Loan Accounts

1

Please can you give me advice on setting up a loan account. I’ve recently opened a small business, and used some donations from family to help with set up costs. They still occasionally help with additional set up costs I’m still experiencing when they can.

The agreement made was to set up a loan account, and deduct the purchases that they’ve made from my shop from their loan account (what I owe them).

However, how is the best way to go about this?

I’ve tried setting up a Loan Account in Cash on Hand, but I realised that didn’t make sense. However, I am using Sales Invoices to log my sales each day - so in order for it to balance, I do need to receive their purchases into some sort of account - how would be best to do this?

I also tried actually creating a Loan Account for them under Special Accounts, which falls under Long-Term Liabilities - but I can’t receive their purchases from my store into it in order to make my Sales Invoices balance (as explained above).

I’m struggling to figure out what the best route is to take to offset the amount I owe to them, with what they owe me

I hope this makes sense!

2

Some of your terminology is confusing.

Your first question is easy to answer. A loan account is just a liability account. Set one up according to this Guide: https://www.manager.io/guides/9812. You can post multiple loans to one account. But for individual loan visibility, special accounts will let you separate what is owed to specific lenders. See https://www.manager.io/guides/10555.

This is the first place it is not clear what you are doing. You could be referring to things your family members have purchased on behalf of the business to help you get established. Or you could mean these family members are obtaining goods from the store but, rather than paying for them, they have agreed to a reduction in the balance of what is owed to them. Is that correct? Please confirm the concept. All my following comments assume the second alternative.

This was a mistake. Cash on hand is a control account, under which cash accounts are reported. Cash accounts are for physical repositories of money—bills and coins. They have nothing to do with liabilities or obligations. Delete any transactions you tried to enter this way. When all are deleted, delete the cash accounts you set up to represent the loans.

Why? Sales invoices represent sales made on credit to defined customers who will pay later. I doubt you are making sales on credit from your store. And you certainly are not doing this with the family lenders. So you would normally just be using receipts to record sales.

You do not receive purchases in Manager. Receipts are where you record money coming into the business. They record direct cash sales or payments against sales invoices.

This may actually have been a nearly correct solution. You have two basic options for what I believe you are trying to accomplish:

  1. Set up ordinary liability accounts for each family member who loans money. These will show up on your balance sheet until the loans are discharged, when you can make them inactive.
  2. Or they could be special accounts under a control account. (It sounds like that is what you tried.)

Either way, when a family member takes something from your store, enter a receipt, listing everything they have taken. This will remove items from inventory and properly credit the Inventory - sales account for the sale. It will also be where you select legally required tax codes. (The authorities will not relieve you of the requirement to assess and remit taxes because the buyer happens to be an investor in your business.) Then, add another line item posted to the loan or special account, but make the unit price equal to the amount you are offsetting. Make that unit price negative. Since the line item amounts on receipts are normally credits, making this line negative will turn it into a debit, reducing the amount owed. If you offset the full amount of the receipt, including tax, the receipt will show a zero balance received. (You will, however, still need to select a cash or bank account to avoid sending the receipt to the Suspense account.)

This concept is illustrated in the final example in this Guide: https://www.manager.io/guides/10555. There, the example is a store credit card, but the concept is identical.

Now let’s return to the other alternative, where family members actually buy goods or equipment for the business. In that case, use expense claims. See https://www.manager.io/guides/6898.

And finally, if these family members are really investors and participants in the business, you can set them up as capital account members. That opens another complete discussion.

1 Like
3

To your first question: You are correct in your second assumption. My family helped me with set up costs for the store, and instead of me repaying them for this loan, they are able to purchase goods from my shop (which the value of will be deducted from the loan amount I owe them.)

I was initially using Receipts to record sales but was advised to use Sales Invoices because of another issue I was having. It was regarding logging my VAT and Zero Rated revenue.

*** This was my question:**
I log my sales as a New Receipt, however I receive revenue through card and cash. So I usually log my revenue from cash sales and then my revenue from speedpoint sales seperately, so as to balance my Bank Reconciliation.
In doing this, how would I separate the vat-able revenue? Here’s an example:
My total cash up is R4,000
the total received in cash is E1,200
and the balance is received by speedpoint: E2,800
the vatable revenue from this day is E3000 and the zero-rated is E1,000
usually I would log the cash revenue (E1,200) and speedpoint revenue (E2,800) separately - but now that I am VAT registered, how would I log it so that the applicable vat revenue can offset my vat expenses?

