We have what we call a ‘Directors Loan’ facility. What this means is that the Director of a company may put their own cash in the company, and it become a Liability which can be repaid to the Director.
I have been able to create a Directors Loan account under a Liability. Easy!
What I’m struggling with is how to enter £5,000 and then transfer that £5,000 to the bank account as a cash amount.
I’ve tried to do is via an Inter Transfer, with no luck - as it shows bank accounts only.
Have also tried to do a Journal Entry, but no luck as it doesn’t show bank accounts.
Assuming the facility is simple interest, the interest technically does not increase the liability.
If you have not already done so, you will need to set up an expense account for interest. Interest can then be entered through a Payment posted directly to the expense account.
If the interest will not be paid until later, you can set up the Director(s) as Suppliers (e.g. “Director A interest payable”). Then create a Purchase Invoice to the Director and post it to the interest expense account; set the “Due date” to the day the payment will be made. This will create a liability in Accounts Payable for the unpaid interest. (It is best practice to keep the liability of the loan principal separate from the liability for unpaid interest).