How do you record an intercompany loan?

How do you record an intercompany loan?

Accounting entry of a loan to another company

In accordance with valuation standard 9 of the SME General Chart of Accounts, the classification of loans with credit institutions would be given in the category of “Financial liabilities at amortized cost”. Their recording and valuation practically coincide with that of the “payables and payables” of the Standard Chart of Accounts, although there is a “safeguard” for SMEs.

As regards their subsequent valuation “… they shall be valued at their amortized cost. Accrued interest shall be recorded in the profit and loss account, applying the effective interest rate method”.

In other words, we find ourselves with the same recording and valuation criteria as in the Normal PGC but with the exception of the underlined, i.e., the expenses initially incurred in granting the loan may be charged directly to the profit and loss account at that time.

How to record a bank loan in accounting

The accounting of a loan consists of a series of operations, based on an international valuation standard (IFRS), whose objective is to record the loan in the company’s accounting, so that the true and fair view is reflected.

In simple terms, this process consists of a series of entries that reflect the different phases from the time the money is lent to the time it is repaid. Normally they are the moment of the concession and the payment of the different installments of capital and interests of the loan. All this following the indications of the international standards (IFRS-IFRS). To do this, a number of calculations have to be made.

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Many people are afraid of having to account for a loan, mainly because they do not know exactly how to do it. In most countries of the world, the accounting standards (which in turn are based on IFRS) include the concept of “amortized cost”. But what exactly is it and what is it for?

Simply put, it is a way of calculating the financial cost of a loan that takes into account all the costs involved. Thus, when our bank grants us a loan, it informs us of the so-called TIN or nominal interest rate. Many believe that this is the cost of the loan, but nothing could be further from the truth.

How to account for a loan received from a third party

In simple terms, interest rate is defined as: the index used in economics and finance to record the profitability of a savings or the cost of a loan, it has a direct relationship between money and time. In the case that a person decides to invest his money in a bank fund, or that is added to the final cost of a person or entity that decides to obtain a loan or credit.

Likewise, when a company or individual decides to borrow money, an interest rate will be applied to the amount requested on the borrowed money, depending on the time it is decided to be repaid and the amount of cash extended to the person.

It is very important that at the moment of having a company, the interest rate that will be charged at the moment of buying some inputs of greater value or at the moment of requesting a loan is studied very well, since many times the charge can be excessive.

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How to account for a loan received from a third party peru

As for the interest agreed with the bank in the acquisition of the loan, this should be accounted for as an expense in the income statement against the interest payable account (or cash and cash equivalents).

On January 1, 2020, a microenterprise requested a bank loan for $10,000,000. The terms of the loan were as follows: installments with equal payments to capital with a term of five (5) months and an interest rate of 3%, month in arrears.

Remember that if you wish to learn more about this and other topics of interest regarding group 3 entities, you can access our Practical Booklet Accounting for Microenterprises, which contains a detailed guide on these topics: