Friday, May 25, 2007

Answer to a comment from previous post

A commenter left the following on my last post:

Mike, why are accounting rules relevant? This is a matter of campaign finance laws, period. Whether or not, Matt got his debits and credits right is simply not relevant at all.
Sam

I think this is an interesting comment and that it warrants a response:

Accounting rules are highly relevant as far as the reporting of loans and how this is handled from an accounting standpoint. Let me give you a real world example of how this is handled:

Names and amount listed below are purely hypothetical...

Lets say I have a client named Bob who is starting a used car business. He starts up a small subchapter S corporation. He is a young man who just got out of the army. He does not have very much credit. His father decides to help him get a loan to start the car lot. Lets say Bob's father loans Bob personally $100,000 to start his business. Lets say Bob takes this $100,000 and loans it to his subchaper S corporation. Lets say Bob personally signs a promissory note to repay his father the full principal amount borrowed plus $500 per month in interest payments. Lets say the loan occurs on December 31st 2006.

When I do Bob's tax return for his subchapter S corporation (For 2006) I MUST list the loan on his balance sheet. I will list a loan of $100,000. All I care about (And all the IRS cares about in this case) is the fact that Bob's subchapter S corporation has a debt of $100,000. We do not care who the debt is owed to or how it is secured from a tax standpoint.

It is irrelevant from a tax standpoint and from an accounting standpoint.

Assets = Liabilities + Equity. From an accounting standpoint I do not care who he owes the loan to, what I care about is that the loan is recorded at its proper amount and that any interest payments are recorded properly.

What I am saying is that from an accounting standpoint it does not matter where the loan comes from.

I am talking about accounting not Campaign Finance Reporting.

Mike Sylvester

3 comments:

Jeff Pruitt said...

Mike,

I think I understand what you're saying but I still agree w/ Sam. Accounting rules are not relevant here - only campaign finance laws. The laws seem to be more stringent for candidates running for public office and rightfully so.

I think we all agree that the public should know who is funding a candidate's campaign...

Robert Enders said...

Let's say I have a friend named Mike who uses my name in hypothetical situations....

ROACH said...

KELTY-GATE!