Bank Loan as Account or Liability

So I’ve got a bank loan that we make payments to every month, so it made sense to create a liability account and record the transactions in there. However, the statements also show that interest & service fees are charged, meaning the loan amount goes up and down in amount, rather than just down. The only problem with making the loan a bank account so that I can record the service fees and interest is that it makes the loan an asset rather than a liability.

Any advice on what I should do?

You could take up those service fees and interest by General Journal - one GJ per statement.
That way you can keep the loan as a Liability

Where will I find General Journal?

You have to activate the Journal TAB under Customise (below settings), its near the bottom

Found it. So when I’m entering the service fee/interest amount into the journal, rather than using both debit and credit, I would just debit the loan liability account?

No. In double entry accounting all transactions must be balanced. Learn about this before you try to use Manager. It is a tool, requiring knowledge of fundamentals of accounting.

You need to enter both debit and credit otherwise Manager sees the entry as unbalanced and will put an entry into the suspense account. You are not doing a Bank Account Deposit/Payment type entry where the Bank Account leg is done automatically. Also you may want to track the service fees and interest in separate expenses accounts: so the entry would be
Debit Interest
Debit Service Fees
Credit Bank Loan

Alright, so as just suggested I now have three accounts within liabilities to do with my loan - the actual loan account, an interest account, and a service fee account. I’ve used journal entries to debit interest/service fee and credit the loan.

Every month the checking account makes a payment towards the loan, and thus decreasing it. However, what will happen to the interest/service accounts as the loan is paid off? Won’t those accounts remain negative?

@Bexsli, @Bexsli - The Interest and Service Fee Accounts should be “P&L” accounts because they are Expenses being incurred in having the loan, they aren’t additional Liabilities.

So you need to create the expenses accounts, amend the “existing” journal entries and then delete those additional liability accounts from the chart of accounts once their balances are zero.

DON"T and I mean DON’T do a journal entry just transferring the balances in those additional liability accounts to the P&L - even though their balance will become zero, they would still have transactions within them which means they can’t be deleted from the chart of accounts

Oh of course - thank you so much! :slight_smile:

Another option I’ve seen is the use of the suspense account when you are doing the bank transactions like you go on Bank Transactions>>New Bank Transaction>>Spend Money>>Select your Bank>> and on account leave it as Suspense

This will Debit the suspense account and credit/reduce your bank balance

Thereafter for to journal Entries>>New Journal Entry>> then Debit your bank charges to record the interest, Debit your Bank loan liability account to reduce the loan balance and credit the suspense account to clear it up and balance the journal

That way the transaction reflects nicely in the bank as well

hope i’m making sense

There is no point in doing what you describe. Just spend money and post to the loan account.

Additionally, your comment does not address the original question, which was about how to handle interest and bank charges.

Further, you were responding to a topic more than a year and a half old. Many things have changed in the program since then.