Now that loans can be categorized in Manager with special accounts under control accounts what is the best way to direct loan payments into the right part of Manager’s Cash flow statement if a new loan is used for investment activities but the loan payments of the same loan should be under financing activities going forward and all records are in one account in Chart of accounts ?
The devil is in the details; will the financier be paying for the investment on your behalf, or simply loaning you money to use as you see fit (like commercial paper or a line of credit)?
In general, any loan (receipt of, or repayment on) should be classified as a financing activity so I would assign the account to financing activities… but Manager’s built in Cash Flow statement may not be able to handle this particular situation.
If your financier is paying on your behalf, then it would not be a cash flow for your business and should be reported as a supplemental disclosure. If they are transferring funds to you to use as you see fit, the initial receipt would be an inflow from financing, and the investment you make would be reported as an outflow from investing. Both situations would require a manual adjustment, via a spreadsheet, to the Cash Flow Statement in the year the loan is received. Afterwards, the repayments would be financing activities, and Manager’s Cash Flow statement should handle it just fine.
@Tor I didn’t bother with special accounts on this as a regular CoA would handle it.
I set up as group account
then the loan account which is assigned to financing activities (Investing activities works as well)
It shows on the Summary thus
The transaction is a payment from a Bank Account split to the Liability Account and a P&L interest expense
It shows the movement of cash to the liability balance under Financing activities in the Cash Flow Statement
@Scott.E, your approach is only satisfactory if you are content with every loan showing up individually on your balance sheet. Your Long-term Liabilities is not what you termed a “group account.” It is a group, which is only a way of organizing accounts, but not summarizing them. In other words, it is only a heading on the balance sheet. If you want a balance sheet line to summarize loans, you need to use special accounts and create a custom control account comprising special accounts.
@Tor, your use of the the word Now suggests you believe this to be a new capability. It is not. It has been available for years. The only relatively new feature you mention is the ability to categorize self-created control accounts on the Cash Flow Statement. But maybe that is what you meant.
I also think you may have misstated some things relative to classification of activities. You wrote of a new loan being used for investment activities, but the loan payments belonging under financing activities. You did not explain what the loan was for, who the borrower is, nor whom the lender. Those details control how the loan proceeds should be classified. And it is possible both disbursement (original receipt of loan proceeds) and payments should be classified the same.
The Cash Flow Statement is, in my opinion, the hardest standard financial statement to understand. Regardless, though, you goal that “…all records are in one account in Chart of accounts…” is not achievable. Receipts and payments related to loans will involve several accounts. Which ones depends on the purpose of the loan and the manner in which it is repaid.
Ok so new loans qualifying to be categorized as investment activities in cash flow statement must afterwards have repayments under financing activities in the cash flow if I understand this correctly. I presume the same applies if a new loan qualifies to be categorized under operating activities, that is repayments are also under financing activities ?
This requires separate control accounts as @Tut mentions as this not possible with one account. It seems to work in Manager if one loan has two special accounts with the same Code where one is under control account New loan (investing activities) and the other under Repayments (financing activities). Works in Manager’s Cash flow statement and in Custom reports for special accounts when grouping is based on special account codes. Manager groups both special accounts under the same custom report group which is nice.
EDIT: a simpler way is using the Division field for Balance sheet loan accounts instead of Special accounts unless specificly needed, as Division can be used see: Divisions (previously tracking codes) and balance sheet accounts
I had been using Tracking codes before and as they were depricated for use in the balance sheet I moved instead to using Special accounts as directed by Lubos in following link and this seemed some new feature/approach Added ability to create divisional balance sheet
its hypothetical not any specific loan as such. Same hypothetical thinking on my part regarding loans qualifying for operating activities. @p4unger did some explaining of the specifics of processing an investment loan for cash flow purposes.
In general, yes.
For example; you open a line of credit with a lender that you can draw and use funds from as you see fit. You draw 50,000, and use 30,000 to buy new PP&E, and 20,000 for general operations. In that period your Cash Flow statement would show 50,000 inflow from financing activity (drawing the line of credit), a (30,000) outflow for investing activities (buying the PP&E), and the 20,000 would be captured in the reconciliation of the operating activities to the net income (loss). The following period you repay 25,000 of what you drew; that will show as (25,000) outflow for financing activities.
Yes, this works and if there are many loans the Divisions field can be used.