said, esp about taxes but I printed it out as future reference. I'm doing a lot better than I was last year...haha...My skills are improving....

 

Level 2

Re: What offset account to use?

One more thing. I see where you said the "loan to the company is a Current Asset"...um, I'm only copying what folks before me did until I learn to do things correctly...are you saying that my current liability account that I am using, called "Loans to Corp" needs to actually be put in as an Asset? That makes more sense, obviously...the personal QB is a very old one and like I said, I just have been copying what was done before. Is there any reason loans out to other entities would be put in as liabilities? It does seem to me to be an Asset...

Level 12

Re: What offset account to use?


@Psrbusiness wrote:

One more thing. I see where you said the "loan to the company is a Current Asset"...um, I'm only copying what folks before me did until I learn to do things correctly...are you saying that my current liability account that I am using, called "Loans to Corp" needs to actually be put in as an Asset? That makes more sense, obviously...the personal QB is a very old one and like I said, I just have been copying what was done before. Is there any reason loans out to other entities would be put in as liabilities? It does seem to me to be an Asset...


IN the corporate company it is a liability. In the personal books it should be an asset. Any money the corporation borrows from any source is a liability - even corporate credit card is a liability. The owner of the debt instrument, usually a bank but in this case - "P" the owner, he holds an asset. Said asset might be pledged as collateral and since it is a HELOC it certainly is. Corporation has an obligation to pay P, not the bank even if funds are directly paid from corporate account to the HELOC.

 

In the personal books you have two "loans" to deal with. One is "Loans to corporation", which should be an asset and the other, if you were to track it, would be a liability - the HELOC, although you actually do not need to track it but pick upu the interest paid at tax time.

 

 

 

Highlighted
Level 12

Re: What offset account to use?

"I had my "Loans from P" account separated from it's "offset" account ("Due from Owner") that kept up with personal bills that had been paid by the Corporation...so, lessening the total loan amount. That was ONE issue."

 

It is bad enough, but not criminal, when a owner of a passthrough (sole proprietor or LLC) uses company funds to pay their bills but a C corp should never do so unless it is a tax deductible item still in name of individual. An example would be a company car lease where the owner's credit score is better than the corporation (or corp is too new to have a credit rating), then it is technically a personal bill paid by the corp.  Otherwise no personal transactions should hit corporate books.

 

In corporate books the draft of money from the MM account is a credit to that account (think: c=check, d=deposit), reducing the loan from owner liability.  In personal books the Loan to Corp (asset) is reduced by a credit while its offset is to debit the HELOC. Hence you would need the HELOC in the personal books to do it right 

 

"a transfer from the HELOC to the "Loans to Corp" liability account." these are backwards. as the loan to corp is a personal asset and the HELOC is a personal liablity. If you were to run a personal balance sheet as it is set up the HELOC would be right alongside the value of the house - increasing its value, loans against property, HELOC or first mortgage reduce the current value of the property - just like car loans.  A car is an asset of certain value but that may have a loan balance greater than today's market price

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