Accounting question: loans to someone else

[Robin Coon]

Although I am an Accountant, it's been a while since I've done much with 
personal financial statements.

The loan you gave is an asset to you.  When you funded the original loan 
you would have credited cash and debited an asset account such as Notes 
Receivable.  As payments are received you would debit cash, credit Notes 
Receivable for the principle and interest income for the interest 
portion.  The balance in the loan asset account should always represent 
the principle amount of the loan that is due at that time.

Here's an example. I made a loan with the following terms:
Pinciple Amount - $20,000
Term - 5 years with 12 payments per year
Annual Percentage Rate: 8%
Monthly Payment: $405.53
Most spreadsheets have a built in function to calculate the payment.
In Open Office I believe it is a Financial Function called PMT)

When the loan is first made, the accounting entry will be:
Debit  Notes Rec.    $20,000
Credit Cash                   $20,000

When the first payment is received:
Debit   Cash         $405.53
Credit  Notes Rec.           $272.20
Credit  Interest Income      $133.33
Interest paid = $20,000 * (8%/12)

The balance of the Notes Receivable is now $19,727.80

When the second payment is received:
Debit   Cash         $405.53
Credit  Notes Rec.           $274.01
Credit  Interest Income      $131.52
Interest paid = $19,727.80 * (8%/12)

The balance of Notes Receivable is now $19,453.79

The amount received in interest and principle changes each month.

After all this, I think the way you could reflect the "sell" value
of the note on the balance sheet would be to make an adjustment
to the account to re-value it from historical cost to present value.
The offsetting account would probably be something like unrealized
gains/losses.