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Entering a Loan Payment With Interest

How to record loans, principal, and interest payments

Paige Wyler avatar
Written by Paige Wyler
Updated this week

When you receive a loan for operating or capital expenses, you’ll be able to keep track of this loan on your balance sheet as a liability. As you pay down the loan, your balances will be updated accordingly.


Adding a Loan Account

To record a loan, follow a few simple steps to get a custom account set up on your balance sheet:

  1. Go to your Balances page on the left hand navigation panel. On the right hand side of the page, click on “New Balance Sheet Account” and select the type of liability you want to create.

  2. If this is an existing loan that you’re adding to Ambrook, list the opening balance as of the last date you computed the remaining balance. For example, you may have calculated your balances at the end of the last year as part of tax preparation. You’ll likely set this balance as a Liability (Credit) - this will show up as money you owe on your balance sheet.

  3. If it’s a new loan, you can set the opening balance as zero. Then, when the cash inflow shows up on your ledger as a deposit in your bank account, you can mark that amount as a loan transfer to add it to this account.

  4. If the deposit transaction does not show up on your ledger, you can adjust the balance of the loan by selecting the account and selecting “Adjust Balance”. This will create a transaction on your ledger associated with this loan account. If you’re using this cash inflow for an asset purchase, then it will be easy to also tag that transaction to the correct asset account.


Tagging Principal Repayments and Interest

Either monthly or annually, you’ll likely have transactions on your ledger that reflect principal and interest payments on the loan. When you see these transactions, you can:

  1. Click on the transaction to pull up the transaction details. Payments will generally come in monthly and include both principal and interest, so you'll want to split them out. You can do this by clicking on the transaction and clicking on Add Line Items.

  2. Identify the principal and interest portions of the payment. This will be on your loan statement or in your bank portal. You'll end up with two line items: one for the principal and one for the interest. An example of this filled is below.

  3. Tag the principal repayment as a “Liability Adjustment”, and select the loan account it belongs to. This reduces the balance of the loan account on your balance sheet.

  4. Tag the interest as your interest expense category. It’s important to split these out for both tax purposes and for maintaining an accurate balance sheet.

Always ask your accountant for guidance on specific treatment on your loan accounts.

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