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Accounting for Loans

I am working with a church that has an outstanding loan that was never booked. The loan was used to purchase assets that have never been recorded. The church doesn't have an asset listing. The majority of the loan was used to purchase and remodel a building. They currently budget the loan payment and expense both principal and interest. They also have an equity account for designated donations that are paid towards the loan principal. Each month they pay their normal monthly payment plus any designated donations received. I would like to record the loan but want to make sure I'm thinking this through correctly. These are the entries I'd like to make:

To record assets/loan:
Debit: Asset (for loan balance)
Credit: Loan

To record monthly loan payments:
Debit: Loan
Debit: Interest Expense
Credit: Cash

To record depreciation:
Debit: Equity account (for monthly designated donations)
Debit: Depreciation expense (principal portion of monthly payment)
Credit: Accumulated Depreciation

I know that depreciation is normally based on the asset's life but this church wants to see the P&I payment reflected on their income statement. Am I totally off base handling things this way?

Answers

Anonymous
(Bookkeeper) |

I have tried to convince church leadership that it's incorrect to show P&I payments on the P&L but they are insisting that it is not changed. Since I probably can't get them to change, booking principal payments as depreciation is the only option I could come up with in order to show the loan balance on the balance sheet. I know I'm not following GAAP but for internal reporting is it okay to deviate like this?

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I'm sure the Church as an accountant or at least a member of the Church is an accountant. You need to talk with them since you must be filing incorrect 990's.

Len Green
Title: Performance Improvement Consultant and E..
Company: Haygarth Consulting LLC
LinkedIn Profile
(Performance Improvement Consultant and ERP Strategist, Haygarth Consulting LLC) |

You don't tell them how to apply church dogma
They don't tell you how to apply accounting dogma

Help them understand that metaphor. :)

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Great!!!!

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