Posting loan closing costs

[newdestinyag]

Our church has obtained a construction loan. In the closing of the loan, $8,000 was deducted for closing cost and fees, and was considered a “draw” on the loan. As yet no money has gone through our check book. How would I post to get that $8,000 to show as a liability? Should the $8,000 be considered an expense yet? The net change to our Building Fund should be zero, I think.

[Zorak]

I can't say as to whether or not it should be expensed, but here are the examples one way and the other:

Show liability without expense:
01-2500-000 loan liability (credit) 8,000.00
01-3110-000 equity (debit) 8,000.00

Show liability with expense:
01-2500-000 loan liability (credit) 8,000.00
01-5800-000 bank fees (debit) 8,000.00

Of course, the account numbers are for example only. The first example simply adds the money to the balance sheet. The second adds it to the balance sheet and income & expense statement.

[newdestinyag]

Thanks. The first example seems to have done the trick.

[Jeff]

You probably want to talk to a local accountant who can spend time to make sure they understand everything you are trying to do. The accounting textbook method to handle new construction is to create a 'construction in process' asset account. When you receive money related to the new construction you credit your construction loan liability account and debit the construction in process asset account. This would not change the balance equity of your building fund because you are adding money on both sides of the accounting equation.

When the construction is complete you then create a new asset account for the building and transfer the money from the construction in process account in to it.