Most loan payments have two parts:
Principal pays down what you owe. It goes to your loan account on the balance sheet, not your P&L.
Interest is an expense.
Splitting the two keeps your balance sheet accurate and makes sure your interest expense is right at tax time.
Before you start: You'll need a loan account in Ambrook. If you haven't set one up yet, see Adding a Loan Account.
Paying a mortgage? See Tagging Mortgage Payments, which also covers escrow for property taxes and insurance.
Paying down a line of credit? See Managing a Line of Credit.
Step 1: Find the principal and interest split
Your loan statement, your lender's online portal or your amortization schedule shows how much of each payment went to principal and how much to interest. Keep it handy for the next steps.
Step 2: Itemize the payment
In the Ledger, find the transaction from your bank for your loan payment and click the three dots next to it. You can also click the transaction to open its details and scroll down.
Click Itemize.
Add a line item for the principal: enter a description (for example, "Principal") and the amount.
Click New Line and add a line item for the interest.
Check that Amount Remaining is $0.00, then click Done.
The line items now appear nested under the transaction in the Ledger. That's where you'll tag each one.
Paying by check? Itemize isn't available for check transactions yet. Instead, create a bill with separate line items for principal and interest, then match the check as the payment for that bill.
Already tagged the payment? Remove the tag (see Unlinking Transfer Tags), then itemize it.
Step 3: Tag the principal
In the Ledger, click the Category button on the principal line item.
Choose Liability Adjustment under the Record on Balance Sheet section.
In the To field, select your loan account.
Click Record.
This lowers the balance of the loan on your balance sheet.
Is your loan account syncing transactions through your bank? Use the Account Transfer tag and match the principal line item to the payment in the loan account. A Liability Adjustment on a connected account counts the principal twice. See Working with a Connected Loan account.
Step 4: Tag the interest
Tag the interest line item to your interest expense category, such as Non-Mortgage Interest.
If your lender only reports interest at year end
Some lenders only report total interest once a year. You can also use this method if you'd rather not split every payment.
Tag each full payment as a Liability Adjustment to your loan account.
When you know the interest amount (usually from your year-end statement), add one expense transaction directly to the loan account for the total interest paid for the period.
Tag it to your interest category, such as Non-Mortgage Interest.
Why this works: Tagging the full payment to the loan lowers the balance by too much, because part of each payment was really interest. The interest transaction in the register adds that amount back, so the loan balance matches your statement and the interest shows up as an expense.
Frequently Asked Questions
My payment includes a late fee or other charge. How do I tag it?
My payment includes a late fee or other charge. How do I tag it?
Add another line item when you itemize, and tag it to the appropriate expense category.
My loan payment is interest-only. Do I still need to itemize?
My loan payment is interest-only. Do I still need to itemize?
No. Tag the whole payment to your interest category.
Can I set up an automation for my loan payment?
Can I set up an automation for my loan payment?
Not for the full split. The platform doesn't currently support automations for itemized transactions, and the principal and interest amounts usually change a little each payment. If you have several months to catch up on, bulk tagging can speed things up.
My payment didn't come from my bank account. How do I record it?
My payment didn't come from my bank account. How do I record it?
For example, it was paid from a personal account, taken out of a grain check or paid off with insurance money. See Recording Loan Payments That Didn't Come From Your Bank Account.
My loan balance isn't going down or doesn't match my lender's statement. What should I check?
My loan balance isn't going down or doesn't match my lender's statement. What should I check?
See Troubleshooting Loan Balances.
I paid off my loan. What now?
I paid off my loan. What now?
if the balance is now $0, you may close the account within Ambrook to remove it from future balance sheets. See Closing or Reopening an Account for steps on how to do that.