How should the repayment of a loan be recorded in terms of expenditures and liabilities?

The correct treatment for the repayment of a loan in governmental accounting requires recognizing the reduction of the liability associated with the loan, as well as the outflow of cash. When a loan is repaid, the entity reduces its outstanding balance on the Tax Anticipation Notes Payable, which reflects the obligation to the lender. This is accomplished by debiting (subtracting) the Tax Anticipation Notes Payable account.

Simultaneously, the cash account is credited (subtracted) to reflect the cash outflow associated with the repayment of that loan.

In governmental accounting, the expenditure linked to the borrowing would typically be recognized when the cash is used for the purpose of the loan, rather than at the time of repayment. Therefore, the correct recording in this scenario shows a debit to the liability account and a credit to cash, which aligns with the method of accounting for loan repayments.

This proper recording ensures that both the financial position (through liabilities) and the cash flow (through cash) are accurately reflected in the financial statements, which is fundamental in government accounting practices.