Pawn and cash loan accounting
I operate a small Pawn business that pawns mainly cars.
For example, someone brings me a car worth say 20,000 and wants to borrow 5,000 I then park the car in storage, give the client his 5,000 and give him a month to bring me back
6,500 and collect his car. It works well but I am unsure how I should record it in the accounts.
I already have the petty cash and cash book up and running.
All cheques written out are captured in the cash book under their specific headings - ie what they are used for,Rent,Water, Wages and Goods purchased.
I am unsure how I should capture the document I give to the borrower. Should I record the original amount 5,000
or the amount including his fees 6,500
It is very confusing as sometimes the borrower does not return and then I keep the car for resale.
I would really appreciate your assistance in setting up a very simple set of accounts as I am a retired 65 year old trying to make a living and cannot afford to hire a fancy accountant.
Many thanks, your site is so very helpful
I'm glad you found my site helpful!
And, yes, this is a tough one! I've never done any accounting for a pawn shop, but I'm going to give you my thoughts.
When you're on what we call 'the cash basis' you record revenue when you receive the money, and you record an expense when you disburse the money.
The initial transaction
should be treated as a loan.
Which would mean we'd make an entry for the disbursement of cash and book a receivable for the loan amount, and then unearned revenue for the interest amount.
Unearned Pawn Revenue(liability).....$1500
Cash in Checking.....................$5000
Next, let's say the customer comes back with $6500 to get their car.
You record this in two steps...
1.a receipt of cash
2.the earned income
Cash in Checking.......$6500
This erases the receivable and records the cash received.
Unearned Pawn Revenue..$1500
Earned Pawn Revenue................$1500
This moves the income from unearned to earned.
OR, let's say they don't come back, and the car is now yours.
You now have an asset, worth $20,000, that you paid $5000 for. But in your business, any products that become yours are more like Inventory, like clothes are to a clothing store. And you record Inventory at cost.
Then you sell the car for $15000.
Cash in Checking......$15000
What I've done here is counted the car as Inventory for sale in your store. Then when you sell it, you have decreased your Inventory of products available to sell, so you take it out of your Inventory account at the cost you paid for it. The rest of the money you made is basically your 'sale'.
Does that make sense?
You mentioned above that you'd like some help. I'm going to send you a personal email, Sue, so look for an email from this website - small-business-accounting-info.com.