334 Long Term Debt

Liabilities

Long Term

Synopsis

Account 334 is established to record the portion of loans, which are due beyond the next 12 month period.  The current portion of such loans (due within the next 12 months) is recorded in Account 314, Notes Payable – Other.

Debits

Credits

  1. Prepaid interest

  2. Payments made

  1. Obligations payable not due within 12 months

  2. Expired portion of prepaid interest

 

Example 1

Record the cash received on a capital loan to the dealership from a bank.  The loan is for $250,000 and is to be repaid over 60 months.

Journal: Cash Receipts

Entry:

 

Debit

Credit

Account 201

Cash on Hand

$250,000

 

Account 334

Long Term Debt

 

$250,000

Example 2

Record the monthly payment of $4,718 for the above loan that is due on the last day of the month.  The amount of principal is $3,676 and the interest is $1,042 distributed to each department as shown in the example below.

Journal: Cash Disbursements and Purchase

Entry:

 

Debit

Credit

Account 334

Long Term Debt

$3,676

 

Account 079-01

Interest – Notes Payable Other – New Vehicle Department

$219

 

Account 079-02

Interest – Notes Payable Other – Used Vehicle Department

$156

 

Account 079-03

Interest – Notes Payable Other – Lease & Rental Department

$21

 

Account 079-05

Interest – Notes Payable Other – Mechanical Department

$198

 

Account 079-06

Interest – Notes Payable Other – Body Shop Department

$104

 

Account 079-07

Interest – Notes Payable Other – Parts & Accessories Department

$188

 

Account 079-09

Interest – Notes Payable Other – General & Administrative

$156

 

Account 202

Cash in Bank

 

$4,718

Comments

A credit balance represents amounts NOT DUE within 12 months from the current operating report date and not secured by real estate or vehicles. 

Note:

A detail of these liabilities should be made in this account or a suitable subsidiary record. This detail should indicate which notes, if any, are eligible for the Qualified Long Term Debt Working Capital Exclusion by meeting the following three criteria:

1. The note must be payable to the owner of a substantial equity interest.

2. Principal payments must be restricted to profits.

3. The amount to be excluded is limited to 50% of the Working Capital Standard.