Steps
- Treasury → Loans → + New loan: the lender / borrower, the policy (its rate, term and frequency fill in - change them if this agreement differs), the amount, the start date and the bank account. Save: the repayment schedule is worked out.
- Approve it (someone else above the policy’s limit).
- Drawdown when the money moves: borrowed - Dr bank / Cr the loan; lent - Dr the loan / Cr bank. The schedule runs from that date.
- Accrue interest (one loan, or every loan at month end from the register): the interest of each instalment due goes into the books on its due date, once - Dr interest expense / Cr accrued interest (lent: Dr interest receivable / Cr interest income).
- Repayment: interest fallen due is paid first, oldest first, then principal; more than the instalment is a prepayment. Dr accrued interest (and any interest not yet accrued straight to expense), Dr the loan / Cr bank - the mirror image when we lent.
- When the principal and the interest due are paid, the loan is repaid (closed). A repayment entered wrongly is voided (latest first) - its journal reversed and the money movement voided.
Good to know
- The register shows what is outstanding, the interest due, arrears, what falls due in 30 days, and the part due within 12 months (current) - the rest is non-current.
- Loans are in the local currency; the money moves through the bank or cash account like any other payment and appears on its statement and reconciliation.