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HilW19
November 22, 2023
Solved

Journal Entry For Cancelled Loan Deposit

  • November 22, 2023
  • 2 replies
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I put at $50,000 deposit down for a loan that we were going to get, but have since went another route.  I put a placeholder for the account into the lenders Long Term Liability file until I received the loan information and created the actual loan account.  The lender cashed our $50,000 check before we cancelled.  They issued me a replacement check for the $50,000.  How would I properly remove the $50,000 from the liability account and deposit the check into our checking account?  Also I have closed the period for which the original transaction was completed.

Best answer by Rainflurry

I know it's odd, but they do it with every loan...put a deposit down.  They do it when they buy a vehicle.  It's the same concept.  It will eventually come off of the total of the loan.


@HilW19 

 

"I know it's odd, but they do it with every loan...put a deposit down. They do it when they buy a vehicle. It's the same concept. It will eventually come off of the total of the loan."

 

A down payment on a loan, or a vehicle, cannot create a liability.  It creates an asset, a negative liability, or a negative equity amount.  Those are the only options depending on what account was assigned to the down payment.  What account was assigned to the down payment?  If you're saying you have a positive $50K liability and a $50K reduction in the bank balance, then there's nothing further anyone can help you with because you're describing an impossibility. 

 

If you have a positive asset or a negative liability amount, you just assign the same asset or liability account to the $50K refund received from the lender.  That will zero out the asset account or the negative liability amount.  If you have a positive liability amount and assign that to the deposit from the lender, you will increase the liability account to $100K.

2 replies

Rainflurry
Rainflurry
November 22, 2023

@HilW19 

 

You put $50K down on a loan you were going to receive???  That sounds strange.  If you put $50K down, you should have an asset, not a liability, because you can't give someone money and then you have a liability as a result - both are credits from a double-entry accounting perspective.  If someone gave you money, then you can have a liability.  Is the $50K showing as a negative liability?    

H
HilW19Author
November 22, 2023

It's kind of an odd situation all around.  I think that's what is making it harder to wrap my head around since it would be a credit on both sides.  We did not have information about the asset yet but gave them a downpayment.  The company I work for deals with this lender all the time, so this is not a strange transaction for them.

Rainflurry
Rainflurry
November 22, 2023

@HilW19 

 

If you're showing a positive liability amount for $50K, you cannot clear that with a deposit.  There must be more to the story.  Also, you don't put a down payment on a loan you're going to receive.  That's the part that makes no sense.  

E
eomerspider
November 22, 2023

Maybe I'm oversimplifying, but wouldn't you just reverse whatever debits/credits created the situation?

Rainflurry
Rainflurry
November 22, 2023

@eomerspider

 

 "Maybe I'm oversimplifying, but wouldn't you just reverse whatever debits/credits created the situation?"

 

Ultimately, yes, you're correct.  It's just that there was some confusion b/c the original post indicated that they needed "to remove $50,000 from the liability account.".  Turns out that the $50,000 needed to be added to the liability account.  Big difference.    

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