Bookkeeping is an essential part of doing business. You will have to keep track of all your financial data which includes loans and other business transactions. There is a process in recording loans so that they are recorded and can be reflected in your bookkeeping. There is a process in recording loans for your business. Propel Your Accounting is here to share the steps that are necessary in recording a loan for your business.
Recording Loans & Loan Payments
Borrowing money, or taking out loans is part of doing business. This is especially true when your business is just getting off the ground. During this time, it is essential that you have record of loans that the payments in your bookkeeping process for your company. Accounting is an essential part of doing business and finding success. Here are the steps necessary when recording loans and loan payments:
– Record the Initial Loan: The first step in the process of borrowing money is recording it. This will be a record showing that you have receive the loan and that there is a liability there. If the loan is a short term loan, it will be recorded as a current liability. If it is a long term loan, it is a long term liability.
– Record Loan Interest: The worst part of borrowing money is paying back interest. Unfortunately, it is simply part of the process. It is vital that you know the details of the interest you are going to be paying. Now that you have recorded the initial loan, you need to record the interest and how it is going to be paid. It needs to be treated as an expense.
– Record Interest Payments: If you have made a payment after the interest has been recorded or accumulated, you will simply record it in the books under debit to the “interest payable” account. You will enter the amount there and it will reduce the amount of money you owe for interest. You will also credit the “cash” account with the amount that you paid in interest so it is also recorded.
– Record the Loan Payment: The last step is to record the loan payment. The way that you pay the loan will differ depending on the type of loan you have. There are three types of loans you could be dealing with, unamortized loans, amortized loans, and periodic loans. The way that you record them will depend on the type of loan that you have.
Bookkeeping, Accounting, Business Consulting & HR / Admin Services in the United States of America
If you are unsure of how to record loans as a lender/debtor, you can turn to Propel Your Accounting to help you with all your bookkeeping needs. We will ensure your record keeping is done with precision so that you know exactly what your financial picture looks like. We will partner with you to ensure your accounting needs are being met. Call us today!
