Loan interest and bank overdraft interest

[lincs]

Hi all.

Is it simply the case that loan interest and bank overdraft get lumped together when calculating the interest figure for the profit and loss account? with no exceptions?

Im guessing the answer to that is yes, its just that on a question of more academic nature it creates obscurities when calculating a gearing ratio. I dont think that a gearing ratio would use bank overdraft interest!

Lummoxed as always
Adrian

[lincs]

Surely someone in practice must of come across this?

[peugeot]

Sorry Lincs, I missed your thread!

You are correct, we generally show loan interest separate than bank charges which is correct but the practice I used to work in didn't - but they were plantpots who didn't know what they were doing! No names mentioned. But I'm sure they know who they are.

Regards
Steve

[lincs]

Do you know if in a summarised p&l the current account overdraft charges would be included with interest or administrative expenses? thanks

PS read my message in the employers forum.

PPS that thread the other day where you said I was getting upset about making a mistake, I was saying sorry - really! I wasnt saying the other guy was s leepy head I just badly worded it and was actually talking about myself.

[peugeot]

That is fantastic news Lincs - well done!! Ask away if you need to.

Bank charges are usually shown in the "Finance costs" section of the P&L. Did I send you some proformas. I have emailed them to you just in case I didn't. These are basically a transcript of a sole trader/partnership set of accounts which may be helpful to you.

Best regards
Steve

[SHEELAGH]

Peugeot
Can i just check your meaning here?
Are you saying that bank overdraft fees are treated as bank/admin charges and not bank interest?
Thank you

[lincs]

My original question, just to make it clear, was where would you put in the p & l bank overdraft interest. i.e. not bank charges as such - as far as know thats a charge for having certain types of bank account isn't it?

Or am I being a muppet?

[peugeot]

Hi Sheelagh,

Each firm/person is different. The last place I used to work used to class bank overdraft charges/interest/loan interest into one category. I, as a rule, class each as an individual. Bank overdraft interest = bank charges, loan interest=bank loan interest and interest=loan/bank interest.

Overall, it makes no difference who treats what where, but it is just personal presentation choice. In our firm, however, I prefer to have each one separate.

Best regards
Steve

[lincs]

yes but it does make alot of difference surely - maybe not accounting for sole traders and the like but when accounting for larger firms banging it into admin expenses OR finance costs could make the world of difference to a plethora of ratios and other indicators about solvency, risk etc etc blah blah blah

[peugeot]

Hi Lincs

In theory ratios and their meanings are invaluable - though in practice it isn't really that much of an issue. Yes, we look at gearing etc etc but to be quite honest bank interest classified in bank charges really don't make any difference to a set of accounts. Larger companies tend to focus more on gross profit margins and clobbering down costs rather than interest cover.

Steve