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What is the correct way to post the "Current Portion of a Loan/s" in a long established data base where this has never been done before?
Hi Heather, there are a few ways to use the "current portion section," but I should start with some basics. First think of "Current" as anything that's going to be paid off in the current fiscal year and "Long-Term" as anything that's got payment terms exceeding the current fiscal year. Any loan amounts being paid in the current year, go into the current section and the rest go into the long term section.
For example; bought a new piece of equipment and there's a 3 year loan completed as part of the purchase. *Technically* I'd record the principal portion owing in the current year into my Current Portion of Loans and then put the remaining 2 years down into Long-Term Loans (2 accounts used for each loan with payment terms in excess of my current fiscal year). Then at the beginning of my next year, I'd move the next year's portion from Long-Term to Current, and so on. Each year I'd apply my principal payments into the current portion account to bring it down to zero annually. Eventually there is no more left for me to move from Long-Term to Current and the loan is paid off.
To be honest I don't see a lot of that happening when I'm working with users on their books. One way I've seen it done that avoids all of that journal entry work, and I actually like how this works and think that accountants wouldn't mind it either is to record all loan principal amounts owed down under long term loans disregarding the "current portion" entirely when entering the loan. When posting the loan payments the user posts them to the current portion account putting it into a negative balance. So we have our loan recorded down under Long Term Liabilities and our payments accumulating under Current Liabilities. At the end of the year, an adjustment can be done to move an amount matching my accumulated payments from Long Term to Current Portion to zero out that negative balance.
Your best option here is to have a chat with your accountant the next time you're meeting with them. Check to see how they'd prefer to see things come in to them at the end of the year regarding your loan accounts and then plan your entries accordingly. You might be able to save yourself some work :)