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?
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.
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.
