Accounting question: loans to someone else

[Andrew Sackville-West]

Maf. King wrote:
> On Sunday 10 Jul 2005 09:29, Beth Leonard wrote:
> 
>>Hi,
> 
> 
> Hi Beth,
> 
> 
>>I'm sure an accountant would think the answer to this is simple, but
>>I can't figure it out.  How does one account for a loan given to
>>someone else?
>>
> 
> 
> Well, IANAA, but as far as i am aware, you treat a loan you have "supplied" 
> exactly the same as a loan you have "received" (which crops up on the list 
> every so often) - except liability becomes asset, and interest is income not 
> expense.

IANAA either, but I find that sometimes lay-people answers, while not 
always strictly correct can often get the ideas across to other 
lay-people more easily. We are the translators... IAAAT (I am an 
accounting translator) he he he.
> 
> 
>><<<< snippity doo-dah >>>>>>
>>
> 
> 
> A split transaction to give:
> Checking -> Asset:loan  (the repayment)
> Checking -> income:loanInterest  (the "earned" interest)
> 
> 
> 
>>If the interest rate is fixed, how do I calculate the book value of
>>the loan if I were to "sell" the right to receive future payments
>>to someone else?  Actually, that's not quite the question I want
>>to ask because I know I can calculate that.  What I really want to
>>know is how can I make regular transactions such that in my
>>balance sheet under Assets, the "sell value" is reflected in
>>the balance sheet, not the original value of the loan.
>>
> 
> 
> If the asset:loan account is decreasing over time as repayments are made, will 
> that give you the figure you require?  I'm not at all sure how to work out 
> the "resale" value of a loan!

The resale value of a loan is whatever you can get for it in the market 
and is theoretically independent of the outstanding amount. To the 
extent that the sale price of a loan is greater than the book value of a 
loan, the payment is income. If the sale price of a loan is less than 
book value then you record a loss on the sale. (but we hope to never 
have to do that ;-)

Maf. King, what you describe is true, if she records a split transaction 
for each loan repayment with the principal portion being applied to the 
outstanding asset and the interest portion applied to income:interest 
(or whatever) then the asset's balance at any point is the book value of 
the loan and will decrease gradually over time.

A

> 
> HTH,
> Maf.
>  
> 
> 
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