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Mortgages and Long Term Loans - How To Expand / Collapse
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Posted 24/10/2010 7:33:19 PM


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Hello,

As current legislation has recently changed in regards to SMSF's now being able to acquire mortgages for property and long term loans, we felt that pointing everyone to this post would be best. Please follow these steps and if there are any outstanding questions, please feel free to post a reply in this thread.

Add new liability accounts into the General Ledger

1. Please go to Configuration > General Ledger.

2. Have a look under the 'Liabilities' accounts and you should see 'Current Liabilities' as a summary account. You need to add a second summary account called 'Non-Current Liabilities' by clicking "Add Account" at the bottom of the General Ledger window. The differences between the two types of liabilities accounts are as follows:
  • "Current" for a liability usually means that you expect to pay it off within the next 12 months (you do not have to). Examples: short term loans, credit card debts, taxes owing etc.
  • "Non-Current" means things that you will be paying for a while, such as a mortgage.
The new account should almost be an exact copy of the 'Current Liabilities' summary account except for the name, account number and it should also roll over to itself. Once all of the details are entered, please click the "Save" button to add the new summary account to the General Ledger.



3. Click the "Add Account" button again and add another summary account. This summary account will be used to identify the type of mortgages or loans you may have and should have a name such as "Mortgages" or "Loans" for example. Once again, this summary account will roll over to itself and the name and account number can be whatever you wish.

4. Click the "Add Account" button again and now you need to add a new detail account under the summary account created in step 3 above that will represent the mortgage or long term loan. You should decide on a name and an account number you want to assign to it and then click the "Add Account" button at the bottom of the General Ledger window. Once you're finished adding details to it, click the "Save" button to add the account to the General Ledger.

You may have several mortgages or loans and so you would need to add separate accounts for each of them and repeat step 4.

After completing the above steps, the structure of your new accounts should look something like the following:




Taking up a mortgage or long term loan debt

1. Please go to Cash and Bank Accounts > Journal Processing.

2. Create a new general journal transaction with the following lines:
DR - (clearing bank or actual bank where the money ended up) - $x
CR - (new liability account representing the mortgage or loan created above) - $x

The process is the same for other debts, it is the CR 2xxx that changes.


Paying off the mortgage or long term loan

1. Please go to Cash and Bank Accounts > Journal Processing.

2. The process is the opposite of taking up a loan or mortgage and just reduces the liability.
DR - (new liability account representing the mortgage or loan created above) - $x
CR - (clearing bank or actual bank where the money was paid from) - $x


Incurring an interest expense on the liability

1. Please go to Cash and Bank Accounts > Journal Processing and process the following general journal transaction:
DR - 5165 Interest Paid - $x
CR - (new liability account representing the mortgage or long term loan created above; assuming that the interest gets added onto the outstanding debt as normal) - $x


We realise that the bank will usually not give you the cash, but rather writes the cheque to the other party. In these cases you should record the money going to a clearing account (a dummy account with a zero dollar balance set up via Cash and Bank Accounts > Bank Accounts) and then use that to buy the asset.

If there are any queries on any of the above, please post a reply here or send an email to info@mysf.com.au

Regards,

MySF
Post #4628
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