Loan account

[DonnaA]

I need help please setting up a loan account. My business PPS is still in its beginner stages, therefore my partner & I are making payments from our personal accounts. I need to record these payments to a loan account but as these do not reflect on the bank statement, I am not sure how to capture these invoices that we have paid. I will need to create 3 loan accounts in total for the 3 partners.
Thank you in advance!
Regards,
Donna

[Moriarty]

Where on the balance sheet that you create the loan accounts will depend on when you expect the business to repay the loans, if the expectation is repayment within 12 months then create three loan accounts in current liabilities:
Loan a/c: Partner 1
Loan a/c: Partner 2
Loan a.c: Partner 3

Then post journal entries for the expenses/assets purchased by each partner:
Dr expense/asset a/c Rxxxx.xx
Cr Loan a/c Partner ? Rxxxx.xx
Being supplier invoice no. yyyy for expense/asset paid by Partner ?

If the expectation is that repayment will be later than 12 months then create the loan accounts in non-current liabilities and post the same journal entries.

It would be prudent to have a partnership agreement and for the three partners to fund the partnership/business bank account from their loan accounts and for the business to pay the invoices in future.

[DonnaA]

Hi there,
Thank you for your help. All partnership & shareholder agreements are in place, thank you.

I have processed the invoices as suggested - DR the expense account, and CR the new loan account. But I now am confused as the VAT is reflected as output tax. Purchases should have input tax?
Or maybe I should not be processing VAT because the accounts are being paid by the loan.
Also, when I view my general ledger by entry type of the loan account, there is no VAT in the tax column. This ledger figure reflects total excluding VAT as the total amount 'repayable' to the partner. But the partners are paying the invoices + vat, so surely when I do the repayment, do I have to remember to add VAT. This will then put this loan account into a debit...

I hope you can understand my query! This website has been so helpful to me, as it is my first time doing the bookkeeping for a company with inventory items etc.

[Moriarty]

I am confused, you said that the business "is in its beginner stages", is the business registered for vat?

[DonnaA]

It is a unique situation... but basically, yes it is already registered for VAT.

[Moriarty]

What is the entry type for the transaction against the loan account?

[DonnaA]

By entry type, you mean what journal/cash book i used? In pastel xpress version 14, I used the general journal as follows:

eg. Period 11; 24/01/2017; expense account 3050/000; ref. BF240117; description BRIDAL FAIR ADVERTISING; tax 01; inclusive amount R50.00; DR; contra account 5400/002 loan account

[Moriarty]

I don't use Pastel but if your vat is setup correctly then that journal should result in this entry:
Dr 3050/000 Advertising (or whatever the account is called) R43.86
Dr Vat control account R6.14
Cr 5400/002 Loan account R50.00

Which, if I understand correctly, is exactly what you want.

[Neville Bailey]

If I may chip in here...

When processing a General Journal in Pastel, where VAT is involved, always start with the Balance Sheet account leg first, and use the Contra account column for the Income Statement account.

Using the above example, first credit the loan account with R50 in the inclusive column, using the VAT code 01, and then capture the 3050/000 expense code in the Contra Account column, on the same line. The VAT will then reflect as Input tax.

[Moriarty]

Thanks Neville, I had just found your detailed posts on the below thread but I think Donna requires the entry to debit the vat control account ie input vat.

http://www.theforumsa.co.za/forums/showthread.php/8539-Pastel-Accounting-Tip-Journal-Contras

[Neville Bailey]

Thanks Neville, I had just found your detailed posts on the below thread but I think Donna requires the entry to debit the vat control account ie input vat.

The VAT code 01 will automatically debit the VAT Control account (Input Tax).

I've just corrected my typo in my previous post!