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Setting up a loan made to a family member

LorenzoLorenzo Member Posts: 19

Hi,

I'm trying to properly account for a loan that was made to a family member.
What is the proper way to set this up?

I see under Other Assets there is an option 'Notes & Loans Receivable', but not sure how to apply it properly. My case is that I gave my car to a family member who will pay me back over time, let's say at a value of $20k. So there is no real life account where this $20k came from, at least not far back enough where I can to find the exact transaction (may be from a closed account). And monthly, they may pay me back say, $500.

Any advice would be appreciated.

Thanks

Lorenzo

in Accounting Technical Support

Comments

  • LorenzoLorenzo Member Posts: 19

    Bumping this up. does anyone have any thoughts? I'm assuming whether for business or personal this should be the same no?

  • AlexiaAlexia Member Posts: 3,314 ✭✭✭✭

    Hi, @Lorenzo!

    I was talking to another Waver about handling loans just last Friday. Check out this post.

    Let me know if that helps out!

  • LorenzoLorenzo Member Posts: 19

    Yes I actually saw that one while searching the forum.

    Thanks,
    My only issue is that the bank account from which the funds were taken to fund the loan is gone. So I would create the asset in the current bank account for which I'm using. But I wasn't sure how to do that without throwing off the real balance of the account. My thought is that I will create another account 'Imaginary Loan Adjustment' or something like that, and create an offsetting transaction for the loan amount, using the Imaginary Loan Adjustment as the category

    By doing that, the bank account balance would be correct, and the asset would still exist.

    Does that seem like a correct approach?

    edited June 6, 2018
  • LorenzoLorenzo Member Posts: 19

    I also ran into another issue, so trying to better understand if I'm missing something.

    It seems like some of my accounts aren't showing up under my Income Report.
    Perhaps I'm doing something wrong.

    I added an Account by going through the category 'Notes & Loans Receivable', which shows up under my assets in my Chart of Accounts.
    I added an expense for my loan amount and then added income transactions as they came in and put them under this new Category.

    However, when i go to my Income Report, I don't see anything under this category....

    Are there certain categories that won't show up on the reports?

  • AlexiaAlexia Member Posts: 3,314 ✭✭✭✭

    Hi @Lorenzo.

    For you first question, I wouldn't recommend making an account called "imaginary", that might give a serious scare to your accountant, but you have the right idea. You could just use Owner's Investments/Drawings as the payment account on that transaction.

    As for receiving back money for that loan, it won't feature on your income because it isn't income. That money is already yours, it's just not in your pocket right now. All it would do is move money back from your loan account to your bank account. Do you charge interest? I can show you how to handle that, if you do. Interest would count as income.

  • LorenzoLorenzo Member Posts: 19

    Oh duh, that's true. Ok I was just looking for a way to track the payments. But I found them using the Account transactions report. No this loan won't have interest. However I understood from the other post that you responded to, how it is done. Thanks

  • AlexiaAlexia Member Posts: 3,314 ✭✭✭✭

    Not a problem! happy to help out, @Lorenzo.

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