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Dave CPA, Accountant
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When securing a long term loan for business, which is paying

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When securing a long term loan for business, which is paying off other shorter term liabiities how should the loan be recorded? The bank made the payments directly after closing. Should the proceeds be journalized as cash with an offset to liabilities for the new loan and then record the pay-offs of the old liabilities; or do you just swap liability entries with no entry to cash?



Welcome to Just Answer,


Your intuition is correct.


You will want to record the cash activity (inflow/outflow) so your cash flow statement is correct and have a proper audit trail.


Entry 1.


You would debit cash and credit long term loan payable for the proceeds


Entry 2.


Debit shorty term loan payable credit cash.


This would have zero impact on your cash balance, but when you prepare your cash flow statement you will be able to see the extinguishment and the boarding of the long term note.


Please let me know if you have any questions before you rate my answer. A positive rating is what I strive for. Regards Dave

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