Recording a Loan

Last Updated: Jan 08, 2015 08:37PM PST

Learn how to record a loan, from setting up loan accounts to tracking interest payments

The way a loan is tracked depends on what type of loan you are tracking. There are two types of loans you can track:

  1. Line of Credit: Which is a bank account that you can freely take money in and out of
  2. Fixed Loan: Which is where the entire loan amount is deposited into your bank and then you repay the loan on a set time frame (like once a month)

In both cases you will need to track recurring interest payments.

Creating and tracking a line of credit

Three are three parts to working with a line of credit:

  1. Creating a new account
  2. Putting money into and out of the account
  3. Making interest payments

1. Set up a new line of credit account

Go to the Accounts page.

Create a new account named Line of Credit with the Type set as Bank.

2. Transfer money into and out of the line of credit account

Go to the Transfers page.

To take money out, enter the Date, Amount, and use the Line of Credit account for Withdraw From and Bank Account for Deposit into.

To take money out, enter the Date, Amount, and use the Bank Account account for Withdraw From and Line of Credit for Deposit into.

3. Enter interest payments using the Expenses page

Go to the Expenses page.

For the Terms or Payment account, choose where the interest payments accrue (sometimes this is your bank account, sometimes this is your line of credit account). For the Expense Account use the Bank and Interest Charges account.

Creating and tracking a fixed loan

There are three parts to working with a fixed loan:

  • Create a new account
  • Depositing the loan amount into your bank account
  • Recording the loan payments (both the principal and interest)

1. Set up a new bank account

Go to the Accounts page.

Create a new account named Bank Loan with the Type set as Other Current Liability (for loans to be paid within a year) or Long Term Liability (for loans to be paid over the course of more than a year).

2. Transfer the money from your loan account to your bank account

Go to the Transfers page.

Use the Bank Loan account as the Withdraw From and your Bank Account as the Deposit Into account.

Note: To see your loan account you may need to select Show All Accounts

3. Enter Interest Payments

There are two ways to handle interest payments.

Method 1 - Enter the interest as a second line item when entering expenses.

Go to the Expenses page.

For the Terms or Payment account, choose your Bank Account. and for the Expense Account you will need to have two line items. For the first line item select the Bank Loan account to pay back the principal. For the second line item select the Bank & Interest Charges Expense account to pay the interest.

Method 2 - Enter the interest as on a quarterly or annual basis using the transfers page

This involves first recording the principal and interest payment into a bank loan liability account and then moving the interest payments from the bank loan account to the interest expense account. Both of these transactions will be done using the Transfers page.

Credit the Bank Loan account with the entire payment (which would include the principal plus interest).

  • Withdraw From: Bank Account
  • Deposite Into: Bank Loan

At the end of the year (or quarter) compare the balance to what the bank says you owe and transfer the difference to your interest expense account.

  • Withdraw From: Bank Loan
  • Deposite Into: Bank Charges & Interest Expense

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