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aaaccounting
February 22, 2024
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Journal Entry to post a loan inherited from previous owner

  • February 22, 2024
  • 2 replies
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What is the journal entry to post an SBA loan that was inherited from the previous owner?

 

The business was recently purchased and the loan is payable to the previous owner because they had no luck switching the loan to the current biz owner's name.

 

A previous bookkeeper recorded it as below, is this correct?

DR Owner Investments (equity)

CR Loan account (liability)

Best answer by Rainflurry

@aaaccounting 

 

Was the purchase price of the assets $450K?  If so, then your JE is correct - debit the appropriate asset account(s), credit SBA loan payable. The "assumed" SBA loan should be included in the basis of the assets purchased: $300K loan payable + $150K SBA loan payable = $450K asset basis.

 

    

2 replies

Rainflurry
Rainflurry
February 23, 2024

@aaaccounting 

 

IMO, the loan should have offset the rest of the purchased assets, assuming it was an asset sale.  For example, a very basic business asset purchase journal entry (JE) would look something like this:

 

 DebitCredit
Assets purchased (various asset accounts)XXX 
     Cash (down payment) XXX
     Loan payable (SBA loan) XXX

 

If the asset sale was recorded with a credit to the Owner Investments equity account for the amount of the SBA loan, then your JE makes sense because it will create the loan payable and reduce the equity that was overstated.  

A
aaaccountingAuthor
February 23, 2024

Thanks for your reply.

 

The purchase was recorded as follows:

 DebitCredit
xyz company fixed asset300k 
xyz mortgage payable 300k

 

The SBA loan is separate and addition to the purchase loan, recorded as below, but this entry makes the owner investment equity account negative. I'm wondering if it should debit the fixed asset account instead, increasing it to 450k, instead of creating negative equity?

 DebitCredit
owner investment equity150k 
SBA loan payable  150k
Rainflurry
RainflurryAnswer
February 23, 2024

@aaaccounting 

 

Was the purchase price of the assets $450K?  If so, then your JE is correct - debit the appropriate asset account(s), credit SBA loan payable. The "assumed" SBA loan should be included in the basis of the assets purchased: $300K loan payable + $150K SBA loan payable = $450K asset basis.

 

    

A
aaaccountingAuthor
February 23, 2024

@Rainflurry 

 

The total purchase price on the sale documents was $300k, and what you're saying makes sense, that the $300k is essentially the discounted sale price since the buyer was assuming the SBA loan. I'll add a correcting entry to adjust the asset basis to $450k to include the SBA loan.

 

Thanks for the help!

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