Accounting of received financial facilities and methods of recording them in books
There are two methods to register the received loan:
1) Pure method:
When receiving a bank loan, the bank becomes a debtor and financial facilities become a creditor
The time of payment of the loan installment is the financial facility of the debtor and the interest cost of the debtor and the creditor bank
2) gross method:
When receiving a bank loan, the debtor and the unrealized interest (or future years’ interest) become the debtor and the financial facility becomes the creditor.
When paying the loan installment, the debtor’s financial facility and the debtor’s interest expense and the unrealized interest are the creditor’s and the bank’s creditor.
According to the principles of accounting, debts must be recorded and reported at the current value, and both methods are correct, in the gross method, the unrealized interest reduces the financial facility, and in the definition, the financial facility is defined as a debtor to be deducted from the financial facility, and the facility is at the current value. It is recorded and reported
The best method is the pure method to record the received facilities.
If the received facility is long-term, we will transfer the part of the installments related to the current period and the next year to the account of the current portion of the long-term financial facility (in the group of current liabilities and in the category of financial facilities). Also, if our method is gross, the interest will not be realized. We also transfer from long-term financial facilities to financial facilities:
Long-term financial facilities (defined as loans payable.) Debtor and unrealized interest (in the definition of financial facilities in the current liabilities group) Debtor and current share of long-term facilities (in the definition of financial facilities) Creditor and unrealized interest (in the definition of long-term financial facilities) period) becomes a creditor
Received loan title:
long term:
Non-current liabilities -> long-term financial facilities -> long-term payable loans -> bank loan
short term:
Current liabilities -> financial facilities -> short-term payable loans -> bank loan.
(nature: creditor)
Heading of unrealized interest or interest of future years:
long term:
Non-current liabilities -> long-term financial facilities -> unrealized interest -> unrealized interest of bank loans.
short term:
Current liabilities -> Financial facilities -> Unrealized interest -> Unrealized interest on bank loans
(nature: debtor)
Heading of the current share of long-term financial facilities:
Current liabilities -> Financial facilities -> Current share of long-term financial facilities -> Current share of bank loans
(nature: creditor)
Interest expense heading:
Non-operating income and expenses -> financial expenses -> interest expense -> bank loan interest expense. (Of course, details are not required)
(nature: debtor)
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This post is written by H_shafiei_mset