Merchant Cash Advance - not sure how to record

SOLVED

Hi,

We just took out a Merchant Cash Advance in the amount of $15,000 and now the total we must repay is $22,184.  For those who aren't familiar with this in the restaurant business they just take 10% of your debited sales each day as a repayment.  The daily repayment amounts are then subtracted from the total of $22,184.  There is not set interest payment and no time limit on the loan to be repaid.

My question is how do I record the initial advance it loan?  I'm not sure how to record the interest of $7,184 up front.

Dr.  Cash $15,000

  Cr.       Advance it Loan (Liability Acct?)         $22,184

 

Then at the end of each month would you recommend an entry such as this?

Dr.  Advance it Loan       xxxx

   Cr.       Cash                             xxxx

 

Any suggestions would be helpful.

Thank you

  • 0
    verified answer

    Hi Sbdakota,

    I may not fully understand the relationship between the advance and the repayment.  Please correct me if I make a mistake.

    The actual loan that you get is $15000

    For repayment to the loan, it is 10% of your sales each date

    For some reason, you have an interest of $7184 generated from the loan that you need to pay also.

    For recording the loan, you should

    Dr. Cash or bank account ($15,000)

    Cr Loan - liability account ($15,000)

    When you need to pay back part of the loan at the end of each month

    Dr Loan - liability account (10% or your sales)

    Dr interest - expense account (first entry can be $7184 plus whatever extra interest)

    Cr. Cash or bank account

    Hope this helps.

  • 0 in reply to Keith L

    Hi Keith,

    Everything you wrote makes sense to me except for the last entry of recording the loan at the end of each month.  There will be no extra interest on top of the $7148.  That is the total interest to be repaid.  

    If I do the entry you suggest - for example the month of April has taken $2316.13 in sales to repay balance

    Dr Loan   $2316.13

     Cr.  Cash/bank  $2316.13

    I'm not sure how to balance out the $7184.  If I put that into the interest expense account for April that will show as a huge expense when ultimately it is to be repaid throughout the life of the loan.  Regardless, If I did put that as a Debit to Interest Expense what account do I credit?   This is not a typical loan and it is confusing to me  - sorry if I am misunderstanding you.

  • 0 in reply to sbdakota

    Hi sbdakota,

    Logically speaking, when a loan is paid back a portion in a monthly basis, it will have interest calculated and need to be paid also.  That's the reason why I have the second entry in my first reply as follow

    Dr. Loan

    Dr. Interest

    Cr Cash or bank

    To the best of my knowledge, $7184 is the interest, but not your loan.  So you should put that to interest expense.  If you do not need to pay this amount in one payment but allowed to spread out evenly at the end of each month, you will put a portion of this $7184 to the interest expense account.

    You may want to talk to your accountant or bookkeeper if the suggestion above does not fit your specific situation.  

    You can find a accountant partner from the the link below

    edirectory.accpac.com/simplysearch

    Hope this helps.

  • 0
    verified answer

    Thanks Keith. Yes that does help.  Thanks again.

  • 0 in reply to Roger L

    Thanks crbookkeeping to provide more information and point to the right direction.