How to account for a loan

SystemSystem Posts: 256 admin

imageHow to account for a loan

You’ve received a loan, so you need to account for it in Wave! This article will walk you through the process of bookkeeping, both receiving your loan, and paying it off.
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edited December 11, 2018 in Help Center Discussion
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  • KarmaKarma Member Posts: 3

    No this does not work, my account in bank is reduced by the interest amount . I think it should also reduce by the pricipal but does not what is wrong

  • oukhchioukhchi Member Posts: 2

    Hi Sophia, Do i have to the transfer from checking account to loan account. or by doing the above is enough?

  • JordanDJordanD Administrator, Moderator Posts: 304 admin

    Hi @oukhchi! In completing the steps in the article, there is likely no need to complete a transfer as an additional step. The journal transactions would account for any of the movement of funds.

  • Lindsay3203Lindsay3203 Member Posts: 2

    I am receiving products for the loan, not cash. So I setup an account under Property, Plant, Equipment for me to add the Asset I am receiving but when I go to do the journal entry transaction it does not allow me to select that account.

  • James_HudsonJames_Hudson Administrator Posts: 128 admin

    Hey @Lindsay3203 , I just tried recreating this in my test account, and I was able to succesfully use a property, Plant, and Equipment account in a journal transaction.

    Would you be able to share a screenshot of the account as it shows up on your Chart of Accounts as well as as the lack of account in the dropdown menu for the transaction itself? This is just to get a better idea of what might be preventing it form showing up.

  • Lindsay3203Lindsay3203 Member Posts: 2

    I found that I had inactivated the account by accident. :( So it was my fault. Thanks for responding!

  • kbcattleranchkbcattleranch Member Posts: 2

    So if I automatically bring over my bank statement it shows a payment to the loan. What is that payment categorized as? I am assuming the generic "Accounts Payable" liability?

    Here is what I have done: I have followed the steps for accounting for the loan as described above and that worked perfectly. Now I am trying to categorize the bank statement transaction that shows the payment (I automatically import my bank statement). If I delete the bank transaction it then makes my checking account go out of balance. So basically what I am askign is how do I account for the bank transaction? As I stated above I am assuming the generic "Accounts Payable" liability?

    Thanks for any guidance you can provide.

  • Thabz_MogaleThabz_Mogale Member Posts: 1

    This article was very helpful as I used it to account for a loan I had taken before, thanks. Nonetheless, I still have a question:
    What happens when I am the one giving a loan to someone else, how do I account for that in Wave?

  • MrsGroshongMathMrsGroshongMath Member Posts: 1

    I have the same question as Thabz_Mogale. My business is loaning money to someone. How do I do that?

    Thanks!

  • theflowerminetheflowermine Member Posts: 1

    I am loaning from an individual. It is a loan that was created at the start of my business. The remaining amount is all that I have left to pay off. It is not accounting for the interest either.

  • stebuntingstebunting Member Posts: 2

    I have accounts with a loan setup in this way, although I don't use journal transactions to account for repayments. When I make a payment, the amount is automatically imported into my transactions, I split it into interest and capital amounts, assign the interest portion to the interest expense account and assign the capital portion to the loan liability account. This doesn't seem to work anymore. Why is that and how do I fix it?!

  • JamieDJamieD Administrator Posts: 1,122 admin

    @kbcattleranch That's exactly what you were need to categorize it as -- this will decrease the amount that's owed in the liability account based on the funds that you've put into it (since you are paying it off, you will be owing less).

    @Thabz_Mogale @MrsGroshongMath; First you'd create a Short-term (or Long depending on the term of the loan) asset account and call it "Note Receivable" or something along those lines. Then, you would create a Journal Entry, crediting the loan amount to the BANK and debiting the Note Receivable by the same amount. This reduces your bank balance and increases the amount receivable from the person you loaned money to. Then, when they make repayments, the bank account will be debited by the amount paid back, the Note Receivable would be credited by the principal amount, and the difference would be recognized as interest income. For example; I lend $1,000. Step 1: Debit Note Receivable 1000 Credit Bank 1000. Step 2: They pay me back $100 ($2 interest). Dr Bank $100, Cr N/R $98 Cr Interest Income $2

    @stebunting Could you please confirm exactly what happens when you split the transaction and are trying to categorize it? You should be able to split the expense transaction between an expense account and liability account for categorization.

  • stebuntingstebunting Member Posts: 2

    @JamieD said:
    @stebunting Could you please confirm exactly what happens when you split the transaction and are trying to categorize it? You should be able to split the expense transaction between an expense account and liability account for categorization.

    The liability account doesn't come up as an option in the category list, whereas it did last month.

  • Marty_DMarty_D Member Posts: 2

    This article does not describe how to create a loan for an automobile. I don't understand why I would debit my checking account for the purchase price (loan amount) of the vehicle. It seems to me that I need to create three accounts: 1. a loan account, 2. an asset account, and 3. an interest account. Each payment I make from my checking account will debit the loan account, credit the interest account, and credit the asset account until the loan is fully paid.

  • Marty_DMarty_D Member Posts: 2

    Can anyone describe to me how I should enter an automobile loan in Wave? I posted below what I thought made sense but I may be way off base. I've been using QuckBooks for 20+ years. This is my first year with Wave. Although I understood how QuickBooks was working I'm starting to realize that I may know nothing about accounting. Thank you in advance!!

