How to Deduct a Personal Loan from a Partnership Account

Sometimes events may arise in your personal life that make it necessary for you to obtain a cash loan. If you are a partner in a business and the business is doing well, obtaining a loan from the partnership business may be a quick and simple way to solve your problem. Generally Accepted Accounting Principles (GAAP) require that all financial transactions of a business are accurately and completely recorded on the accounting books. It is especially important to properly record any distribution of cash to an owner in the event of an audit by the Internal Revenue Service.

Things You'll Need

• General ledger

Instructions

1. Create a Partner Loan account in the Liability section of the general ledger.

2. Record the amount of money loaned as a reduction to the Checking account in the Asset section of the general ledger. GAAP considers a reduction to an asset account a "credit."

3. Record the amount of money loaned as an increase to the Partner Loan account. GAAP considers a reduction to an asset account a "debit."

Tips & Warnings

• If you are not certain how to record a partner loan, consider hiring an accounting professional to assist you.

• If the loan will be for a period longer than a month, the partner receiving the loan should be charged interest on the account at the current lending rate for personal loans. If the partner is not charged interest, the IRS can choose to view the loan as income to the partner receiving the loan.

References

• "Principles of Accounting"; A. Douglas Hillman, Richard F. Kochanek, Corine T. Norgaard; 1991