Recording Loans in WorkingPoint
Topic: Double-entry Bookkeeping,How-to,Tips & Tricks | Comments Off on Recording Loans in WorkingPoint
Another frequent question I get is how to record a loan in WorkingPoint. Even during good economic times, businesses need an injection of cash for one reason or another. If you have recently taken out a loan or you want to bring one over from your previous system into your new WorkingPoint account, follow these simple steps to record it in WorkingPoint.
Common Types of Debt
If your business borrows money, the debt is called a liability. Debts can be short-term (or current) or long-term liabilities. The determining factor is the terms of the loan or how long you have to pay it back. If you are likely to pay it back in a year or less, it is a current liability and if it will take longer than a year to pay off, it is a long-term liability. Figuring out the type of debt is the first step in knowing how to record it on your books.
Once you have the type of debt figured out, you can follow these steps to record the debt and the debt payments:
1. Create an account to track the debt
From the Accounts List, add a new account (other current liability or long-term liability) for the loan. Enter a description and name the account so you can easily identify it in your Accounts List.
2. Record the loan
How you record the loan depends on if you bought something with the money or if it was just a cash infusion. Here is how you would handle either:
Purchased an asset
- Create a Fixed Asset account to track the asset value.
- Add an Adjusting Entry to record the purchase – debit the Fixed Asset account and credit the Liability account you created in Step 1.
- From the bank account that you deposited the loan into, choose Record Transaction > Deposit. Enter the Contact name of the person or institution you borrowed from, the date of the loan, the amount and for the Bookkeeping Account choose the Loan account you created in Step 1.
Making Loan Payments
As you make payments on your loan, you can record the transaction from your bank account (Record Transaction > Payment or Purchase) and use the Liability account as the Bookkeeping Account. Each time you make a payment you are reducing your cash and reducing your loan balance. If your payment includes interest, add a line to the Payment or Purchase transaction and enter the amount of the interest paid and choose your Interest expense account so it does not come off the loan balance (since interest is in addition to the loan) and so you can track the interest you paid (which is generally deductible).