[RR33635]

What are the entries to set up (in a new company) a consturction loan with draws and interest only paid during construction project. Once occupancy takes place, what entries are made to pay loan?

[morgaine300]

This will depend on the circumstances of that loan. Is this a line of credit?

If you're getting all the cash up front, but it's going to be placed into a special account for you to draw from, you want to set up a separate asset account for it and debit that. You would then credit like a note payable.

If it's a credit line and you get it as you need it, then you're debiting cash and crediting the credit line (liability).

As for the interest, you need to know how much is being charged. I don't know if you're paying all the interest at the end of the whole term? If so, you'd have to credit an interest payable for that and debit -- well, if the loan is very specifically for the construction of a building, then it's added to the cost of the building, so it's debited to your construction in progress.

Paying it all back is the easy part: debit the liability for the note, debit any interest payable, debit any new interest that has accrued since your last accrual (still goes to the asset cost), and credit the whole thing to cash. The "new interest" will just be the difference between the liabilities you have at the time and the cash the bank wants back, so that's actually easy to figure out.

That's the best answer I can give without knowing all the details.

[dileepasampath]

Yes true.. Let me add some more points.
According to the accounting standards on borrowing costs (Eg - Interest on this construction loan), interest may be capitalized if it incurs on the particular project and if the construction is taking a substantial period to get it ready for its intended use or sale. (qualified assets as they call it).
Thus in that case you can add the interest payment to the cost of the construction.
Bowever the benchmark tratement for interest is to deal with P/L account.
I am with Morgaine300 for the rest of the answer.