Step 1 – RECORD THE PURCHASE and SET UP THE LOAN

 

I always find it easiest to set up loans with a straight journal entry .

  • a DEBIT to the appropriate FIXED ASSET Account (ie. GENERAL POOL ASSETS) for the GST exclusive cost of the Asset purchased with the CAG code to add the GST
  • Make sure you put the Supplier name in the journal line so that the journal comes up when you do any reports or searches by the supplier.
  • Then a DEBIT to the “LESS UNEXPIRED INTEREST” account (set up as a sub account of the Loan Liability Account) for the total amount of the interest over the period of the loan;
  • a DEBIT to the PREPAID BORROWING COSTS Asset Account for any application fees etc (unless only a 1 year loan in which case it is an expense account);
  • a DEBIT to any other EXPENSE Accounts that are part of the purchase (ie. Car Rego/Greenslip when a car purchase) with their appropriate GST codes;
  • a CREDIT to the DEPOSITS PAID Asset Account for the amount of any deposit previously paid,
  • and the remaining CREDIT to the LOAN LIABILITY Account itself (which if you have done the whole thing correctly will be for the amount of the loan itself).

NOTE 1: An alternative to doing a straight journal as above, f you desperately want the purchase to be entered as a Bill,  is to enter the bill for the purchase (with the CAG code, and the expenses broken down as described above), then pay the Bill using a Clearing Account (ie. GENERAL CLEARING ACCOUNT – set up as a BANK type account). Then you can do the journal entry for the loan itself, which will be similar to above without the purchase itself in it – a DEBIT to the “LESS UNEXPIRED INTEREST” account for the total amount of the interest over the period of the loan; a DEBIT to the PREPAID BORROWING COSTS Asset Account for any application fees etc, a DEBIT to the GENERAL CLEARING ACCOUNT for the same amount as the bill payment you have just done (this then clears the Clearing Account), a CREDIT to the DEPOSITS PAID Asset Account for the amount of the Deposit previously paid, and the remaining CREDIT to the LOAN LIABILITY Account itself (which as above, if you have done the whole thing correctly will be for the amount of the loan itself).

 

NOTE 2: In both cases the original Deposit paid should have been entered against the ASSET Account DEPOSITS PAID either through WRITE CHEQUES or ENTER BILLS, with no GST code, so that this entry will now clear the Deposits Account also.

 

 

Step 2 – RECORD THE MONTHLY LOAN REPAYMENT

 

When you record the loan repayments the repayment is best done through WRITE CHEQUES and then memorised to record automatically for the life of the loan – in a simple one line transaction with the amount allocated directly to the Loan Account itself (with NO GST CODE).

 

Step 3 – RECORD THE INTEREST FOR THE YEAR

 

At the end of the year you can do a single transaction (or spread them over the year with 12 memorised transactions) for the total amount of the interest for the year (as per an Amortisation Schedule or from a Loan statement itself) as a DEBIT to the INTEREST Expense Account, and a CREDIT to the LESS UNEXPIRED INTEREST Account.