Collateral on Balance Sheet

[amdacra]

I have been researching this for about a month and was hoping someone could provide some insite. If a business owner puts their personal home that they own up as collateral for a business loan, would the collateral go on the balance sheet? I was thinking that the home would be added (credit) to the owner's capital since the home is owned by the budsiness owners, but I can't figure out what the debit side of the entry would be. I wouldn't think it would be a fixed asset since the home does not belong to the business.

 

[ArcSine]

No, when some party other than the corporation itself (its owners or shareholders, e.g.) co-sign on corporate debt or put up personal assets to backstop the debt, this isn't something that is recorded onto the corporate balance sheet. So you would NOT show the house in the asset section of the bal sheet, nor would the equity section reflect the collateralization.

The collateralization of the corp debt with the house is, of course, a very important item, and should be carefully noted in the corporate records. It's just not something that appears on the financials themselves (except possibly in the footnotes, if the reader should be made aware of the arrangement).