short term loans in a law firm

How do I record a short term loan to the firm?

Short term or temporary bank loans are considered to by any loan that is expected to be paid back in under one year's time. 

Here are the steps needed to be made if the firm has taken out a short term loan from the bank or any other third party entity:
  1. Create a "Short Term Liability - [EntityName]" account
  2. (optional) Create a "Short Term Liability Principal Repayment - [EntityName]" account (contra liability account)
  3. Record the borrowing of the loan by debiting the Operating Bank Account that the money was deposited into and crediting the Short Term Liability account created in step 2.
  4. Record the repayment of the loan:
  • If a check is not need to be made in order to pay the loan:
    • Create a Journal Entry. Debit the Short Term Liability account/ Short Term Liability Principal Repayment account created in step 2/3 and credit the Operating Bank Account that the money was taken out of.
  • If a check is need to be made in order to pay the loan:
    • Create a check using the bank account the money is coming from and the Short Term Liability account/ Short Term Liability Principal Repayment account created in step 2/3 as the Assigned Account
Please make sure to consult with your accountant

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