How to record loan taken from the bank? And also how to record a loan given to a customer?
If you take loan from the bank, you can treat it as a bank account. So you would setup new bank account, make a big withdrawal from it which would represent loan amount and then record periodical deposits as you repay the loan.
Not sure what you mean by loan given to a customer. Do you mean payment in advance? If so, then see Guides | Manager which explains how to allocate payment to Customer advance payments account.
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Lubos can you please throw more light on the bank loan and withdrawal and repayment?
Please detail out step by step entries from the moment the bank releases the loan to you.
And also where will such loan appear on the statement of financial position? Will it appear under current Asset in red or appear as Bank loan/overdraft under liabilities?
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Considering that bank loan is a liability and creating bank loan as a bank account will move the balance under assets. In current version, I would create bank loan as a liability account under Chart of accounts. When you receive the loan balance into your bank account, simply allocate the loan amount to bank loan liability account.
When making repayments, again, allocate them to your bank loan liability account. So when you pay off your debt, your bank loan liability account will reach zero balance.
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Perfect
I have a bit of a query. I need to record a loan on the system, but it is not quite straight forward. The loan is given to a client by a law firm and my firm is only collecting the loan repayments charging interest. How do i record the original loan as there is no actual cash taken or given as a lump sum. Thank you
As you have described the situation, there may be nothing to record. Your company did not loan money, which would have created an asset while reducing your cash balance. The loan repayments are not coming to you, but to the law firm.
But are you saying that your company is somehow charging interest? This would not be correct, as interest is paid for the use or forbearance of money, and none of your money is being used. If you are collecting any money for your own firm, it would be considered a processing fee of some kind.
You also do not mention whether the amounts you are collecting are entering some type of escrow account for the law firm. That is the only case I can think of where you would enter the transactions into and out of the escrow account.
At any rate, answering your question requires more information.
What are you going to do with the loan payments once you have collected them and who gets to keep the interest? I am assuming it’s a Client of your business?
If the loan money is going to be returned to the law firm then your initial entry would be Credit BS liability account Law Firm Loan and Debit BS asset account Client Loan. As the loan payments are made Receive Money with Credit going to Client Loan account.
As for the interest there are two choices, a) if you are keeping the interest - Credit Income account Interest Received and Debit Client Loan or b) the law firm gets the interest - Credit Law Firm Loan and Debit Client Loan. Both of these would be done by Journal Entries.
Hi, once the loan payment is collected the capital is returned to the law firm and the interest is kept for us. if i record it initially as BS liability account Law Firm how do I clear it refuse it as clients pay?
You are in a delicate situation that requires meticulous accounting. The principal you receive in the loan repayments is not your company’s money. So you really need to open a separate bank account. Local law may have specific requirements on such escrow accounts, so consult with a qualified accountant and attorney. Figure out how to set up your chart of accounts so no client money mixes with your money.
Once you have done that, create an income account for the processing fee. (It is not interest, no matter what you might have called it.) Receive the payments into the escrow account. Make transfers of the processing fee to the income account you set up for that purpose. Spend Money to pass the law firm’s money on to them.
What I wonder is why the law firm is not collecting the repayments itself. The ones I know of handle such payments and escrows all the time and have systems in place to do so.
Thank you, I will speak to a specialist, however your responses have helped me understand it better
@tut is generally correct but has missed out a step - creating the processing fee so the client knows what to pay - anyway it probable better to call it a Service Fee, as thats a broader description which could include processing as a component
The accounting process would be:
- Setup the loan in your books as discussed - Credit BS liability account Law Firm Loan and Debit BS asset account Client Loan
- Setup separate bank account (if required)
- Create service fee charge by Journal as discussed - Credit Income account Service Fee and Debit Client Loan - this could be monthly/quarterly depending on the loan terms
- Receive loan repayments - Receive Money and Credit Client Loan account
- When client has fully paid - Spend Money and Debit Law Firm Loan
- if a separate bank account has been used - Transfer funds from Loan Bank account to Business Bank account
Step 5 & 6 require either cheques/checks or internet banking
@Brucanna is absolutely correct. When I said to receive the payments, I assumed they would come in as a single payment including both principal and service/processing fee. Always better if the supporting documentation shows both separately. @Brucanna’s method does that. All this is why I expressed surprise that the law firm was not doing this itself.
I hope the service fee is large enough to justify all this work. 
Thank you all I will try this and come back if i have further queries
We have purchase AC amount of 2100 in this by loan amount I have paid 1900 and remaining amount through cash, then how I have to entry in journal because cash is not showing under journal entry.
Lets see if I understand you correctly - you have purchased AC (Air Conditioning ?) for 2100, by a loan of 1900 and cash of 200 - is this correct.
Who provided the loan?
Did the business provide the cash?
Are you using the Fixed Assets TAB?
Why are you using the Journal to do the Entry?
Manager prevents the use of Journals with Bank & Cash accounts, otherwise they can’t be reconciled.
Further assistance can be provided with this additional information.
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Yes sir, I am using fixed Asset Tab and Umar Loan A/C provided me a loan of 1900 and remaining 200 amount using by cash a/c.
Without using journal how can I do entry, pls help.
Have you read all the Guides about Fixed Assets, beginning at Manager Guides? You will have to create both the asset itself and a liability account for the loan before you can enter the transaction itself.
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You can do the entry by using Cash Accounts - Spend Money.
If you haven’t already done you need to 1) under Fixed Assets create Air Conditioning and 2) in the Chart of Accounts - Liabilities create Umar Loan
Then under Cash Accounts - Spend Money the first line is FA AC 2100, the 2nd line is Umar -1900 (note the minus sign in front). Now the entry equals the 200 cash.