newbie usage question
Jason Rennie
jrennie@ai.mit.edu
Fri, 20 Oct 2000 16:13:57 -0400
cfriedl@bigpond.net.au said:
> But I'm not clear on how to enter a loan repayment. Perhaps this is
> obvious to someone (I hope so) but not to me. If I simply enter a
> transfer of funds from the bank account to the loan account, I have a
> credit in my bank account and a debit in the loan account. This shows
> the net cash flow nicely. But how do I get this to show up in my
> income and expense accounts?
This is the way that I deal with loans. I use three accounts:
- Bank account (where money is drawn from to pay loan) type=bank
- Loan account (which indicates current balance of loan) type=liability
- Interest account (which tracks the amount of interest I have paid)
type=expense
To begin, I debit the loan account for the size of the loan. i.e. if I
take out a $5000 loan, the loan account starts at -$5000 (one can offset
this debit with a credit in an equity account).
Then, whenever I make a loan payment, I debit my bank account and credit
the loan account. This reduces the current balance of the loan. That's
not the whole story, though, as interest accrues on the loan. Whenever I
get a statement of interest, I enter it into my loan account as a debit
(increasing the magnitude of that account), crediting my loan interest
expense account.
This allows my loan account to track my current loan balance, puts the
loan proceeds in a sensible place and allows me to track the amount of
interest I'm paying (in case, for example, I can deduct such payments
from my federal taxes).
Jason Rennie www.ai.mit.edu/~jrennie/
MIT: (617) 253-5339 jrennie@ai.mit.edu