CC member loan

[CLIVE-TRIANGLE]

1. Supplier invoices paid by member.
It is always helpful to work out what really happened and then select the various mechanisms offered by the accounting package, that best gives effect to the transactions. You MUST know the desired outcome before you do the entries, then it becomes easy.

Take your case: Firstly, the cc incurred expenses and vat input credits. Therefore you need to DEBIT expenses, DEBIT vat liability and CREDIT the vendor with the sum of the two.
The mechanism for this in Quickbooks is a BILL (Amricanese for a supplier invoice.)
The result of a Bill is a DEBIT to expenses (or wherever allocated) and an amount owing to a Supplier (Creditor), which is the credit.

In this case a member has paid the bills. So the amount is no longer owed to the supplier, but it is owed to the member. That means the supplier must now be DEBITED and the member CREDITED.

One of the methods is to use a pseudo bank account as Dave suggested, with the balance of the account transferred to the members loan account at the end of a period. I frequently do this, but I actually don’t like this method because it records cheque payments in the books of account that never happened. It’s fine and well when I am the Accounting Officer or Auditor, but it is not always easy for a bookkeeper to explain to someone charged with oversight why they did it this way.

Back to reality: The member needs a CREDIT and the supplier needs a DEBIT. I suggest a journal entry to achieve this result.

2. Your rent to purchase dilemma.
If the substance of the agreement (not the form), indicates that it is a finance lease, then you need to do asset / liability recognition at commencement. Compare your agreement to IAS 17

Here is a link to the full IAS:
http://www.iasplus.com/standard/ias17.htm

To give effect to the entry in your case depends on the terms of the agreement because at the outset one needs to know how this thing must be classified.

3. Members remuneration.
At R30,000 per annum there is no PAYE. But I assume the members have other taxable income and if R30,000 is added to it, it will increase their personal tax liability.

If no paye is deducted you would still be required to issue an IT3 which does require registration.
There are only 3 options really, repayment of loan (i) account, (ii) remuneration or (iii) dividends. Only loan repayment has no admin overhead.

[CLIVE-TRIANGLE]

I therefore assume it's not possible to credit the loan account via the bill payment interface, it has to be done manually in the journal? Do I still go through the bill payment interface and THEN modify the journal, or how would I do it? Sorry, I know I'm asking very Quickbooks-specific questions, but my accounting knowledge is definitely not on par.

Actually there is, provided the member paid the bill on or about the same date as bill.
You begin with the bill as normal, but at the top where you enter the total of the bill, make it Zero.
In the detail area, select Accounts (not items) and allocate the amount of the expense to the expense account and VAT.
The bill at this point is out of balance.
On the next line allocate the total amount of the bill (including VAT) to the Member's loan account, as a negative.
The bill at this point balances.
The result will be:
Expense - debit
Vat liability - debit
Accounts payable - nothing
Members lac - credit

[aktorsyl]

I think there may be some confusion regarding the nature of the rent-to-own / lease agreement we have with our supplier.

The equipment we're buying from them is already in our depot, and we use it on a daily basis. But legally, they still own it. They are selling it to us at a value of X rand. We pay them Y amount per month (the exact amount varies from month to month depending on how much we can afford to pay them on that given month) until the full amount they have received from us from these monthly payments equals X. At that point, the equipment becomes ours. There is no interest rate at play here, and no deposit was payable.

[BusNavig8]

In my humble opinion they should be stated as members loans payable and loans receivable using sub accounts (i.e a debit loan account and a credit loan account). They are definately long term liabilities, and they should not touch the equity account as righly said this is for accumulated profits and losses. The way I indicate what the actual loans are in respect of are by using the "Memo" facility in QBooks as it is not so much a tax issue for me but a measurement of how the CC is performing and who funds are being utilised and for what they are being utilised and how often. So I use it more for a tool than anything else.

[BusNavig8]

Why do you have to raise a "BILL". I only raise the "Bill" for accruals or when it falls outside the vat period. Please explain?

[CLIVE-TRIANGLE]

Why do you have to raise a "BILL". I only raise the "Bill" for accruals or when it falls outside the vat period. Please explain?

You know the old saying: "the truth shall set you free"
It's the same in accounting. You received a "bill" for a legit expense. So process the bill.
Your expenses will be correct.
VAT will be correct.
Creditors will be correct.
There is no reason not process it.

Also, VAT reports will properly reflect the vendor, tax invoice number, date etc.

[CLIVE-TRIANGLE]

In my humble opinion they should be stated as members loans payable and loans receivable using sub accounts (i.e a debit loan account and a credit loan account). They are definately long term liabilities, and they should not touch the equity account as righly said this is for accumulated profits and losses. The way I indicate what the actual loans are in respect of are by using the "Memo" facility in QBooks as it is not so much a tax issue for me but a measurement of how the CC is performing and who funds are being utilised and for what they are being utilised and how often. So I use it more for a tool than anything else.

100% agree.
In cases where the company is repaying a substantial shareholders loan, by paying his insurance, RA, mortgage etc, I make each of them a sub account. Its funny how easy some people can forget how much private expenses are being paid and bemoan the absence of cash flow

[Dave A]

I think there may be some confusion regarding the nature of the rent-to-own / lease agreement we have with our supplier.

The equipment we're buying from them is already in our depot, and we use it on a daily basis. But legally, they still own it. They are selling it to us at a value of X rand. We pay them Y amount per month (the exact amount varies from month to month depending on how much we can afford to pay them on that given month) until the full amount they have received from us from these monthly payments equals X. At that point, the equipment becomes ours. There is no interest rate at play here, and no deposit was payable.

I've been getting some advice on this. The recommendation I've received is to capitalise the asset and show the total liability now, even though ownership is only transferable at the end of the contract.

First, it seems even hp agreements are captured this way nowadays (ties up with Clive-Triangle's post 21).
Second, you can start depreciating the asset straight away.

At issue is showing total liabilities in the financials, and the total value owed under any lease is supposed to be shown. It was mentioned that there's a possible revision to IFRIS for SME's coming on this, but for now it seems off-balance sheet finance is a no no.

[aktorsyl]

Thanks guys, that answers all of it for now. I appreciate all the advice!

[antonnkramer]

Hi. Is this right. If you never pay out through salaries so you don't pay PAYE over, you can leave the debit loan for as long as you like, as long as you charge interest on it.This way, if entity is cash tight to pay SARS, u just pay into the loan account and charge interest? When entity has cash again, it can declare a dividend and pay dividend tax over. How will Sars treat this debit loan if left there for say 2 years? Will it want PAYE on the amounts paid at tax year end?