Loan amortization refers to the process of making fixed periodic payments that cover both interest and principal. Over time, the interest portion of the payment decreases, while the amount applied to the principal increases.
Key Components:
· Loan Principal: The original amount borrowed.
· Interest Rate: The cost of borrowing.
· Loan Term: The duration of repayment (e.g., 3, 5, or 10 years).
· EMI (Equated Monthly Installment): The fixed monthly payment amount.
· Amortization Schedule: A detailed breakdown of each payment.
Managing Loans in QuickBooks
Steps to Record a Loan:
1.Create a Bank Loan Account: Set this up under Non-Current Liabilities.
2. Record the Loan Receipt:
· Debit: Bank Loan Borrower (Amount Received)
· Debit: Bank Charges (Processing Fee)
· Credit: Lender Account (Total Loan Amount)
3. Track Monthly Payments:
· Debit: Interest Expense
· Credit: Bank Loan
· Debit: Bank Loan
· Credit: Bank Account
Pro Tip:
Utilize QuickBooks’ Import Data feature to streamline the tracking of loan installments (availability may vary by region).