Closing Costs

[RDPHELPS]

We did a loan modification to an existing loan. We debited proceeds to bank and credited to existing loan. To bring liability balance up to the correct amount of the new loan, what account do we debit for the loan fees? We were considering putting it to closing account 3110. Is this correct? Thank you....Patty

[JohnDMeyers]

It would be better to put it to an expense account. It will close to 3110 at the end of the year.

If you DB 3110 directly, it will appear as if the loan fee were acquired last year, not this year.

[RDPHELPS]

Thanks for your quck reply. We actually did that entry first but then looking at the income statement for this month, we were concerned about having some $2,783 in fees showing up this month. It sort of distorts the bottom line. I'm not an accountant so please help me think this through. We will be paying on the liability (including these fees) each month. It almost feels like we''re paying it twice - once via monthly payments, and total fees as an expense this month.

[lmorganlmorgan]

You are not really paying for it twice because you were not out any cash at the time of the loan. You would record the fees to an expense now and when you pay down the loan you will only record the interest as an expense. The principle portion of your payments will not be recorded to an expense.

[JohnDMeyers]

If I understand correctly, you are not for the fees all at once, rather, over a period of monthly payments, right?

If so, the payment would look like this (I'll use $1,000 in loan payment off principle, and $200 for fees):
CR 01-1110-000 checking $1200 (principle plus fees)
DB 01-2010-000 loan liability $1000
DB 01-5810-000 loan fee $200