Loan Fee Applied to our Loan Balance

[lhbc-donate]

I think I missed a $500 little detail in my DB/CR when we received our loan.

Applied to our 10,000 loan is a $500 Loan Origination fee. We have decide NOT to pay the $500 but to APPLY the fee to our loan balance.

We have received the $10,000 Loan so I:
DB 01-1111 Chequing account (church operating)
CR 01-2605 Loan
but where does the $500 get recorded? I think it needs to be CR to 01-2605 but what gets DB?

I transferred 10,000 out of our chequing account CR 01-1111 into a "Loan Savings Account" (asset) until we need the money

We are paying the Interest ONLY back each month on the loan
CR 01-1111
DB 01-5006 (interest Payment)

To Pay the $500 Loan Origination fee back eventually:
CR 01-1111
DB 01-2605 or do I need to do this transaction by creating an expense account DB 01-5007 (Loan Fee Payment)

Thanks again

[JohnDMeyers]

So, did you really borrow $10,500 or was the $500 subtracted from the $10,000?

I suspect that you really borrowed $10,500, meaning that the fee is now part of the loan, but you only receive $10,000 cash.

If that is the case, you would record the $10,000 cash as you have done.

To record the acquisition of the $500 fee that was tacked on you can do this:

We are paying the Interest ONLY back each month on the loan
CR 01-2605
DB 01-5007 (Loan fee)

As you make payments (assume $900):
CR 01-1111 $900
DB 01-2605 principle $500
DB 01-5006 interest $400

or interest only:
CR 01-1111 $400
DB 01-5006 interest $400

[lhbc-donate]

In regards to the $500 loan fee that was tagged onto our loan balance. (We are set up to only pay the interest every month.)
When making up my new expense account, PC always asks which equity account to close to. I chose the default 01 but it also had the option of 00-assets. Is 01 correct?
The Inc/Exp report shows the $500 as an expense but I can't get my head around the fact that our expenses are now 500 higher but we really haven't paid anything and wondered if you have an explanation for that.

[JohnDMeyers]

The usual equity account that most things will close-to is 3110-000. If it is in Fund 01, then, it becomes 01-3110-000. If it is in Fund 02, then, it becomes 02-3110-000. I don't believe there is a Fund 00.

When you pay $500 for a loan fee, you really are paying $500, and it shows up as an expense your income-and-expense sheet.

When you pay $500 toward an asset, like a building, you really are paying $500 for a building, but you don't show it as an expense. You are allowed "to keep" the asset on your books. So, before paying the$500, you may show a building worth $50,000. After paying the $500, you are allowed to show a building worth $50,500.

You must then look somewhere else, not on your income-and-expense statement, to see the $500 that was used. (You can look at the difference in the two balance sheets, and subtract, for example).

Depreciation is money that "evaporates away" because things wear out over time.

You keep track of this "evaporation" by making a depreciation expense entry on your income-and-expense sheet. However, no money left your checking account. It simply "evaporated" from the value of your stuff. A copier that was worth $1,000 last year, is worth only $800 this year. $200 simply "evaporated away". It's terrible, but it happens.

In order to keep track of money that actually leaves your checking account, you have to "add back in" the depreciation entry.