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Retiring Long Term Liability
11/7/09 6:18 AM, Viewed by asker 11/10/09 3:28 AM
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Total Views: 25
I took out a loan against my company's profit sharing plan. I made monthly payments for about a year, then decided to pay the tax penalty and not pay back the remainder of the loan. How do I retire the Long Term Liability loan balance?
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Answer
11/9/09 2:41 PM
Since you have retained the dollars inside your company, the transaction will be a debit to reduce the loan to zero and a credit to either your capital account or to a Loan Payable - Owner.
Comment
I understand the debit journal entry to retire the loan. However, I am confused about applying a credit to either a capital account or a Loan Payable-Owner. I do not have either of these in my chart of accounts. Do I need to set one of these up? If so, which one and why? Also, what type of accounts are these? Equity? etc.