  • Ryan_WRyan_W Administrator Posts: 461 admin

    Hey @Marty_D this thread is a good place to check out for that!

  • Rcritton1908Rcritton1908 Member Posts: 2

    When I'm categorizing transactionns, I don't see the option to select a liability. How does accounting for that work?

  • ZoeCZoeC Administrator Posts: 389 admin

    Hey @RCritton, the category options on your transactions should be broken down between Income accounts, Asset accounts, Liability and Equity accounts. I have attached a screenshot of what this should look like on your account. If the specific account that you need is not listed, you may need to add it!

  • Rcritton1908Rcritton1908 Member Posts: 2

    @Zoe_caff1 My screen doesn't look like that and none of the liability accounts show up when I'm selecting an account. The only option is an income account (Loan Proceeds), which is incorrect.

  • JamieDJamieD Administrator Posts: 1,122 admin

    @Rcritton1908 Under the Chart of Accounts section, could you please confirm the accounts that you have setup under liabilities and what exactly they are for? Are these specific income transactions to be categorized as a liability? If so, can you confirm why and what exactly your intended workflow is here? I'm more than happy to further assist you with this.

  • retailstore1retailstore1 Member Posts: 1

    I have a question specific to my situation. Our company uses a credit line to pay vendors directly. For example, when we need to pay our vendors $40k, we write a check directly from our credit line to the vendor. Afterwards, we write checks ($10k, $20k, etc) from our bank checking to pay down the credit line until it is paid off. It is really hard to organize this in Wave. Do I need to create manual entries to reconcile this in Wave or is there a better way? Thanks in advance!

  • JennaJenna Member Posts: 1

    New to Wave.. Seems I don't know anything about accounting. We bought a vehicle 2 years ago for the business and is still doing down payments on it. Wave shows the payment transaction going off from the bank, but where to, and how do I allocate that payment in Accounting? Please please help.
    Thanks in advance

  • Jtsumler_3Jtsumler_3 Member Posts: 1

    Hey @Zoe_caff when I select category none of my liability accounts show up. I've added them in the chart of account but the only accounts displayed under category are income, expenses, and equity. Please advise.

  • SamdSamd Administrator Posts: 560 admin

    Hey @retailstore1 and @Jtsumler_3 - I think in both cases you would need to enter in the transactions manually, either via a transfer or journal transaction. The reason for this is certain liability accounts exist as non-payment accounts, in that transactions wouldn't be run directly in or out of them like you would for a bank account with a bank card.

    @Jenna, have you recorded the value of loan for the vehicle in Wave? If not, the simplest way would be to create bills for the down payments for the vehicle, which you can then tether the expense out of your account as a payment to, to close it out. If however you've recorded the value of the amount owed as a liability, I would recommend potentially deleting the expense out of the bank, and then recreate it via a journal entry. In this case, you'd want credit your vehicle liability the value that you've paid, and then debit the paying bank account. This should decrease your bank balance, while simultaneously decreasing the amount owed. Let me know if I can clarify further!

  • MurkerlurkerMurkerlurker Member Posts: 1
    Hi,
    We also pay vendors directly from the loan and I am fine entering those manually as a transfer (a withdrawal from the loan account). We have two types of interest payments. One type is funded from the line of credit so we treat it the same as a vendor payment as described above. The other type is when we pay the interest (or fees) from our checking account. How do we account for those? If we do it as a journal transaction from our checking account we cannot categorise it as an interest payment...
  • JamieDJamieD Administrator Posts: 1,122 admin

    @Murkerlurker In this particular situation, it might be best that you would create an expense account called "additional interest fees" and then categorize the expense transaction that comes out of your checking account as that particular category that you've created. If I'm way off here, let me know and I would be happy to look into this a bit further!

  • davesecordavesecor Member Posts: 8

    I've done every thing as stated and it all works great.
    Just one question though
    What do I do with the imported bank loan repayment transaction? I cant merge it with the repayment journal transaction.
    Do I delete it?

  • JamieDJamieD Administrator Posts: 1,122 admin

    Hey @davesecor ! If you've created the loan under the liability account, each time a loan repayment transaction comes through, you will need to make sure that you categorize that payment as the liability account, that way, this will decrease the total amount that's appear in the liability.

  • PipPip Member Posts: 12

    The situation is that a small loan of about $1500 was made to a family, so that their child could go to a huge international camp event (our group paid the state group's fee directly), and the family paid back that loan weekly in installments to our bank account.
    Currently, I only have the transactions going out of and into the statement account, using an expense category of 'miscellaneous'. This shows the transactions, but I know it's not technically correct. What would the correct way to show these transactions be?

    I figure it's basically the opposite of accounting for reimbursements, but am not sure. Thanks!

  • BarsinABarsinA Administrator Posts: 355 admin

    Hey there @Pip

    Let me start off with saying it's best to confirm this with an accountant first, however I'll tell you the steps I did to recreate the situation you're having:

    1) I created an inventory asset account. Call it Family Loan asset account, if you wish.
    2) Then I created a bill for $1000, and select the expense category to be that asset account
    3) Categorized the expense from my transactions page to that bill to mark it as paid.
    4) I then created an income for $100 repayment on my transactions page and categorized the income to the family loan account which begins to balance the account as seen in this image.

    Hope this makes sense. Happy to have other peoples insight into this if anyone wishes to chime in!

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