partnership borrows money and the money goes into the business bank account. The loan is used to buy an asset that is predominantly private asset (car) with limited business use.
Not sure if the way to handle this is "drawings".....
partnership borrows money and the money goes into the business bank account. The loan is used to buy an asset that is predominantly private asset (car) with limited business use.
is the following correct?
dr bank cr loan
dr car cr drawings
and then adjust for business use of car?
Jen
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thanks, but!
Hi Graham
the problem is that the client took out the loan and had the funds paid into the business bank acc.....and then bought the car..that's why I wanted to show the loan. I thought the "drawings" entry I proposed would mean that the money wasn't still in the bank account (as you suggested)...have I misunderstood??
I agree, it would have been preferable for them to have the loan paid into their personal acc!
thanks
What are the intentions of the partners?
I agree with Graham, although if you are wishing to treat the payment for the car as being drawings, such that the vehicle does not appear on the balance sheet, then the accounting entry would be dr the partner's drawings, cr bank.
However, what is it that the partners intend and have agreed upon? If it were to keep the car on the balance sheet and then restrict the expenditure to reflect the private use, then it would be debit vehicle account, cr bank.
I don't think so
Your proposed entries would mean that you paid for the car and the money was still in the bank.
dr bank
cr drawings
dr motor
cr bank
if it is a personal loan for a personal asset, do you really want to clutter the business accounts with it?
If you do, then your adjustment will be for private use, not business use. Don't forget that relief on the interest on the loan may only be granted on the business portion. Ditto for running costs and capital allowances.