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Accounting for Line of Credit in Billling Matters

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derekhong Posted: Thu, Jan 15 2009 6:08 AM

I'm using TM/BM 9. My firm has a line of credit with a lender. I need to figure out how to account for draws on this line of credit.

I have created an account of type "credit card" since my only other choices were bank and fund. I have set up a GL liability account for the lender. I have created a vendor account for the lender and have linked the vendor to the GL liability account.

My lender cut me a check for X dollars which I deposited into my operating account. I now need to account for this deposit in BM.

What I tried to do is make a miscellaneous deposit specifying the GL liability account, but when I try to save, I get an error message saying "You may not use another bank or fund account as a detail item." This is despite the fact that the account is NOT a bank or fund account. It is a credit card account.

Anyone got any ideas?

Thank,

Derek Hong

Hong Law, PLC

Cedar Rapids, IA

319-294-5853

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You do not need, or want to set up a credit card account. Just set up the line of credit as a Liability account. When you take money from the line of credit and deposit it into the bank account you make a miscellaneous deposit into the bank account (a debit) with the offsetting credit being the liability account. When you pay back the line of credit you would write a check (a credit) out of the operating account and offset (debit) the liability account and any interest expense.

 

Caren Schwartz (Moderator/CIC)

35-45 Consulting

& Time & Cents Consultants, LLC

Southport, CT

www.3545consulting.com / www.timeandcents.com

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Time Matters, Billing Matters, Billing Matters Plus, PC Law CIC

 

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derekhong replied on Thu, Jan 15 2009 8:12 PM

Caren,

Thanks for the response. That makes sense.

But what if the lender IS a credit card. Suppose I have a credit card account which I am allowed to draw cash advances against. I want to be able to set up the account as a credit card account so I can charge against it, but I also will need to account for the cash advances.

When I deposit a cash advance check from a credit card line of credit, how should this be accounted for?

Thanks,

Derek

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derekh replied on Fri, Jan 16 2009 1:51 AM

I think I have figured out how to make this work. It appears that the following 2-step process should work.

1) When making the cash advance of say $1000:  Create a $1000 charge for the CC account and select "Checks to be deposited" as the GL Account. This should result in the following Credits/Debits:

CC Acct                   $1000

Checks TBD  $1000 

2) When depositing the $1000 Cash Advance Check:  Create a $1000 Misc. Deposit for the Bank account and select "Checks to be deposited" as the GL Account. This should result in the following Credits/Debits:

Bank Acct                   $1000

Checks TBD   $1000 

So after these 2 transactions, CC Acct should have a $1000 credit balance and Bank Acct should have a $1000 debit balance which is exactly where I want to be.

This appears to work. Does anyone see anything wrong with this approach?

Thanks,

Derek Hong

Hong Law

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