by footloose » Sun Nov 20, 2011 07:14:31 PM
@TJ.brooks
After reviewing the many posts, I have finally put this jig-saw puzzle together. As you previously said, you shouldn't have to be a Forensic Accountant in order to understand a member's problem. Becuse it was not properly explained, outlined and detailed it has caused much confusion. It is an unusual situation and most people would not be able to understand what had actually happened. And so, I am going to explain exactly what happened not only for your benefit but for the benefit of our members.
Our member "freedom" owned an incorporated company. Located within her store was a terminal that was used to process "in-store credit cards". These "in-store credit cards" were financed by Citi Financial, a subsidiary of CitiCorp, a large U.S. bank. A customer could make a purchase in the store by using the "Citi Financial in-store credit card" and the funds would be deposited directly into "freedom's" corporate bank account.
The terminal was also used by a customer who wished to apply for an "in-store credit card" All that would be required is the customer's name, address and some form of identification such as a driver's licence number, OHIP number or their SIN. Once this information was entered into the terminal, the application process begins and within 60 seconds, the terminal would either approve or disapprove the application. If the application was approved, it would print out a form about the size of a cheque stating the approval number, date approved, name of the applicant and the credit limit. This now becomes a TEMPORARY "in-store credit card" If a customer wished to make a purchase that same day in the store, the terminal operator would simply enter into the terminal the information shown on the TEMPORARY "in-store credit card along with the sales price of the merchandise and this would then be charged directly against the TEMPORARY "in-store credit card" and the sale proceeds deposited directly into the corporate bank account. The PERMANENT "in-store credit card " would then arrive in the mail from Citi Financial with 1 - 2 weeks. There would be no need to "activate" this card as you would if you received a Visa or MasterCard in the mail because it was already activated when the customer received a TEMPORARY card in the store.
Now, as you know, with all credit cards including Visa, MasterCard, Amex and "in-store" you can make both purchases on the card and make a cash withdrawal. On some cards, your cash withdrawal amount is a percentage of your credit limit on the card while on other,cards, the cash withdrawal amount is only limited to the available credit remaining on the card.
With a Visa or MasterCard, you can make a cash withdrawal at a bank or at an ATM machine subject, of course, to the total daily limit allowed on the card. However, with an "in-house credit card", you cannot withdraw funds at a bank or at an ATM machine. You must call the issuer of the card and arrange to have funds transferred to a bank account. It matters not whether the bank account is a Savings, Chequing or Business bank account.
What happened in the case of "freedom" is her bookkeeper applied for an "in-house credit card" by supplying "freedom's" name, address and SIN. Within 60 seconds, she was approved and the credit limit was established. With this information, the bookkeeper contacted Citi Financial to arrange for a cash advance equal to the amount of the credit limit established and directed Citi Financial to deposit these funds into the corporate bank account. Loan repayments were made from the corporate bank account on behalf of "freedom" until such time as no further loan paymnts were made. The credit card went into arrears and because "freedom" was incapacitated due to her accident, Citi Financial believed that recovery of any outstanding amount would be NIL. A decision was then made to sell the account to a debt buyer, namely, CRS. CRS purchased this debt, determined that the Limitation period for commencing a legal action had not expired, issued a Statement of Claim to which no defence was filed and obtained a Default Judgment.
If this debt was incurred about 10 years ago as it appears to be from "freedom's" post, then under the old Limitation Act which was in effect up to December 31, 2003, the Limitation period was 6 years. For debts incurred from January 1, 2004, the Limitation period is 2 years.
From an accounting perspective, when the funds were deposited from Citi Financial into the corporate bank account, this would be shown as a Liability on the corporate Balance Sheet as a Shareholder Advance. Any subsequent payments made by the corporation to Citi Financial would be charged against the Shareholder Advance account and would reduce the Liability on the Balance Sheet.
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Educating one Consumer at a time