School Loans Rec from Fran's perspective  7402-02   ZZar

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                             TO:  Interested Schools                                                                                     FROM: Jim Bramer, Retired Auditor-CPA
                                                                                                                                                               FILE:  7402-02/schar

                              RE:  School Loans Rec from Fran's Perspective                                        Originated:  January 2002

          Below is a hypothetical Online Email thread (THRD) between  and a MFTeam member: PAT (Ministry Executive), LEE (Ministry Volunteer Board Treasurer), or FRAN (Ministry Computer Bookkeeper).  


CPA = C)ertified P)ublic A)ccountant
Crisis Fund = Money collected by the School to assist applicable Late Payers
DBA = D)oing B)usiness A)s 
Irish Story = depiction of a parent having both child and finance problems at a School
Late Payor = People responsible, usually a parent, for monthly unpaid School Tuition and Fees who do NOT make payment on time and the School ends up loaning them money.
Outsource = having a third party perform some duties/tasks for you
Schar = Sch>ool A>ccounts R>eceivable
School = Christian School who charges Tuition and Fees

From:  Fran - - 
    Just finished reading  7401  where you set forth some ways to cope with those Parents/Students who do not pay on time; your name for them is Late Payors. I believe I understand what you mean when you say that the School is loaning them money.  However, I need to cover some precise  'how to'  matters with you from my position as School Bookkeeper using the latest version of QuickBooks Pro to account for such money due us.

From: Jim --
    Good .... please take time to "digest" the material when you go to  7010  -- including the list of Outsource Companies  as it will be within context of much of what I discuss later.
    Also let me know if you have an  'how to'  questions about doing the bookkeeping for what happens as explained within  7403  when the School gets paid by the Credit Union and the Parent now owes the Credit Union -- as agreed at the time of registration.
    I suggest that we cover your topics considering Outsource Accounting first and then the different Methods as suggested in   7401.

From:  Fran - - 
    OK, let me discuss the above "Outsource Accounting" with you first where Tuition only is involved.  Let's suppose that we provided the "Outsource Company" the necessary information whereby 200 Parents/Students  owe us an average of $300 or month for 9 months, or we should ultimately get $60,000 a month times nine, or the Tuition Income for the year is  $540,000. 
     As I understand it, one way is to pay them their fees in monthly installments and get $60,000 of Tuition Income for each of the nine months from the Outsource Company; they worry about all of the billing, collection and Late Payor issues in getting the $60,000 during the time of the contract.  
    Another way is for us to receive a percentage only of the actual $540,000 that they collect.  If so, I would set up a separate 2002-2003 QB Receivable  account under their name and debit this account for $60,000 a month ( I would follow your post-dating process for the $60,000 somewhat like you discuss in  7617  and credit Tuition Income.  Let's suppose that $54,520 came to us during the 1st month and $3,480 (6% of $58,000)  went to the Outsource Company before we received it.  
    The entry is a debit of $54,520 to Cash, a debit of $3,480 to the School's Outsource Fee Expense and a credit to the 2002-2003 QB Receivable account for the $58,000 total.  
    By the end of the year, a total of $540,000 would be debited to the 2002-2003 QB Receivable account.  Let's also suppose that, after all of the year's credits flowing from the above process, the unpaid debit balance in the 2002-2003 QB Receivable account is $7,500.  The School will write this off at the end of the School year as Bad Debts Expense since this represents money that they were not able to collect.
    During the next school year the Outsource Company would continue to make collections and remit the residual to the School as we place it into the above 2002-2003 QB Receivable  account.  In subsequent years we would periodically zero out this credit balance and show it as Income.

From: Jim --
    Very good!  I basically agree with the above accounting process since it reflects the Tuition Income as earned and the Outsource Expenses when incurred -- or the School is on the needed accrual basis of accounting.  The Outsource Companies will have their own way of doing things, but I believe it would simply be a variation from the two methods you describe above.  

From:  Fran - - 

    I have examined 7401 again and I believe I basically understand the Foundations that you present.   Let's suppose that the School has taken the indicated steps to enable us to function via the  Methods  you mention.  I will probably need some clarifications as we go through with this, but let me write down how it seems that  I would care for my duties.

     Roberta is the HOMER (Mom at Home) who manages the the Acme Loan Company (the name of this separate department of the School) and she is approximately a half hour away from the School.

     I have set up The Acme Loan Company via the QBOE via the Web system.  Both Roberta and I can access it via the Internet and our respective Computer systems.

    Let's suppose that this Parent agreed at the time of registration to pay their monthly balance on the 10th of this month. and if NOT paid on the 11th business day after it was due, or the 22nd of this month they are charged a Late Fee of $15.00.

   They also agreed that they would become a Late Payor if this balance was not paid by the time that next month's balance is due.  This means that they are also charged a Loan Fee of $50.00 and they now owe the total, plus Interest,  to Acme Loan Company  ... not to the School. 

   Let's suppose that this Late Payor owes for $300.00 Tuition plus three different charges during the month that total $57.50, or a monthly unpaid balance of $357.50 that was due April 10th.  So by now the total amount due is $372.50, or $357.50 plus $15.00 Late Charge fee.  This $372.50 is still unpaid by May 10th so they are charged a loan fee of $50.00 and they now deal with  Acme Loan Company for a total of $422.50, or $372.50 plus $50.00.

   As the School's Bookkeeper it is my duty to Email (or snail mail) all of this information to the Late Payor.

   On the School's books I post the $15.00 Late Fee and the $50.00 Loan Fee charges and transfer the Late Payor's  $422.50 account balance to a "Due from Acme Loan Company"  --- clearly showing needed transaction information. 

