How do I deal with company loans?
Contents
Summary
This article will explain how to deal with Company Loans and how to add them to the system so that you can show the loan amount, each individual fee or charge that may incur by having the loan as well as interest on the loan. This article will also explain how to make a payment against the loan.
More Information
Creating the Nominal Codes
Start by creating the nominal codes for both the loan and for the associated charges and interest. Please see How do I create a nominal code? to create nominal codes.
Loan Nominal
Set up the Loan nominal code as follows:
- Create a Nominal code with a number in the '19800' region (to coincide with standard nominal code structure), giving it the "Description" of 'Loan Control'.
- The Loan Nominal Code will need to be set up as a "Balance Sheet Indicator"'Asset/Liability' type.
Loan Interest/Charges Nominal
Set up the Loan Interest/Charges as follows:
- Create a Nominal code with a number in the 15300 region (to coincide with standard nominal code structure), giving it the "Description" of 'Loan Interest/Charges'.
- The Loan interest/charges Nominal Code will need to be set up as a "Profit & Loss Indicator"'Overhead' type.
Journalling the Loan
Go to " Nominal Ledger Journal Entries".
Loan
The first item to enter is the total amount of the loan.
- At "Entry mode:", choose 'Multiple'.
- At "Date:", enter the date at which the loan was taken out.
- At "Reversing?", choose 'No'.
- Enter the centre for the Loan Account and enter the total amount of the loan in the Credit(-) column.
 | Note: Because you are entering the value in the "Credit(-)" column, the figure will automatically be a negative amount, so you do not need to enter a '-' sign here. |
- Enter a comment of 'Total borrowed'.
- Enter the centre for the Current Bank account and enter the same figure as above in the Debit(+) column.
- The 'Nett' value should show 'Zero'.
- Press <Done> and the journal will be posted.
Lending Fee
The second item to enter is the initial charge for taking out the loan.
- At "Entry mode:", choose 'Multiple'.
- At "Date:", enter the date at which the lending fee was charged.
- At "Reversing?", choose 'No'.
- Enter the centre for the Loan Account and enter the amount in the Credit(-) column.
| Note: Because you are entering the value in the "Credit(-)" column, the figure will automatically be a negative amount, so you do not need to enter a '-' sign here. |
- Enter a comment of 'Lending fee'.
- Enter the centre for the Loan Interest/Charges and enter the figure in the Debit(+) column.
- The 'Nett' value should show 'Zero'.
- Press <Done> and the journal will be posted.
Journalling Any Interest/Charges
Each month there will be an interest charge for having the loan. This and any other charges will all get journalled in the same fashion. You will need to do this every time that a charge or interest is added.
- At "Entry mode:", choose 'Multiple'.
- At "Date:", enter the date at which the interest fee was charged.
- At "Reversing?", choose 'No'.
- Enter the centre for the Loan Account and enter the amount in the Credit(-) column.
| Note: Because you are entering the value in the "Credit(-)" column, the figure will automatically be a negative amount, so you do not need to enter a '-' sign here. |
- Enter a comment of 'Interest Charges'.
- Enter the centre for the Loan Interest/Charges and enter the figure in the Debit(+) column.
- The 'Nett' value should show 'Zero'.
- Press <Done> and the journal will be posted.
Journalling the Payments
Each month there will be a repayment against the loan that you will need to make. Again, this will be journalled into the system.
- At "Entry mode:", choose 'Multiple'.
- At "Date:", enter the date of the payment.
- At "Reversing?", choose 'No'.
- Enter the centre for the Bank Account and enter the amount in the Credit(-) column.
| Note: Because you are entering the value in the "Credit(-)" column, the figure will automatically be a negative amount, so you do not need to enter a '-' sign here. |
- Enter a comment of 'Loan Payment'.
- Enter the centre for the Bank Loan and enter the figure in the Debit(+) column.
- The 'Nett' value should show 'Zero'.
- Press <Done> and the journal will be posted.
You will need to continue in this fashion journalling all charges by the method described above, as well as journalling all payments made. With a number of loans, the interest charges will be variable, which is why the interest and payment journals have been split above for clarity.
To view the amount outstanding you will need to view the Loan Control centre. This centre will come back to zero once the loan has been fully paid.
See also
