Basic Loan Accounts Setup

Basic Loan Accounts Setup

Occasionally a business may need to borrow money to fund capital investments e.g. purchase of equipment. When the company borrows money, the correct process is to  record the loan as a liability in the accounts and track the loan deposit amount and each loan payment that made to reduce the liability


To add a Loan account and link income/expense accounts to it is a 3 step process:
  1. Setup a Liability (Loan) Account
  2. Setup an Other Income Account
  3. Setup an Other Expense Account
  • These accounts will be used to show the income and expenses to and from the loan.
  • This income account will be used for withdrawing funds from the loan. Use this account to set the loan principal, and any time the amount owing needs to increase (i.e. Interest etc.)
  • This expense account will be used for loan repayments (or to reduce the amount owing on the loan).

 

Step 1: Setup a Liability (Loan) Account

  • Click on Chart toolbar option

ii. Click on the Liabilities tab
iii. Click Add
iv. Add the liability account details - Account Type - Liability; GST Category - 11. Non- Reportable Receipts
v. Click OK save

If using Cashbook Platinum, the Reporting Group will most likely be either 8-810 or 8-850. If working within a consulting group, please check with them as to which reporting group should be used. This can have an affect on advanced budgets and reporting.

Depending on which Chart template was chosen on initial setup of the company, there are already a number of different loan accounts setup. These include: Commercial Bill, Fixed Term Loan, Variable Loan, Private Loan, both short term and long term liability accounts. If the current loan falls into one of these loan types, use the existing accounts. Alternatively, either Add a new account or Edit an existing unused account

For example:

Step 2: Setup an Other Income Account

Still in Add to Chart of Accounts window:
  • Click Add
  • Add the Income account details - Account Type - Other Income; GST Category - 11. Non- reportable Receipts; Balance Sheet Link - loan account created in Step 1
  • From the Balance Sheet Link drop down menu, select the Liability Account that has just been created eg. 852 - Fixed Term Loan LTL Account
  • Click OK to save

For example:

 

Step 3: Setup an Other Expense Account

Still in Chart
  • Click Add
  • Add the expense account details - Account Type - Other Expense; GST Category - 10. Non- Reportable Receipts; Balance Sheet Link - loan account created in Step 1
  • From the Balance Sheet Link drop down menu, select the Liability Account that has just been created eg. 852 - Fixed Term Loan LTL Account
  • Click OK to save

For example:

 

For information on how to record a loan income transaction click here.



Article ID 1989