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Record a Loan & Loan Payment

A loan will be lending or borrowing of money for a certain period of time and is expected to be paid back with interest. Based on period, a loan is classified into two types:

  1. Short-Term Loan which is payable in the current fiscal year.
  2. Long-Term Loan which is payable after current fiscal year.

 

There are 3 steps involved when recording a loan received and paid.

  1. Create Chart of Account
  2. Record Loan Received
  3. Record Loan Payment

 

 

Create Chart of Account (COA)

Before making any entries for a loan, you have to create 3 Chart of Accounts:

 

1. Loan Payable

  • If it's a short term then create Loan Payable under Current Liability.
  • If it's a long term then create Loan Payable under Non-current Liabilities.


2. Interest under Expense if there's interest to be paid on the loan borrowed.

 

3. Accrued Interest under Current Liabilities.

 

To learn how to create a COA, visit Manually Create Chart of Account.

 

 

Basic entries for loan

Following are the basic entries for any loan.

 

1. Loan Received

Bank A/C Dr.

      To Loan Payable A/C Cr.

(That is: Debit the Bank Account and Credit the Loan Payable Account)

 

2. Interest

Interest A/C Dr.

       To Loan Payable A/C Cr.

(That is: Debit the Interest Account and Credit the Loan Payable Account)

 

3. Loan Paid

Loan Payable A/C Dr.

          To Bank A/C Cr.

(That is Debit the Loan Payable Account and Credit the Bank Account)

 

Please note Information provided here is for general help. Please talk to your accountant before making any entries.

 

 

Record Loan Received

 

First Scenario - Unsecured Loan

ABC & Co. borrowed $60,000.00 at 12% interest that needs to be paid back in six months. This is how they are going to make the entry.

 

1. Go to Transactions and click Others.

 

 

 

2. Click Manual Voucher.

 

 


3. Click Add New.

 

 


4. Enter text 'Loan Received (Unsecured)' as Reference.

Please note Check Default Reference if you want to use the same text in Description as entered in Reference.


5. Select the Date it was borrowed.


6. Under Voucher Details, select Account from which loan is received and enter the amount received in Debit.


7. In next line, select Loan Payable (Current) and enter the loan amount in Credit.


8. Click Post.

 

As the example of Unsecured Loan given above, the entry should be something as shown below:

Bank A/C Dr. 60,000.00

       To Loan Payable A/C Cr. 60,000.00

 

 

 

 

 

Record Interest on Loan

1. Follow Steps 1-3 as mentioned above in Record Loan Received.

 

2. Enter text 'Interest on Loan (Unsecured)' as Reference.

Please note Check Default Reference if you want to use the same text in Description as entered in Reference.

 

3. Select the Date.

 

4. Under Voucher Details, select Accrued Interest Payable as account and enter the total interest charged in Debit.

 

5. In next line, select Loan Payable (Current) and enter the total interest to be paid in Credit.

 

6. Click Post.

 

 

As the example of Unsecured Loan given above, the entry for interest charged should be something as shown below:

Accrued Interest Payable A/C Dr. 3,600.00

        To Loan Payable A/C Cr. 3,600.00

 

 

 

 

Record Loan Payment

 

1. Follow Steps 1-3 as mentioned above in Record Loan Received.

 

2. Enter text 'Loan Payment (Unsecured)' as Reference.

Please note Check Default Reference if you want to use the same text in Description as entered in Reference.

 

3. Select the Date was paid back.

 

4. Under Voucher Details, select Loan Payable as account and enter the total amount charged in Debit.

 

5. In next line, select Loan Interest and enter the total amount of interest in Debit.

 

6. Next select the Bank Account and enter the total amount, including interest, in Credit.

 

7. Last, select Accrued Interest Payable and enter the amount in Credit.

 

8. Click Post.

 

As the example of Unsecured Loan given above, the entry for Loan Payment should be something as shown below:

Loan Payable A/C Dr. 63,600.00

Interest Expense A/C Dr. 3,600.00

           To Bank A/C Cr. 63,600.00       

           To Accrued Interest Payable A/C Cr. 3,600.00

 

 

 

 

 

Second Scenario - Secured Loan

Secured Loan of $100,000.00 taken by ABC & Co. This loan has to be paid back in 4 monthly EMI of $25,718.00.

 

 

 

Recording Loan Received

 

1. Go to Transactions and click Others.

 

 

 

2. Click Manual Voucher.

 

 

 

3. Click Add New.

 

 

 

4. Enter text 'Loan Received (Secured)' as Reference.

Please note Check Default Reference if you want to use the same text in Description as entered in Reference.


5. Select the Date it was borrowed.


6. Under Voucher Details, select Account from which loan is received and enter the amount received in Debit.


7. In next line, select Loan Payable and enter the loan amount in Credit.


8. Click Post.

 

 

As the example of Unsecured Loan given above, the entry should be something as shown below:

Bank A/C Dr. 100,000.00

       To Loan Payable A/C Cr. 100,000.00

 

 

 

 

Record 1st EMI for Loan Payment

1. Follow Steps 1-3 as mentioned above in Record Loan Received.

 

2. Enter text 'Loan Payment (Unsecured)' as Reference.

Please note Check Default Reference if you want to use the same text in Description as entered in Reference.

 

3. Select the Date was paid back.

 

4. Under Voucher Details, select Loan Payable as account and enter the total amount charged in Debit.

 

5. In next line, select Loan Interest and enter the total amount of interest in Debit.

 

6.Next select the Bank Account and enter the total amount, including interest, in Credit.

 

7. Last, select Accrued Interest Payable and enter the amount in Credit.

 

8. Click Post.

 

As the example of Secured Loan given above, the entry for Loan Payment should be something as shown below.

 

 

 

For next 3 payments, you simply have to change the Interest amount.

 

As mentioned above, this article is for general help. Please consult your accountant first before making any loan entries.

 

 

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