How to record construction draw at the end of the year?

[NPH]

Do the following journal entries correct?

We mailed a construction draw in the amount of $520,000 to the Bank of America in December 29, 2006. Our fiscal year ended in December 31, 2006.

Our JE:

Debit: Accounts Receivable $520,000
Credit: Notes Payable $520,000

In January 25, we received the cash $520,000

Our JE:

Debit Cash: $520,000
Credit Account Receivable: $520,000

[JAinNC]

Not sure what you are saying?

"We mailed a construction draw in the amount of $520,000 to the Bank of America in December 29, 2006. Our fiscal year ended in December 31, 2006."

Are you the construction company who is receiving the construction draw?
Are you the the financer distributing a construction draw to a building contractor?
Are you having construction done for your company?

Maybe I am a little dense tonight..... but I don't know what transactions exactly happened in the above quoted sentence.

[BOB W]

Do the following journal entries correct?

We mailed a construction draw in the amount of $520,000 to the Bank of America in December 29, 2006. Our fiscal year ended in December 31, 2006.

Our JE:

Debit: Accounts Receivable $520,000
Credit: Notes Payable $520,000 >>>>>> THIS SHOULD BE CREDIT TO SALES>>>>>

In January 25, we received the cash $520,000

Our JE:

Debit Cash: $520,000
Credit Account Receivable: $520,000

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX

[Black Bart]

My questions

"We mailed a construction draw in the amount of $520,000 to the Bank of America in December 29, 2006. Our fiscal year ended in December 31, 2006."

Are you the construction company who is receiving the construction draw?
Are you the the financer distributing a construction draw to a building contractor?
Are you having construction done for your company?

are the same as Jeannie's. From the way your question is presented, I'm not sure who you are -- builder, builder's client, other?

When you say you mailed a construction draw TO the Bank of America, that sounds like you sent them a check. But banks don't ordinarily get draws, so do you mean that you are a construction company and you sent an application FOR a $520,000 draw from the bank? If yes, then Bob's right.

P.S. What's confusing is that your credit to "Notes Payable" indicates you're the customer who is paying to have something built.

[BOB W]

It looks like you are trying to account for construction expenses that are still unpaid (accounts payable) on Dec 26th in your original entry. There is also an assumption built into your entries that you are on an accrual basis of accounting. Depending on your over all gross sales you may be required to report income and expenses of a "percentage of completion method".

If under accrual method, you would take your unpaid expenses and credit A/P and debit Materials,Subs, etc. This would better match Income with Expenses for 2006 P & L. (% of completion is the most accurate.)

Please give more info on prior years reporting method.......................

[JAinNC]

When we hear from NPH

we will have enough info to give you a clear answer.

Our posts may seem that we are putting you down for not asking the question so we can understand. That is not our intention. I know that we all (and I most definitely) have a wordage and sentence structure problem from time to time. Typos, I can blame on my tired keyboard. Incomplete thoughts, I can blame being human.

Jeannie

[NPH]

We are NOT a constrution company. We are the real estate developer. We have the loan agreement with the bank. Construction draw is like construction billing to the bank... We spent the money first, then we billed the bank to get reimbursement. After the bank reviewed the construction draw, they paid us the money we spent (construction contractors invoices).

[JAinNC]

Okay

I knew I was on the wrong page. Now that you have told us you are a developer, and posted some more information in general, I will say your journal entry may be correct.

Without detailed transaction data on these accounts - not sure.

Jeannie

[Joe Btfsplk]

Land developer

As I understand it, the money was spent and the appropriate accounts were debited and cash was credited.
Then money was borrowed from the bank to replenish the funds expended.

I see no reason for the first entry. It does not seem that there is a Receivable. It seems that the only entries would be to record the cash received and credit Notes payable.

Then, when payments are made on the note, you should debit Notes Payable and credit Cash.

[abby]

how was the original Note recorded?

If the full amount borrowed was booked, then the amount not received in cash would have to have been recorded in some kind of deferred or suspense account and that would be the account hit when the money was received - against the Receivable or the Cash.

If only the cash received originally was booked to the Note Payable, then you would be increasing the Note each time the bank released money and then your entry seems appropriate.

Whether or not you need to record the anticipated Cash as a Receivable or just wait until the Cash arrives to record the increase in the Note would depend on year end issues that aren't clear to me, so I can't speak to that.

Hope that helps.

[NPH]

As I understand it, the money was spent and the appropriate accounts were debited and cash was credited.
Then money was borrowed from the bank to replenish the funds expended.

I see no reason for the first entry. It does not seem that there is a Receivable. It seems that the only entries would be to record the cash received and credit Notes payable.

Then, when payments are made on the note, you should debit Notes Payable and credit Cash.

Thanks a lot. I think we should not book anything when we mailed the construction draw in December.