How should I record loan repayments in my bookkeeping?

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Expert Bookkeeping Services · Accepted Answer

Split a loan payment between principal, interest and any applicable fees. Principal reduces the loan liability; interest is usually recorded separately as an expense, subject to the relevant accounting and tax rules. Use a lender statement or repayment schedule The whole bank payment is not normally an expense. Set up the borrowing as a liability and use the lender's statement to identify how much of each payment reduces principal. Interest, arrangement fees and insurance can have different accounting treatments. Do not use a fixed split indefinitely when a variable rate or revised agreement changes the repayment profile. Check the balance each month Reconcile the loan ledger to the lender's closing balance and account for new borrowing, fees and unpaid interest. Retain the agreement and evidence of how funds were used. If a loan is from an owner, related company or overseas lender, obtain advice on documentation, interest and disclosure requirements before assuming it works like an ordinary bank loan.

How should I record loan repayments in my bookkeeping?

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Detailed answer

Use a lender statement or repayment schedule

Check the balance each month

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