   Then I go to the Internet and access the Acme Loan Company and set up all of the basic data for Late Payor .  Then I enter the $422.50 as a QB Loan Receivable due from this party.  At the same time I establish and post the $422.50 to a "Due to School" liability account.  I then send a QB Invoice over Acme's letterhead to the Late Payor  -- I send to them via the QB Email options available, but I let the Late Payor know they can make their loan payments here at the School..  The intention is for the Late Payor to suppose that they are dealing with a Loan Company and not with the School and therefore give it the attention that they might not afford the School.

From: Jim -- 
    Right on ......  this way the School no longer has a Receivable from the Late Payor ..... it has been moved to a Loan due to Acme.   And Acme shows both a Receivable and a Payable.  At this point it sounds a little redundant with quite a bit of extra transaction processing, but I think all will see that it is accomplishing the purpose.  
    Now please tell me how you would handle the different reactions that the Late Payer might have

From:  Fran - - 

    OK, let's begin with the Late Payor paying off the following week what is owed to the Acme Loan Company:

   >> Option one:  They come into the School within the following week and pay off the amount of the loan plus interest due (let's suppose $12.55) with either a check or money order made payable to  Acme Loan Company.  We endorse (we arrange with our bank so we do not include the School's name on the endorsement stamp) the check/money order and make a separate deposit to our School's bank account.  On the School's books I would add $435.05 ($12.55 plus $422.50) to our Bank and credit Due from Loan Company $435.05.  Then I would use QBOE via the Web to access the Acme books and debit Due to School $435.05 and credit Interest Income for $12.55 and reduce the Late Payor account by the $422.50; ultimately showing that they no longer owe anything on their loan.    If, let's say, a $240.00 partial payment is made, then the Interest Income of $12.55 is the same, but the amount paid on the loan is $227.45.
   >>  Option two:  The Late Payor goes to the Acme Loan Company web site where the web site walks them through the computation of the $12.55 interest due on the loan; they make their $435.05 payment using their VISA credit card while at the site. I ultimately learn of this action so I use QBOE via the Web to access the Acme books and debit Due to School $435.05 and credit Interest Income for $12.55 and reduce the Late Payor's account by the $422.50; ultimately showing that they no longer owe any thing on their loan.  The $435.05 went to the School's bank account so I need to also reduce amount due from Acme by $435.05.  The charge for processing this VISA credit card payment is included with the other such charges to the School for this month.
   >>  Option three:  the Late Payor contacts Roberta direct and she determines the Interest charge of $12.55 and they get the money to her.  She deposits either the above partial payment of $240.00 or the $435.05 to the School's Bank, as if I were doing it, and does the bookkeeping on Acme's set of books using the QBOE via the Web system.  When I do my weekly reconciliation of the amount due the School appearing on both books I discover the difference and make the necessary entries to the School's set of books. 

From: Jim --

    You definitely have  the picture of how to record the respective transactions, Fran.  Of course, when the Late Payor does not pay timely then it will be Roberta representing Acme who will need to do the appropriate dunning and follow through until they pay their loan. Roberta, representing Acme Loan company, will follow the School Board's policies on this.  This might include such things as:  >> contact the Late Payer every 10 days; >> under certain circumstances, not accept either Credit Card or Check payments - only Money Orders; >> and/or turn it over to a collection agency or wage garnishee -- or like action.
    How would you handle it if the Late Payor gets a $300.00 grant from the CRISIS FUND?    

From:  Fran - - 

    Well, I would need to get the $300.00 on both sets of books ... on the School's books I would charge the CRISIS FUND and credit the Due from Acme asset account.  On Acme books I would, via the QBOE via the Web  system, charge the Due to School  liability account for the $300.00 and credit Interest Income, for let's suppose $45.67, and reduce  Late Parent's Loan Receivable account by the balance, or $254.33  -- with full explanation.

From Jim    

Ok, now share what happens if the Acme Loan Company was on your set of books, etc. 

From Fran

    The School's QuickBooks set of books handles everything.. Go to  0658  for more details of how our School handles two separate Schar Control accounts.
    The first one is for the usual
School Acct Rec (Schar) Account for current unpaid amounts due until amounts become a loan;  and the second if for the Prepaid Tuition that is transferred to income as earned. 
    The Acme Loan Receivable control account would be established and managed as if it were a separate DBA of the School as unpaid balances become loans and loan and interest payments are made by the Late Payors.  I would coordinate with Roberta like in the above arrangement.  We likely will have a QBOE via the Web arrangement so both of us have independent means of knowing what is going on with each Loan, but we'll see how it goes.

From: Jim --

        As we conclude these matters, I need to mention the following:

  •   Any loan for this year must be paid off before any Tuition and Fee payments begin for next school year.

  •   Continue to be very sensitive to Late Payor's crisis situations that are not of their choosing so that the School's CRISIS FUND can be appropriately used to make Loan principal and interest payments, etc. 

  •    Execute the Board's policy when it is appropriate to provide assistance anonymously so Late Payor does not know where the help came from and the Late Payor can expand their trust in the Lord.

  •   Following the Board's policy, Roberta makes third party hard nosed "pay the loan or else" decisions and care for such matters as making bad credit known,  and even garnishee wages; etc. 

  •   As much as possible not directly impact the Late Payor's relationship with the School or the student continuing at the school. etc. 

  •   Roberta handles phone calls from/to Late Payors; she also does the agreed dunning .... phone, email and snail mail etc.

    Please click here for a list of Schar resources on .The bulk of this Publication originated in January 2002.  Click here and go to List of threads (THRDs) at . UPTD: March 09, 2012