USA Due To/From or Long Term Liability?

[maliachick]

Good afternoon. I think I've done extensive research and can not find anything that clarifies a difference between Due To/From or Long Term Liability (Notes Payable). It seems like Due To/From are ONLY for subsidiaries and for basics, Long Term Liability/Notes Payble is just a loan, longer than a year.
Scenario: Business-Franchise (restaurant) has invested into two restaurants that have been opened under the franchise agreement. All three, Franchise and other two restaurants that it is invested into, have their own FEIN, separate entities. The Franchise has Other Asset set up for the money has been lending to the other two restaurants, which have a liability acount set-up for that tracking.
Is this technically a Due To/From or should it just be set-up as a regular Notes Payable?
Question 2: What is the "agreement" that should be drafted as a result of the long term liability, interest rates, agreement format, etc? Any and all important details would be greately appreciated. I look back at my accounting books and my reading seems to be general in this area, nothing that is specific to this scenario.

Thank you

 

[kirby]

If you review the Wells Fargo balance sheet you will see that they use the line item "Cash and Due From Banks." So "due from" is not ONLY used for subsidiaries. It depends on industry practices.
Q1. Set up a note payable if there is -indeed - a signed note. Else just use Due to/ due from.
Just lay out the arrangement of the financing. Specify who is the borrower, the lender, the interest rate, the term of the arrangement, how is it paid back, when, is there collateral, are there special terms the borrower must meet at inception and over the term of the agreement, can there be a default, if so what happens. Figure out this stuff and put it into writing and have the proper representatives sign it and off you go. Then follow it closely if you want someone else (IRS) to believe it.

You also better make sure this agreement does not violate some other agreement. For example, if one of your parties has a bank loan and the bank has a loan covenant that you cannot lend or borrow with someone else.

And - don't forget to eliminate this arrangement if the entities involved are in a consolidating group.