Removing a Long Term Liability

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  • Updated 2 months ago
Hi Community,

Last year our not-for-profit received an interest free loan from a benefactor; I recorded this as a deposit to a Long Term Liability account in their name. The benefactor has now come back and said they would like to gift the loan to us; we do not need to repay it ever.

How should I record this in Reckon to remove it as a Long Term Liability?

Thanks in advance!
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Bridget

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Posted 2 months ago

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Kris Williams

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I would record it as an income account - Donations or Gifts received. Go back to original entry and change it there, then delete the liability account if that’s all that was in it 
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John Graetz

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Kris.  I don't believe that is a good move from a couple of points of view.  You are changing something historical back in time which is going to affect your P&L in a different time period, which will also have an affect on your BAS, not that there will be any GST involved.  Apart from that, it removes the historical fact of what actually happened and changes it to something which did not happen back at the time of the original transactions.  This would also likely have a significant effect to your Annual Report if it happened in a different year.
The ideal way to handle this would be to use a General Journal Entry to clear from the Liability Account and send it off to donations, under the date of the change in character.  Probably the best way to do that would be way of an interim suspense account and then to record the change in character by way of a donation which will have the opposite side of the transaction to the interim suspense account.  Ultimately, you really should be issuing a normal receipt for the donation so that the donor can see what has happened.  If you do not deem that to be necessary, you can just use a General Journal out of the Long Term Liability Account into your donations account.
John L G 
(Edited)
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Kris Williams

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Yes I didn’t think about it being in a previous financial year, all you say of course is the ideal way. Just follow John’s advice Bridget
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Bridget

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Thank you, John and Kris, for your advice! It's greatly appreciated.
I'll give John's suggestion a go, and hopefully it will resolve my issue. Have a great weekend!
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Kevin Russell, Accredited Partner

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Kris it isn't income
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Kevin Russell, Accredited Partner

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Bridget I would use the journal to transfer from Liabilities to Equity or Reserves
(Edited)
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Bridget

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Thanks for the advice, Kevin! I appreciate your time on this.
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John Graetz

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Bridget.  In view of the diverse ways that you have been given in which to cater for your situation, you should seriously considering passing this to your Accountant to get their advice as to the correct method to use.
John L G
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Bridget

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Hi John, yes - I think that would be the best given the varied advice. Thanks again!