USA Pure loans business (agency) - Revenue recognition, journal entries

Mar 28, 2016
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United States

I have some questions on bookkeeping/accounting for a business focused entirely on providing loans.

The business takes in loans (eg. $500,000) from investor X and immediately loans it out ($500,000) to investor Y on a back-to-back basis for a 1 year tenure. The business is effectively acts as an agent.

Thereafter, the business receives interest payments from investor Y of $1,000 on a quarterly basis, keeping $200 for itself and paying investor X immediately the remaining $200. This happens for the 4 quarters and the business earns $800 ($200 x 4 quarters) in the process.

What are the journal entries in this case for each step? Do kindly advise if the terms used are appropriate (eg. interest expense)

My guess is,

Receives cash to be loaned out
Dr Cash $500,000
Cr Loan Payable $500,000

Loans out cash
Dr Loan Receivable $500,000
Cr Cash $500,000

At each quarter, accounting for interest payment
Dr Interest receivable $1,000
Cr Gross interest income $1,000

Dr Interest expense $800
Cr Interest payable $800

When actual interest received
Dr Cash $1,000
Cr Interest receivable $1,000

Dr Interest payable $800
Cr Cash $800

Therefore, revenue will be $200?

Thanks so much!

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