What is Credit financing?
A credit transaction occurs when a creditor gives the debtor products, services, or money in exchange for a promise of future payment. The creditor will usually charge interest on such transactions. In addition, credit financing has been especially crucial in developing nations, where it is often the only source of funds for small businesses to startup or manage their cash flow.
What is Microcredit?
Microcredit is originated in 1983 with the idea coming from economist Muhammad Yunus and he hopes to decrease the growing wealth gap. It is a typical type of microfinance that entails a small loan given to a person in order to assist them in becoming self-employed or growing a small business. Low-income borrowers comprise the majority of microcredit borrowers list. It's also more popular in developing nations, as it's designed to help those from low-income backgrounds.
What is PEMULIH microcredit financing?
In Malaysia, the People's Well-being and Economic Recovery Package (Pemulih) is announced and it aims to assist individuals and businesses in overcoming the challenges brought by the COVID-19 pandemic and the MCO lockdown. Cash assistance, government subsidies, further Bantuan Prihatin Rakyat (BPR) payouts, and a COVID-19 Special Aid are all part of the PEMULIH package.
One program rolled out under the Pemulih package is the microcredit financing program. This program provided acceptable rates that would not pressure micro-entrepreneurs and would help people retain their businesses by providing lower interest rates than other types of loans.
Furthermore, on June 28, 2021, our president announced that the government will expand the microcredit financing program with an extra budget of up to RM1.1 billion to assist micro businesses. Micro-entrepreneurs have a total of RM3 billion in microcredit financing, which includes the previous allocation for this year.
In this blog, we will guide you on how your company can record such a credit facility into your account with TreezSoft.
How to record credit financing obtained from banks/governments? (e.g. PEMULIH microcredit financing)
Scenario:
Let's assume that your company obtains a RM100,000 credit financing from the government that must be repaid within 10 years. The interest rate per annum is 3%.
1. To received loan drawdown from the government, you will need to raise a journal entry and record the transaction as below:
- Debit Bank Account
- Credit Loan Account
Record this process in TreezSoft by navigating through General Ledger > Journal Entries > New Journal Entries.
A. Select the Date for the Journal Entry.
B. Select the Currency used.
C. Write down your Description for the Journal Entry.
D. Record the entry for Received loan drawdown.
Debit the bank account that received the loan drawdown.
Credit to the loan account.
E. Enter the amount of the loan.
F. Click on Save to record the transaction.
2. To make a monthly repayment of the loan (including principal & interest), the calculation will be as below:
Total interest for 10 years
= 100,000*3%* 10 years
= RM30,000
Interest to be paid per month
= RM30,000/120 months
= RM250 per month
Loan per month
= 100,000/120 months
= RM833.33
Total amount to be paid monthly
= RM833.33 + RM250
= RM1,083.33
Therefore, your monthly repayment should be RM1,083.33. You will need to record the transaction as below:
- Debit Loan
- Debit Interest on loan
- Credit Bank
A. Select the Date for the Journal Entry.
B. Select the Currency used.
C. Write down your Description for the Journal Entry.
D. Record the entry for make monthly repayment of the loan.
Debit the loan account.
Debit the interest on loan account.
Credit to the bank account that repaid the loan.
E. Enter the amount of the monthly repayment.
F. Click on Save to record the transaction.
*Repeat step 2 monthly to record your monthly payment until the loan is fully paid off.
As such, you can easily record your company's loan transaction in Treezsoft Accounting in just a few steps.
You can read more on related topics in TreezSoft by visiting these links:
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