*** And this was the advice I followed:**
I would create a single sales invoice to a customer account called POS Customer that contains the following lines:

  1. 1000 @ 0% VAT
  2. 3000 @ 15% VAT
    Then I would create two receipts for that invoice one in cash and another in Speedpoint.

This probably seems like the best way to go about it, but how would I receive the payment to avoid it going into the suspense account? Since there is no actual transfer of money, what would be the best option?

4

Your question was already answered in the section of my response you quoted.

5

I’m referencing this - what would be the best option of how to receive it?

6

I like your special account option to allow you to break out amount due to each person.

Also create customer accounts and create an invoice billing their customer account when they receive goods etc.

Lastly, to clear the receivable from them and reduce the load, create a credit memo against their receivable with the line going to the special account/loan.

This will give you a clean audit trail separating the loans, the sales and offsetting of the loan against the receivable.

Hope that helps.

7

Thank you, the credit memo is helping me offset it against their special loan accounts, so that helps!

I’m still struggling to figure out into which account I should receive the ‘payment’ into.

Here’s an example of a Sales Invoice:
Sales (VAT): E2,922.18
Sales (Zero Rated): E417.55

Here’s how the payments were received:
Speedpoint: E1,656.63
Cash: E1,571
Family Loan: E112.85

When logging these payments in the Sales Invoice, it’s obviously easy to receive payment into the Bank Account and Cash Account. But where should the ‘payment’ for the Family Loan amount be received into?

8

You are referring to two different methods in these statements. @alasdair’s method does not involve using a receipt. So do not mix his comments with mine about using a receipt. His method also requires separately establishing these family members as customers. My receipt method does not.

You misunderstand what I said. I am suggesting recording the transaction with a receipt, not a sales invoice. That is an unnecessary step. In fact, using a sales invoice requires entering a credit note or a receipt to offset the sales invoice. Using my two-line receipt method requires only one transaction.

You asked “into which account I should receive the ‘payment.’” There are two accounts involved. The first is the cash or bank account selected in the Received in field. Since no money is actually changing hands, it does not matter what account you choose. But I recommend being consistent. Personally, I would choose a petty cash account so there was no possibility of confusion with bank statements.

The second is the account the line items are posted to. Inventory items will automatically be posted to Inventory on hand. The line for the special account you post to that special account.

9

Tut is correct, in summary what I was suggesting was:

  1. Issue an ‘Invoice’ for the amount of the sale
  2. Enter a receipt and apply against the invoice for the amount of the payment actually ‘received’
  3. Enter a credit note to apply whatever amount of the loan balance (enter special account on credit memo line) you wish to the invoice (select invoice to apply to in the credit memo header).

Essentially I was simply saying you can do everything you need using each transaction type cleanly for its intended purpose while maintain a good audit trail of ‘how’ the invoice was settled. Hope that helps clarify.

10

In your case you should deal with your family members (creditors) as customers of your store. You must pay off the debt through your sales (their purchases).

  1. Create a customer.

    01 - Customers
    01 - Customers1548×1562 109 KB

  2. Issue a receipt (for each loan) and make sure that the account Account receivable is selected.

    02 - Receipt
    02 - Receipt2922×1416 203 KB

    And another receipt from another member in your family (store customer):
    02 - Receipt 2
    02 - Receipt 22914×1420 203 KB

  3. Issue a sales invoice as normal.

    03 - Sales Invoice
    03 - Sales Invoice2240×1100 131 KB

    Note that the process status automatically becomes fully paid:
    04 - Sales Invoice
    04 - Sales Invoice1722×1508 165 KB

Note that here I have not made any purchases (it is assumed that you have previously made purchases in order to establish your store).

05- Summary
05- Summary4488×2000 375 KB

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11

Have you tried creating a separate account under Current Liabilities for your family’s loan? You can record the loan amount as a liability and then record the payments made to them as a decrease in that liability account. This way, you can balance your sales invoices and keep track of what you owe them.