Sometimes one may either underpay or overpay a loan or advance. For example, a settlor advances a trust some money and the trust over pays the debt resulting in a loan to the settlor from the trust.
Over repayment of loan to trust
When monies are paid by the trust to a third party in respect of repayment of debt this is recorded using the Repay debt transaction. In the case of an overpayment there are two options one may take:
- Record the overpayment using Repay debt which will leave the account with a credit. The effectively turn the account from a loan to the trust to an advance from the trust.
- Receive payments from the third party to pay down the advance using Acknowledge debt. Although there is no debt acknowledgement per se and these are in fact debt repayments, this approach achieves the same outcome.
The second approach is to separate out the loan from the advance.
- Create (if not already created) Advance loan account in the name of the third party.
- Split the payment recording the portion of debt repayment using Repay debt against the non-bank loan account used to record the original advance (now clearing the loan to the trust) and the balance with Advance loan to the loan advance account created in (1).
- Receive subsequent payments from the third party against the loan advance account created in (1) using Recover debt.