Setting up loans and making repayments
This support note explains how to record the receipt of money derived from a loan and also how to record the loan repayments.
Here's what's involved:
This task involves setting up a liability account which will represent the loan, in other words when the loan money is received it can be allocated to this account.
- Go to the Accounts command centre and click Accounts List.
- Click the Liability tab then click New. The Edit Accounts window is displayed.
- Choose Other Liability in the Account Type field as highlighted below (not applicable for BusinessBasics).
- Give the account a number which suits your accounts list and enter an Account Name of your choice.
- Click OK.
This task involves recording a Receive Money transaction to deposit the loan into the liability account created in the previous task.
- Go to the Banking command centre and click Receive Money. In BusinessBasics go to the Command Centres menu and choose Banking then choose Receive Money. The Receive Money window is displayed.
- In the Deposit to field, select the account where the loaned funds will be held (see image below).
- Enter the Date and the Amount Received (the loan value).
- In the Acct # column, select the liability account created in the previous task.
- In the Tax column , specify the N-T (No Tax/Not Reportable) tax code (see image below).
- Click Record.
This task represents the Spend Money transactions which will need to be recorded each time a loan repayment is made.
- Go to the Banking command centre and click Spend Money. In BusinessBasics go to the Command Centres menu and choose Banking then choose Spend Money. The Spend Money window is displayed.
- In the Pay from Account field, select the account you want to make the payment from.
- Enter the Date and the Amount of the payment.
- In the Acct # column, select the liability account created in Task 1.
- In the Tax column , specify the N-T (No Tax/Not Reportable) tax code.
- Click Record. As you record loan repayments, you will see the balance of the liability account reduce reflecting a reduction in that liability.
Tip: If your loan repayments are on a fixed schedule, save this spend money transaction as a recurring transaction.
Referring to the example Spend Money transaction above:
- The fixed amount of the repayments in this example is $550.00, comprised of $500 allocated to the bank loan liability account (to repay the loan) and $50.00 allocated to the Bank Charges expense account (for interest accrued on the loan).
- It is possible to reflect the Bank Interest and Charges in the liability account by means of the initial receive money transactions. Our support notes Hire purchase setup - GST cash basis and Hire purchase setup - GST accrual basis contain information on this.