I'm setting up my Wave act now. So, how do I account for a loan that was issued a couple yrs back?
Ginja
Member Posts: 5
I am new to Wave, so setting everything up now. I am entering all transactions from 2019 onward, so Jan. 1, 2019 is where my accounting in Wave will begin. I received a loan in 2017 for 25,000€ for farm machinery and have been making monthly payments. I paid the loan off early, in 2020. There was a fee of 300€ charged for paying the loan off early.
1) How do I set this loan up?
2) How do I register the monthly payments?
3) How do I register the interest?
4) How do I register the 300€ early payment fee?
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@Ginja,
Since you are starting in 2019 you will need to create a journal entry to record your opening balances. Go to Accounting/Transactions/ More - add journal transaction. So for example a debit to cash, equipment and credits to outstanding loans. Your offsetting account is owner equity. You would need to determine the balance of each item that belongs on the balance sheet as of 1/1/19. That would take of item 1. From there.
2) How do I register the monthly payments? Split the payment between interest expense and principle payments
3) How do I register the interest? see above
4) How do I register the 300€ early payment fee? code to bank charges.
An example. I've had my business for a few years but now want to keep track of things in Wave. I look back to Jan 1 st 2019 and had cash of 12000, computers of 8000, accumulated depreciation (prior write off of assets) 4000, credit card debt of 500 and a small installment loan 1500.
Debit cash 12000
Debit Equip 8000
Credit Acc Depr (4000)
Credit Credit Card (500)
Credit Loan Pay (1500)
Credit Owner Equity (14000)
@Mikeg Thank you for the detailed response! I'm getting much closer to understanding. Couple questions:
1) What do you mean that my offsetting account is owner equity? Does that mean I should credit Owner Equity for the amount of the loan + amount of machinery/equipment (as of 1/1/19 and assuming I have no other starting balances to enter in this journal transaction)?
2) When I debit machinery/equipment (asset), what figure should I use? Is it the loan amount as of 1/1/19 or the worth of the machinery/equipment after depreciation on 1/1/19 or something else?
Ginja,
1. What I mean is that the journal entry needs to balance. Once all items that belong to the business are on the balance sheet, there will be a net amount left. That net amount left is owner equity. From my example above, you can see that both assets and liabilities were posted to the business. The assets exceeded liabilities, hence, the credit to owner equity. If the liabilities exceed the assets then, it is a debit to owners equity. Which makes sense in that you are contributing more liabilities than assets.
2. I would post the gross cost of the machinery (debit) and the accumulated depreciation up through 1/1/19 as a credit. That way the cost should agree back to some sort of original purchase invoice and the accumulated should agree back to amounts taken on prior tax returns. The loan should be posted with the principal balance as of 1/1/19.