USA Loan Payments

[nilghar]

I have a simple question regarding how to book loan payments. Whenever vouchering the vendor monthly statement, let's say car loan, should i book the principal and interest portion as shown on my amortization schedule or the actual principal and interest amount showing on the bill? Normally the bill shows the principal and interest amount one cycle later.Say, the March statement shows the actual payment allocated between principal and interest for February. Please advise how its been normally booked ?

Thanks!

 

[bruceingram1958]

In my case, I have a loan showing as a liability on my balance sheet. What I did was I billed it to pay it. So, it shows as an expense to the company. Because liabilities or loans have a positive credit balance, in order to reduce it you’ll need to debit that account. The offsetting credit then will be to reduce cash. But take note that most loans come with interest. Repayment of loan principal also is not an expense, but interest is. To book the entry, you should debit an interest expense account while offsetting it with a credit to cash.

It will look like this:

Debit to Loan Liability $principal
Debit to Interest Expense $interest
Credit to Cash $payment amount