Thanks for that. Tut did say Retained Earnings weren’t necessary for sole trader and I renamed Retained Earnings ‘Owners Equity’ (Retained Earnings is in grey under) but guessing you mean enter that starting balance under that personal a/c whatever we shall call it.
I shall hold off entering this figure until I am sure there are no other account starting balances as the figure could change? Eg an equipment loan a/c which I have set up under liabilities loan account (the accountant will figure out the interest portion at year end) should have an opening balance which I haven’t looked into yet. I just set the loan a/c up and allocated the loan payment to it & it has appeared as negative on the summary whereas all the other liabilities are positive… After reading one of Tut’s posts I think I get that it’s negative because I have no starting balance there to pay off so zero less a payment = negative.
Exactly, that’s half the problem with truncating accounts - you have mix usage in play.
As for the loan did it exist prior to the start date - if yes, then opening balance - If no, then current year transaction.
It shouldn’t be two difficult to take up - Equipment - 3600, Repayments - 48 x 100 = 4800
Debit - Asset - Equipment - 3600
Credit - Liability - Loan - 4800
Debit - Asset - Finance Interest -1200.
At year end the accountant will adjust the Finance Interest to suit
Loan (chattel mortgage) existed prior to start day 1 July.
Total amount financed $24,000. Total repayments $25,605.12 ($1066.88 x $24 months). Interest portion of each repayment is as per mortgage schedule.
So is this correct:
Debit - Asset - Equipment - Edgebander $26,500 (cost excl GST as per tax invoice in 2015)
Credit - Liability ‘Cehisa Edgebander loan’ start balance: 25,602.12 - 10,668.80 = 14,315.33 (total repayments - repayments already made to June 30)
But sorry I’m confused on the Debit - Asset - Finance Interest. I thought the Interest yet to be paid would be Liabilitiy.
I found the mortgage schedule, so each repayment could be split & allocated to debit Liability Cehisa loan & debit Expenses - Finance Interest paid?
But then what happens with the interest portion included in liability loan account start balance. Or each repayment have be debited to loan account and then journal entry year end to credit loan a/c & debit Finance Interest expense? But then if it is paid off by year end, the liability account should be zero. So what to debit/credit to claim the interest expense?
Thought I knew a bit about accounting but this BS stuff is getting a bit confusing!
First, if you had this edgebander when you started using Manager, you probably should have set it up as a fixed asset. See:
That Guide includes some discussion about loans, as well.
Interest paid on the loan is an expense. Principal payments are posted to the loan liability account. Both the principal and the interest portions of the loan payments are handled from Spend money in a cash account as separate line items. They are equivalent to debits, offsetting the credit against the cash account.
Depreciation on the fixed asset is also an expense. See this Guide:
The procedure is equivalent to debiting depreciation expense and crediting Fixed assets - depreciation (a contra asset account).
Perhaps, you should ask the accountant for the year end BS, because once you have that you can just duplicate it to create the starting balances - removes the current guess work.
That BS would contain that equipment and perhaps other equipment which the accountant may have capitalised (allocated to fixed assets and is depreciating) A copy of the depreciation schedule could also be useful if one exists - maybe part of the last tax return
[quote=“elouera, post:23, topic:7661”]
So is this correct:
Debit - Asset - Equipment - Edgebander $26,500
Credit - Liability ‘Cehisa Edgebander loan’ $14,315.33 [/quote]
In essence yes and (ignoring any unpaid interest) the balance (difference) would get added to Owners Equity, as that’s the proportion owned…
No, interest when paid is an expense which is a debit, therefore unpaid interest is an Asset.
Then the total monthly repayment gets allocated to the Loan and a proportion of the unpaid interest gets transferred to the Interest expense account with each repayment.
Spend Money (lets assume 24 x 500 repayments)
Debit Total Loan 500
Credit Unpaid Interest 100
Debit Interest Expense 100
If you use the Fixed Assets tab as noted above is optional. An alternative is just to create direct BS accounts under a Fixed Assets group heading
Thankyou. I will probably have to talk to the accountant as I have no end year balance sheet at all to work from. Prior accounts were just P&L figures from my Excel manual spreadsheet, inserted into personal income tax return and assets added to a depreciation schedule, with accountant doing any final adjustments. Adding fixed assets as Tut suggests might work in the long run but right now I just need to get a BAS lodged this week. You see there is a lot of workshop machinery and equipment that would need to be added so quite a bit of work which I guess should be done in due course. Only this one machine is on chattel mortgage, the rest are owned. So if I can quickly & easily sort this one out for the monthly repayments, all the other transactions for the quarter I am fine with.
So I think I have it worked out: (slow replies due to juggling child responsibilities with accounting responsibilties)
Debit BS - Asset - Equipment $26,500 (original value, as opening balance) …ignoring depreciation
Credit BS - Liability ‘Cehisa Edgebander loan’ $14,936.32 (capital left + interest left, as opening balance)
Debit BS - Asset - Unpaid Interest $614.92 ( interest left, as opening balance)
Credit BS - Owners Equity $12,178.60 (26500 - 14936.32 + 614.92) - program should automatically deal with this difference as it did for opening balances of GST & PAYG? (in GL starting balances report - ‘starting balance equity’ which I will eventually put into Owners Equity opening balance as per post yesterday)
Then to allocate each repayment ($1066.88):
Debit Liability - edgebander loan a/c $1066.88 (& credit to bank account)
Then Journal entry: Credit Assets - Unpaid Interest as per schedule (eg July is $81.79)
Journal entry: Debit Interest Expense with same (eg $81.79)
Thanks for your help, please point out any blaring mistakes.