I have a line of credit that paid off a credit card. I setup the line of credit under liabilities as signature loan so the payment from my bank account can be applied to it.
The payment from the line of credit is showing in the credit card register. The line of credit account doesn’t show the payment to the credit card, it just shows the starting balance and monthly payments from the bank account. It is sitting in the suspense account because I do not know how to apply it.
Thank you for the link to an excellent resource!
How did you record the payment? Show the Edit screen of whatever transaction you used. Normally, you would use a receipt, selecting the credit card (which I assume you set up as a bank account) as the account into which money was received. The receipt would be posted to the line of credit liability account. This would have the effect of debiting the credit card (reducing its balance) and crediting the line of credit (increasing the amount owed).
The credit card statement was downloaded and the payment was in included in the download, credit card is setup under bank as money flows back and forth, credits and debits. The payoff to this card came from the line of credit (loan). I created the loan as a liability as it just has payments going to it, and not debit and credits flowing like a credit card/bank. The statement from the loan has an initial funded amount and payments but it does not show a debit or payment from it other than a reference of how the funds were disbursed, it only shows the payments and interest.
I tried doing posting it as an interaccount transfer. That was one of my problems since it is not an interaccount transfer so I deleted that entry. Then I tried receiving in the payment to the credit card and from the loan (account) but that didnt work as it changed the balance on the loan by that amount and it shouldn’t have. I suspect this is going to be a journal entry situation as the previous person suggested.
Well, you cannot enter a receipt to pay off the credit card as a journal entry. Manager will not let you post journal entries to bank or cash accounts. You can only move money to and from those with receipts and payments.
Thinking more about this, your initial setup of the line of credit is the problem. Let’s assume the line of credit is for $50,000. The day you open the line of credit, you do not owe the bank $50,000. That is only an authorization to borrow up to $50,000. So while the line of credit should be set up as a liability account, its starting balance should be zero. And there is no transaction associated with opening the line of credit, because the bank did not give you any money.
Only when you draw upon the line of credit do you start owing money. So when you use the line of credit to pay off the credit card, you still enter a receipt to the credit card, just as I told you before. That will credit the line of credit with the amount of the payment. Only then do you start having to make payments against the line of credit loan balance.
Now, that’s how a line of credit works. But you mentioned the line of credit account (statement?) showing the starting balance and monthly payments from the bank account. The situation was not clear as to whether you were referring to something in Manager or to information you get from whoever issued the line of credit. Have you been drawing on the line of credit and making payments in accordance with its terms? If some other situation applies, such as having to make payments regardless of whether you use the line of credit, then it isn’t really a line of credit, but a loan. And in that case, you should have received a disbursement when you opened it. (You did mention disbursements.) So please clarify that.
The line of credit was for 26,000 and it was an immediate balance because the entire loan amount paid off the debt of three credit cards. So all three cards received a payoff and the entire line of credit was immediately expended. It was a debt consolidation loan. The loan statement shows the 26,000 and the monthly payments and interest applied to reduce the $26,000 balance. There is a reference on the statement showing the disbursement of the monies but not as part of the descending balance. Its just a reference.
This is very straightforward. You took out a loan. The proceeds of the loan were immediately used to pay off the credit cards. The mechanism for initiating the loan may have been a line of credit, but for accounting purposes that is irrelevant.
So you should have entered three receipts, one for each of the credit cards, all posted to the loan liability account. Cumulatively, the three debits to the credit cards should equal the total credits to the loan account. That loan account should not have a starting balance because it is not being carried over from a prior accounting system.
Now, your loan payments should be posted to the loan liability account.
This illustrates why it is important to share all details of a situation from the start when asking questions.
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Thank you Tut for showing me the right path and sharing your knowledge with others including me.