I’m getting a brain cramp trying to figure out how to enter something in Manager…
We got a construction loan late last year to purchase land and build two new structures on that land. This is for a new LLC. I put up personal capital and the loan was for $240K.
The personal capital was deposited into the LLC bank account, and then at closing, the bank pulled a bank check from the LLC account for the funds we had to bring to closing. It was also an interest-only construction loan with several contractor draws before it converted recently to a regular P&I loan.
So, it kinda breaks down like this:
$250,000 build cost
$33,500 land cost
$5,000 closing costs on loan
Bank would basically loan $240,000, so we brought $48,500 to the closing table which accounted for land, closing costs, and additional down-payment toward the build costs.
In the end, I assume I need to have a liability account showing the bank loan to be paid back, a couple asset accounts (1 for each building that was built), and an asset account for the land.
Your last paragraph about fixed assets is correct. Conceivably, the two buildings could be one asset, but that would be problematic if you decided to sell just one. The land must definitely be separate because it cannot be depreciated.
So you need a bank account for the LLC. See the Guide: Manager Cloud.
You need capital accounts for all LLC members. See Manager Cloud.
You will need to create and then purchase three fixed assets. See Manager Cloud.
You need to decide whether the construction and mortgage loans will be handled in a single liability account or remain separate. If single, just add that Loans liability account. See Manager Cloud. You could also add additional ordinary accounts for the two loans, but once used, those accounts will remain on your balance sheet forever. You might explore using special accounts. See Manager Cloud.
Record your capital contribution by receiving money in the bank account. Allocate the receipt to your capital account contributions. See Manager Cloud.
Record the closing cost withdrawal as a bank transaction (spend money). See Manager Cloud. You could post this transaction to a bank fees account or other suitable expense account. Or, your accountant may tell you you can or must capitalize the closing costs. In that case, they would be posted to the fixed assets, possibly dividing the costs among the assets.
Enter the receipt of loans with a Bank Transaction, posted to the appropriate loan liability account, depending on how you decided to organize those liabilities.
The purchase of the fixed assets will actually occur in stages as you draw down the construction loan.
Thanks Tut! I think I followed you for about 95% of that!
Based on some reading I did, I created a Fixed Asset account called “Construction in Progress”. I recorded the loan using a journal entry:
Credit - Notes Payable account for the total loan principal.
Debit - Construction in Progress" asset account.
Then, for the large withdrawal from our LLC account for the closing, I split that out to “Land” ($33,500), “Bank Charges” ($5000 closing costs), and the remainder to the “Construction in Progress” asset account.
(I had already recorded the capital contribution as a receipt into the bank account as you mentioned).
All that looks correct (to me) and seems to make sense. The “Construction in Progress” account now has a balance that equals the total build cost of the new buildings.
Next, for each draw on the loan, I will Credit the “Construction in Progress” account and Debit each of the two new Asset (building) accounts based on the percentage of the draw that was for each. I assume this needs to be done via a Journal entry, but I’m not 100% certain.
In the end, the fixed asset building accounts will be equal to their build cost each, and the construction in progress asset account will show a zero balance.
Sound about right? Maybe a little more complicated that necessary, but I really want to track & record what is actually happening.
Let me know if you see any issues with what I just laid out. Thanks!
I think you’re making this much more complex than necessary. I would not have created the Construction in Progress account, because such an asset does not, as you begin, have any value. I would just have created the two buildings as fixed assets (plus the separate land asset). As you make payments from your bank account for construction, post them to Fixed assets => Building 1 and/or Fixed assets => Building 2.
This will add to the purchase cost of the fixed assets. When the buildings are finished, the total purchase cost of each building will be what you actually paid, not some advanced estimate transferred here, there, and beyond, with possible leftover amounts to be handled. No journal entries involved. (These are rare in Manager.)
Using Manager as described will give you a complete record when you drill down through the fixed asset in the Fixed Assets tab. Amounts spent will also show in the Fixed Assets Summary report.
What you are doing now distorts things, because you are starting with your Construction in Progress account at the final value of the buildings. Until you build them and pay for them, there is no such asset.
The issue is, no construction is being paid out of the LLC bank account. We got a construction loan from a bank, but they hold all funds and disperse to the builder in a series of draws after the bank inspects and confirms a certain amount of progress has been made. So the money is never given to me to give to the builder.
I based the “Construction in Progress” on some general accounting practices I read about, for example:
I think in the end, I’m accomplishing the same thing, but it might take a few extra steps.
This is entirely an unnecessary step, because you are just creating values that have no substance. At this point, no loan has been advanced so there is no Notes Payable liability and your Construction in Progress account will just become a redundant contra account.
Instead, modify your above statement to be as per the following:
"Next, for each draw on the loan, I will Credit the “Notes Payable” account and Debit each of the two new Asset (building) accounts based on the percentage of the draw that was for each.
Yes
Yes, especially as the zeroed Construction in Progress account will remain showing on the BS for ever (at this point in time).
However, your loan journal entry (quoted above), indicates that the bank had advanced you a 240k lump sum, which never happened, so that loan journal entry is contradicting your “actually happening” comment, as the loan was “actually” only received in instalments.
Thanks Brucanna! I gave a lot more thought to what you and Tut said here. I ended up getting rid of the Construction in Progress account, and instead creating a journal entry for each draw on the loan - Credit Notes Payable account and Debit the fixed asset accounts.
This seems a lot cleaner. And THAT is why I ask questions here.
