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Journal entry for adjustment of liability account

On the balance sheet for a client it shows a liability figure of £177,000 for a mortgage - the mortgage was originally taken out on the Directors 2nd home years ago and the money transferred into the business. The Director has now sold the property and consequently paid off the mortgage; however the final payment and actual remaining balance of the mortgage was £203,000.

For the journal entry, I remove the mortgage liability of £177k and increase the Directors loan of £203k but I am unsure how to account for the remaining £26k?! 

Can anyone help with this? Answer I am sure is simple but I have been staring at it for so long I am going round in circles!

And surely this should have been picked up by previous accountants with the mortgage statements at Year End?!

Many thanks

Chris R


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24th Nov 2017 11:11

As with all questions about how to account for something, the answer starts from knowing what it is. When you know what it is I would be very surprised if the other side of the entry you need to make was not obvious to you.

The first question is what did the £177,000 in the company’s books represent. Did it represent a liability of the company to the mortgage lender, or was it a loan to the company from the director? If the mortgage loan was in the director’s name it can only have been the latter.

Does that help?

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24th Nov 2017 11:19

You need to find out why its gone up - the most likely scenario is that the director borrowed more money in between years and kept it.

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