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Of course it depends on the tax rules in your jurisdiction. For example here in the United Kingdom some forms of social payment (also called transfer payments) are included in assessable income, while others are not.

We are assuming from your question we are dealing with a loan from a parent company to a subsidiary. The change from a debt holding to an equity position is quite straight forward in regards to the journal entries. Shares allocated to the parent would replace the liability.

If there was the desire to not change the paid-up capital of the subsidiary with this change in funding structure, it is difficult to then nominate what the consideration would be for the debt replacement. The allocated of unpaid shares would not form consideration for the debt replacement. Whereas paid-up shares, and therefore a change in paid-up capital, would.

A loan could be replaced by debentures instead, but this is just the replacement of one form of debt for another. They both appear under liabilities on the balance sheet. Unless certain rights wanted to be removed or added, prima facie I can’t see what this would change.

What might help is the change of the debt into convertible debt. A loan could be replaced with a convertible note, that could provide an option or compulsory conversion from debt to equity at some point. This would at least delay any changes to paid-up capital for a period of time. We have a good article here about how to account for convertible debt as part of our accounting tutorial series.

This depends on whether we talking about factoring with recourse or without recourse. If you are meaning without recourse, please see our article here in our accounting tutorial series for a full explanation.

However if we are dealing with a “recourse” situation then that is slightly different. In this case the journal entry would be:

Dr Bank (funds received)

Dr Finance Expense

Cr Refund Liability

The credit is applied to a refund liability because even though the receivables have been sold there is a direct recourse back to the seller. Therefore there is still a liability in place due to the IFRS 9 “Financial Statements” de-recognition criteria not being met – unlike the non-recourse situation where that liability is not in place.

I did external auditing for a number of years and so interacted a lot with internal audit teams. I can’t say I ever came across an individual in one of these teams that expressed this to me. It’s a great opportunity to work in an organisation, performing a critical governance role. The skills developed are very transferable into other fields and generally a role that is well paid. In particular for those starting out, audit is an excellent area to in.

As many small business do, one has to maintain a record of invoices issued and payments made. In effect it’s a debtors or invoice issued ledger, ie it records who owes money and who has paid. But this ledger, or record, does not fully integrate into the accounting system because the accounting system doesn’t care about non-cash economic movements – as you point out.

Of course where the two systems do meet is when payment is received. The “off-line” debtors ledger records a payment, while the double-entry cash accounting system debits bank/cash and credits sales.

Lumber payables do not fall under PACA.

PACA stands for United States Federal Perishable Agricultural Commodities Act. The purpose of this act is to “promote fair trade in the industry”. The Act is administered by United States Department of Agriculture (USDA) Agriculture Marketing Services (AMS).

The AMS assists with business matters dealing with the trade in fruits and vegetables. In particular helping with fair business activities and assisting in the resolution of disputes between firms in the industry. One area of responsibility is dealing with payables in bankruptcy processes – but not for lumber.