USA Promissory Note JE

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Please pardon my outdated knowledge of accounting. It's been nearly 15 years since I've prepared journal entries. I've started a business and am trying to handle some of the standard journal entries on my own, rather than pay our accountant to do everything (yes, he does review things on a monthly basis but I'm doing the bookkeeping on a daily basis).

Our business will be taking an short-term loan (hoping to repay within 3 months) from a lender to serve as a cash reserve in case we experience more delays before our grand opening. We are hoping we won't have to tap these funds, but obviously want it readily accessible in case we do need it.

My question is how to handle the journal entries to account for receipt of the loan, if/when we tap into it to pay for general operating expenses (rent, utilities, etc), and when we repay the loan.

Also, are there any monthly closing entries I need to perform?

Thanks so much for your input and expertise.
 

Triest123

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Thanks so much for your input and expertise.[/QUOTE]

=> Dr Cash Cr Loan from Lender
(To record the cash receipts from the lender)

Dr Operating expenses Cr Cash
(To record the cash paid for operating expenses

Dr Loan from Lender Cr Cash
(To record the repayment of the loan from lender)
 
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Triest123,

Thanks so much for the quick response. I didn't think it would be this simple, but am glad it is. Makes my life so much easier.

Cheers,

Goobers
 

Counterofbeans

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Thanks so much for your input and expertise.
=> Dr Cash Cr Loan from Lender
(To record the cash receipts from the lender)

Dr Operating expenses Cr Cash
(To record the cash paid for operating expenses

Dr Loan from Lender Cr Cash
(To record the repayment of the loan from lender)[/QUOTE]

The loan is interest free?
 

Samir

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The loan is interest free?
And this is a good point. Modified for interest they would probably look like this:

Dr Cash
Cr Loan from Lender
(To record the cash receipts from the lender)

Dr Operating expenses
Cr Cash
(To record the cash paid for operating expenses

Dr Loan from Lender (for principle portion of loan)
Dr Interest Expense (for interest paid)
Cr Cash
(To record the repayment of the loan from lender)

Ideally, I'll usually set this type of money off in its own account to keep things a little neater:

Dr Cash Reserve Bank Account
Cr Loan from Lender
(To record the opening of new bank account loan proceeds)

Dr Main Bank Account or Cash
Cr Cash Reserve Bank Account
(To record transfers to main checking account for expenses)

Dr Loan from Lender (for principle portion of loan)
Dr Interest Expense (for interest paid)
Cr Bank account that made payment
(To record the repayment of the loan from lender)
 

bklynboy

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Seem to recall imputed interest is only required for maturities over 1 year? Post doesn't state maturity other than planning to repay in 3 months.
 
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I've reached out to our accountant to see what his input is, but it seems the IRS doesn't really allow interest-free loans and can still tax the lender an appropriate AFR rate come tax time. http://apps.irs.gov/app/picklist/list/federalRates.html

Based on my understanding, it looks like I would have to pay our lender, at the very least, a 0.48% AFR annual rate for the short-term loan.
 

Samir

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I've reached out to our accountant to see what his input is, but it seems the IRS doesn't really allow interest-free loans and can still tax the lender an appropriate AFR rate come tax time. http://apps.irs.gov/app/picklist/list/federalRates.html

Based on my understanding, it looks like I would have to pay our lender, at the very least, a 0.48% AFR annual rate for the short-term loan.
Yes, that's why the question of interest or no interest was so...interesting..:lol:

One way you may be able to get around this issue is to take the loan personally and then inject that capital into the business. But I'm sure the imputed interest rule would still apply.
 
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Hello! I'm from Myanmar and work as a management accountant.
Could you please explain whether the promissory notes such as convertible loan notes can be assumed as debt when calculating gearing ratio? The problem was it included some equity portion that will able to convert into shares in the future.
Thanks and much appreciate for all your discussion.
 

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