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If a Loan Has Been Made to a Related Party

question 979

Essay

If a loan has been made to a related party, what are some considerations for determining whether the loan is a bona fide debt or is, in fact, merely a gift?


Definitions:

Net Income

The company's net income following the deduction of all costs and taxes from its total revenue.

Investing Activities

Transactions involving the acquisition or sale of long-term assets and investments, reflected in a company’s cash flow statement.

Financing Activities

Activities that result in changes in the size and composition of the equity capital and borrowings of the entity.

Operating Activities

Activities that relate to the core business operations of a company, including revenue and expense transactions.

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