Australia Interest paid on loan

[quescre]

I have done reconciliation on loan for previous financial year and found out that interest has not been accounted for. What journal entry do I use to account for interest paid on the loan?

 

[kirby]

The interest was actually paid last year? - Which is what your title header says. If so, what account was that recorded to?
OR, was an accrual of interest expense not accrued last year?

 

[quescre]

The business owner has been paying $2050 every month as loan repayment which was inclusive of interest. For this FY, I have created a interest payable account and have accounted for loan interest payments in that account.
I am wondering how do I take out the interest component from the loan repayment from last FY and place it in the interest payable account. Sorry, if it sounds like a silly question. I am a newly trained accountant and do not know how to do it.

 

[kirby]

When you take out a loan payable, you should generate a loan amortization schedule. The schedule details how much of each payment goes to principal and how much to interest expense. You use the schedule to prepare your accounting entry for the payment and to check against the bank's loan numbers as a control device. You can generate the schedule by building your own in Excel, or using a pre-made Excel template from the Web, or buying a product like Tvalue.
Sounds like this has not been done properly last year. Anyway, the schedule will get you on the right track. Also once you generate your schedule, compare the current loan balance outstanding that you get with the bank's numbers (call the bank or ask for a statement). If the numbers do not agree, contact the bank and ask for help in understanding why not. If possible, just ask for their actual amort schedule to help you.

 

[quescre]

Thank you Kirby. I have set up loan schedule in a similar fashion as you have mentioned for a new vehicle loan.
For this older loan, I am not sure, what journal entries to make to fix the interest payable for last FY.

 

[kirby]

Leave the prior year books alone, unless the error was very significantly large.Create the amort schedule for the older loan and verify the current loan payable amount agrees to the bank’s amount. if not, adjust in the current month.

 

[quescre]

Thank you Kirby, much appreciated