What account 6820 is for
A partner company lent you money for 3 months. This is not a bank loan, so it does not go to 6810. Such a loan has an account of its own: 6820. Until the repayment date, it shows how much you still owe.
Account type
In the chart of accounts, 6820 has type P (liability) and belongs to group 6800 "Short-term loans and borrowings". A liability account normally has a credit balance: the bigger the debt, the bigger the credit balance.
The group and its sub-accounts
Under paragraph 291, group 6800 has four accounts:
| Account | What it records |
|---|---|
| 6810 "Short-term bank loans" | Short-term loans received in accordance with legislation (para. 292) |
| 6820 "Short-term borrowings" | Borrowings received from lenders other than banks |
| 6830 "Bonds payable" | Funds raised through bonds with a term of no more than 12 months |
| 6840 "Bills of exchange payable" | Bills issued to lenders, to be repaid within a year |
What goes to the credit side
Under paragraph 293, money received from the lender is recorded on the debit of the cash account and the credit of 6820. The rows of the table in paragraph 296:
- a borrowing is received: Dr 5110-5530, Cr 6810-6820 (row 1);
- inventories are bought out of the borrowing: Dr 1010-2910, Cr 6810-6820 (row 2);
- a debt to a supplier is paid out of the borrowing: Dr 6010, Cr 6810-6820 (row 3).
What goes to the debit side
Under paragraph 293, repaying the borrowing received is shown on the debit of 6820 and the credit of the cash account. From the table in paragraph 296:
- the borrowing is repaid: Dr 6810-6820, Cr 5110-5530 (row 4);
- the borrowing is repaid out of the funds of separated divisions: Dr 6810-6820, Cr 6110 (row 5).
Analytical accounting
Under paragraph 293, analytical accounting for 6820 is kept separately by lender and by repayment date.
Where people go wrong
- Look at the term. The limit for 6820 is clear: "for a term of no more than 12 months" (para. 293). If the term is longer, the borrowing goes to 7820 (para. 333).
- If it is a bank, use 6810. When the lender is a bank, the amount goes to 6810, not 6820. Choose by who is lending under the contract (practical tip).
- Open a separate card for each lender. Write the contract number and the repayment date on the card so it is always clear what is to be repaid and when (practical tip).
Main journal entries 5
Debit and credit are as in the model table of Appendix 2 to NAS No. 21. The transaction text briefly restates the table row.
| Transaction | Debit | Credit | Source |
|---|---|---|---|
| Short-term loans and borrowings received | 5110–5530 | 6810–6820 | NAS No. 21, para. 296, row 1 (in the table: 6810-6820) |
| Inventories purchased out of short-term loans and borrowings | 1010–2910 | 6810–6820 | NAS No. 21, para. 296, row 2 (in the table: 6810-6820) |
| Debt to suppliers and contractors paid out of short-term loans and borrowings | 6010 | 6810–6820 | NAS No. 21, para. 296, row 3 (in the table: 6810-6820) |
| Short-term loans and borrowings repaid | 6810–6820 | 5110–5530 | NAS No. 21, para. 296, row 4 (in the table: 6810-6820) |
| Short-term loans and borrowings repaid out of the funds of separated divisions | 6810–6820 | 6110 | NAS No. 21, para. 296, row 5 (in the table: 6810-6820) |
Example
Marg'ilon Shirinliklari LLC (a fictitious confectionery workshop) borrowed 40,000,000 soums for 6 months from a partner company. Another lender paid 12,000,000 soums directly to a supplier on its behalf. At the end of the month the LLC repaid 20,000,000 soums. The amounts are taken for illustration only:
| No. | Transaction | Dr | Cr | Amount, soums |
|---|---|---|---|---|
| 1 | The partner's borrowed money reached the bank account | 5110 | 6820 | 40,000,000 |
| 2 | Debt to a supplier paid out of the borrowing | 6010 | 6820 | 12,000,000 |
| 3 | Part of the borrowing repaid | 6820 | 5110 | 20,000,000 |
Source of the entries: 1 is para. 296, row 1; 2 is row 3; 3 is row 4.
Calculation for 6820:
| Item | Amount, soums |
|---|---|
| Credit turnover (1, 2) | 40,000,000 + 12,000,000 = 52,000,000 |
| Debit turnover (3) | 20,000,000 |
| Credit balance at the end of the month | 52,000,000 − 20,000,000 = 32,000,000 |
The balance is 32,000,000 soums: that is how much has not yet been repaid. The total of the analytical cards (one per lender) must come out to the same figure (example prepared by the author).