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Lynn_55
September 8, 2024
Question

recording journal entry for Merchant Cash Advance (MAC)

  • September 8, 2024
  • 1 reply
  • 0 views

Can someone offer me your suggestion how you would create a Journal entry for the total debt amount (borrowed amount + future accounts receivables) to be repaid.  It is not interest that needs to be considered because it is mandatory repayment.  Would you create a separate Current Liab account for the expense?

 

Ex.  borrowed $46,600 but must repay $64,774

 

Thank you for your reply

 

Lynn_55

1 reply

Rainflurry
Rainflurry
September 9, 2024

@Lynn_55 

 

Unless your own CPA has instructed you to the contrary, it's my understanding that the mandatory fees are still considered interest by the IRS.  So, if you borrowed $46,600 and you need to repay $64,774, then the difference ($18,174) isn't recorded as an "interest" expense until you make those payments.  The journal entry to record the loan is a debit to cash and a credit to loan payable liability for $46,600.  Then, when you make the payments, the JE is a debit to loan payable liability for the principal portion, a debit to loan expense for the "interest" portion, a credit to cash for the payment made and a credit to A/R for the receivables portion.  You can use a Bill instead of a JE so it will show under the vendor.  On a Bill, positive amounts are debits and negative amounts are credits.  A $0 bill creates offsetting debits and credits with nothing posting to A/P. 

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