Loan write off

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
Can anyone please tell me the accounting entry for a loan written off, in the books of the borrower?

Thank you in advance.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Loan write off

    Dr loan
    Cr ?????

    Good question :?: will ponder what the other half would be - any brainwaves and I will let you know.

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Loan write off


    Where did the money come from? If it's a sole trader and the money was borrowed from a friend/family member then I'd guess you'd need to Cr the capital account, as it's money that has been invested in the business. :?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Loan write off

    Thanks, Claudia and Jodie. I'm puzzled by this, but I'm probably missing the simple answer.

    If you credit the capital account, aren't you keeping the liabilty, when in fact you are getting rid of it by writing it off?

    The loan, made to a small sole trader, is from a distant family member who doesn't want repayment.

    Thanks again, and for any other comments.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Loan write off

    In that case, surely it is not a loan at all, but just capital introduced - remember to put the source in the white box on the tax return :wink:

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Loan write off

    A loan write off surely is a P&L item by its nature.

    Very common with brewery loans, in which case it is taxable, but it is up to you to decide if taxable or not? If from a family member then no,....etc... Your call on the tax treatment.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Loan write off

    Sorry this didnt seem to be put to be bed.....

    In my opinion (as Jodie/Claudia said) its just

    Cr. Capital
    Dr. Loan

    And voila loan gone. I don't think it would be a P&L item because that would suggest it was "other operating income" but because it is in effect a gift from a family member to the owner the owner is entering it in as capital.

    In my humble opinion.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Loan write off

    Lincs is correct - a loan written off should not be sent to the P&L as it has nothing to do with the everyday trade - it should be credited to capital introduced.

    Steve

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