Booking a Secured Credit Account

Pop_BookKeeper001

Hi all!

Not sure if I titled that right but having an issue properly booking all of the transactions involved in a Secured Credit Line account. Secured being defined as having to give the bank $45K Cash as collateral to have a $45K Revolving Credit Line. Once the company shows better credit standing and history, the cash is returned after 9-12 mos of payment history.

So the first transaction was to Debit Cash for $45K and at first, I thought it would be a Credit Balance to a new Credit Card/Credit Payable account but that doesn't seem to be right.

I'm now thinking the $45K should perhaps be an Accrued Asset Acct to match the Devit from Cash and there should be a Contra Asset. Not sure to be honest because the Credit Line is used pretty much as a Credit Card with periodic usage, EOM interest charge, and a balance due that is either paid off fully or partially paid with a rollover balance into the next month.

I don't know how confusing this sounds but any help would be appreciated.

Pop_BookKeeper001

And on the same token, how would payments be booked?

Since my Wave account is linked to the company's bank account, payments are automatically pulled in. Payment/Deduction from the Checking acct is automatically pulled in as an Uncategorized Expense while the offset is currently coming in as an Uncategorized Income to a Credit Card line. And that's all wrong.

AlexL

Hi @Pop_BookKeeper001 . For full transparency here, we're not accountants and although I can do my best to advise on how to account for this, my advice may not be that of a CPA who knows the best way to deal with this. I would recommend reaching out to an accountant/CPA who can properly advise or double check this advice.

With that being said, you'll want to create two liability accounts in your Chart of Accounts. The first should be under "Credit Cards" (for your credit line) and the second should be under "Other Short-Term Liability". You will want to create a Journal Transaction that debits your asset account (bank account) for 45k, and credits your newly created Short-Term Liability account. This should show the money moving out of your business. When you receive the money back 9-12 months later, you can switch the debits and credits so that it's returning the money to your bank account.

Pop_BookKeeper001

@alexlewiszarkos said:
Hi @Pop_BookKeeper001 . For full transparency here, we're not accountants and although I can do my best to advise on how to account for this, my advice may not be that of a CPA who knows the best way to deal with this. I would recommend reaching out to an accountant/CPA who can properly advise or double check this advice.

With that being said, you'll want to create two liability accounts in your Chart of Accounts. The first should be under "Credit Cards" (for your credit line) and the second should be under "Other Short-Term Liability". You will want to create a Journal Transaction that debits your asset account (bank account) for 45k, and credits your newly created Short-Term Liability account. This should show the money moving out of your business. When you receive the money back 9-12 months later, you can switch the debits and credits so that it's returning the money to your bank account.

Thank you Alex! Yeah it would be great to have a CPA but hard to find one during tax season that won't charge you an exorbitant amount of money for just one question/transaction. But once I have everything reconciled in Wave, I'll be taking it to a tax accountant for final review and submission for business taxes.

And so what do you think about the incoming transactions? They're currently coming in as Incomes towards the Credit Line so that the way I had it before, the credit line was -$45K and an Expense reduces that negative balance while a pay/Income brings it back whole to the (negative) -$45K balance. That's the way Wave is automatically pulling them in right now.

Mikeg

Pop_BookKeeper001,
Entry for cash going to bank for collateral.
(Short term asset) Debit Bank Collateral 45k
(Cash acct) Credit Business Checking 45K
Money comes in from credit line (whatever it is)
Debit Cash 45k
Credit Line of Credit 45K
Receiving Collateral back
Debit cash 45k
Credit Collateral 45k
If the bank decides to keep some of your collateral because of non-payment.
Debit - Line of Credit
Credit - Short term asset - Collateral

If your looking for a CPA, I work remotely with clients coast to coast.

Mike G, CPA
www.mgfinancial.net

Pop_BookKeeper001

Thank you Mikeg