Accounting Question - Loans

[Smiler.]

How should the example below be treated?

12K Loan amount from bank, received into account in October.
Repayment 275/month plus interest calculated quarterly.
Financial year is APR to MAR.


On the Balance Sheet, what amount goes in:

1. the Current Liabilities box
2. the Due after greater than 1 Year box


Is (1) a 12-month figure or the amount of repayments to year end?
How is interest handled?
Does it make a difference if the loan is for a Capital purchase (equipment) or to consolidate other finance (like reducing overdraft)?

[Eric Mc]

Smiler. said:

How should the example below be treated?

12K Loan amount from bank, received into account in October.
Repayment 275/month plus interest calculated quarterly.
Financial year is APR to MAR.


On the Balance Sheet, what amount goes in:

1. the Current Liabilities box
2. the Due after greater than 1 Year box


Is (1) a 12-month figure or the amount of repayments to year end?
How is interest handled?
Does it make a difference if the loan is for a Capital purchase (equipment) or to consolidate other finance (like reducing overdraft)?

Debit the "Bank Account" in the balance sheet with loan amount received
Credit the "Bank Loan Account" in the balance sheet with loan amount received

Debit "Bank Loan Account" with each amount repaid every month
Credit "Bank Account" with loan amount repaid every month

Each time you receive a notification from the bank for the quarterly interest charge -

Debit the "Loan interest" expense heading heading in the profit and loss account with the interest amount notified
Credit the "Loan Account"! heading in the balance sheet with the interest amount notified

If the company's financial year end does not coincide with one of the quarterly interest billing periods, you can estimate and accrue the expected loan interest amount for the period from the previous quarterly interest charge up to the financial year end date using the following journal adjustment -

Debit loan interest charge in the profit and loss account with the accrued interest amount
Credit "Accruals" in the balance sheet

When you move the accounting into the next financial year , you reverse the above accrual i.e.

Credit loan interest charge in the profit and loss account
Debit "Accruals" in the balance sheet.

In the statutory accounts, there may be a requirement to split the outstanding loan account balance into periods greater than and less than one/five years. Also, depending on the nature of the loan agreement, there may be a requirement to put a note in the accounts informing any readers of the accounts of future commitments in respect of this loan.
That is something you can leave to your accountant to assess.

[Alpinestars]

1. £3,300. Ie, what’s due within 12 months of the balance sheet date (without interest).
2. The balance.

Disclose the interest rate in the financial statements.

It doesn’t matter what the loan is used for.

[Smiler.]

Thanks gents