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accounting research for a college project
Patrick Axle, borrows $50,000 from the company and placed a note in his desk drawer, promising to repay the loan. Patrick did not record the loan and therefore did not report the loan on the company's balance sheet.
Should Patrick have borrowed the money ? Should the loan be recorded and reported on? If so, in what kind of account should the loan be recorded?
Not recording this loan in the company's books is theft. This example applies to the secretary who takes money from petty cash to the owner who misrepresents the company's position to shareholders. The account should be labeled appropriately as "related party loans" as an asset - usually long term. When looking at a company, financial analysts will usually compare this amount to capital since its a way for a shareholder to pay themselves back without removing capital.
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