Accounting for loan repayments

Apr 3, 2019
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I work for a financing company and we have been approached by another company who provides specific funding for individuals.

They have a loan that was issued with no interest payments during grace period and the first repayment starting end of this month. They would like our company to take over the repayment collection process for the whole loan amount. Details of the loan are as follows;

Loan Amount: 4 Million
Interest Rate: 8%
Loan Tenure: 10 years
Grace Period: 6 months

I am having trouble understanding how we can account for the repayments in our books since they have already released the fund and we would be accounting for the repayments alone. The repayments has to be accounted as a "liability" in our books the funds as they are repayable to them upon request or be issued as a revolving fund if they request it to be release to another party as a loan again.

They have agreed to a management fee of 1% of the loan amount which we can account for as an income.

Need guidance on how we can account for them in our books and the specific journal entries



VIP Member
May 12, 2011
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United States
You are "servicing" this loan. When you receive payment from the borrower you will record a liability to the other company, then pay that as requested by the other company. You need to determine if you can set up automated billing through your financing system to automate billing to the borrower to eliminate manual entries.

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