When you lend money to another person or business, the money you're owed is an asset on your balance sheet, called a loan receivable. When the borrower pays you back, only the interest is income. The principal simply reduces what you're owed.
Recording the loan this way keeps it off your P&L. Otherwise, the money you lent could show up as an expense and the repayments as income, which would misstate your profit.
Adding the Loan Account
Adding a Loan You Made Before Starting Your Books in Ambrook
Go to Accounts and click "New Account".
Choose Other Current Asset if the loan will be repaid within a year, or Other Long-Term Asset if it will take longer.
Name the account after the borrower, for example "Loan to J. Smith".
Set the Starting Date to the date you're starting your books in Ambrook.
Set the Starting Balance to the principal the borrower still owed you on that date.
Save the account.
Adding a Loan You Made After Starting Your Books in Ambrook
Go to Accounts and click "New Account".
Choose Other Current Asset or Other Long-Term Asset, and name the account after the borrower.
Set the Starting Date to the date you made the loan and the Starting Balance to $0.00. Save the account.
Find the withdrawal for the loan on your Ledger, then tag it as an Asset Adjustment to the new account. This moves the amount onto your balance sheet instead of your P&L.
Tip: Attach your loan agreement to the withdrawal for the loan, or, if you made the loan before starting your books, to the first repayment you tag. This keeps the terms and repayment schedule with your records. See Managing Receipts in Ambrook for how to attach files.
Tagging Repayments
When the borrower pays you back:
Click the deposit on your Ledger to open the transaction details.
If the payment includes both principal and interest, scroll down and click Itemize.
Add a line item for the principal and a line item for the interest. Your loan agreement or amortization schedule shows the split.
Tag the principal as an Asset Adjustment and select the loan account. This reduces the balance you're owed. It won't appear on your P&L.
Tag the interest to Interest Income. This is the only part that shows up as income on your reports.
If the borrower doesn't pay interest, tag the full deposit as an Asset Adjustment to the loan account.
When the balance reaches $0, see How to Close a Loan Account.
Always ask your accountant for guidance on how to treat loans to others, especially loans to family members or loans without interest, since these can have tax implications.