Loan

Journal entry for loan payable

Loans taken from bank or other financial institutions can be maintained in output books as

• Secured Loan
• Unsecured Loan

Secured Loan

Secured loans are loans backed with something of value that you own. This is called collateral. Common examples of collateral include your vehicle or other valuable property such as jewelry, land etc..

How to record secured loan in Output Books?

Scenario 1 : A term loan was taken from ABC Bank Rs.1,00,000 at 10% rate of interest. It was to be repaid in 4 monthly installments of Rs.25,628.

Principal and Interest repayment chart

Steps to follow

1. Create an account for bank if not exists.
2. Create a loan account.
3. Post Journal entry at the time of loan received.
4. At the end of each month record journal entry for paying principal and interest.

1. Create an account for bank if not exists

• Navigate through Accounting > Chart of Accounts > New Account.
• Provide ABC Bank in Name
• Select Bank Account from the Group drop down.
• Check Active and Save.

2. Create a loan account

• Navigate through Accounting > Chart of Accounts > New Account.
• Provide Loan Account in Name
• Select Secured Loans from the Group drop down.
• Check Active and Save.

3. Post Journal entry

At the time of loan is taken, record the journal entry as follows

• Navigate through Accounting > Journal Entry on the left side panel.
• Select the ABC Bank account from the drop down.
• Enter the loan amount[here Rs.1,00,000] in the Debit column.
• In the next line, select Loan account from the drop down.
• Enter the same amount in the Credit column.
• Enter Notes for reference. For instance, here we entered as ‘Machinery Loan – 10% interest. EMI – Rs.25628.   4 monthly installments’.
• Click Save.

Similarly at the end of month 1, record the journal entry for interest and principal as follows

At the end of month 2,

At the end of month 3,

At the end of month 4,

Unsecured loan

An unsecured loan is money that you borrow without using collateral. Common examples of unsecured loans include credit cards and personal loans.

How to record unsecured loans in Output Books?

Scenario 2 :  A loan taken from Dev & Co. Rs.50000 at 14% rate of interest without any collateral. It was to be repaid in 6months including the interest.

Steps to follow

1. Create an account for bank if not exists.
2. Create  Dev & Co. loan account.
3. Post Journal entry at the time of loan received.
4. Record the interest expense.
5. Post Journal entry, at the time of loan repayment.

1. Create account for bank if not exists

• Go to Accounting > Journal Entry > New Journal.
• Provide Bank name in NAME and select Bank account under the Group dropdown
• Click Save.

2. Create Dev & Co. loan account

• Go to Accounting > Journal Entry > New Journal.
• Provide Dev & Co. Loan Account  in NAME 
• Sselect Unsecured Loan under the Group drop down
• Click Save.

3. Post Journal entry at the time of loan received

Post journal entry to record the loan as shown below

4. Record the interest expense

Post journal entry to record the interest expense as shown below

5. Post Journal entry, at the time of loan repayment.

At the time of loan repayment, we paid the loan amount together with the interest.  That is recorded in journal as below: