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A
arkvalleyinfo
October 19, 2018
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What is the accounting treatment of a long term liability when I make periodic re-payments that include an interest and principal portion that reduce the liability?

  • October 19, 2018
  • 1 reply
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As an example lets say I purchase a vehicle on loan for 50000. I record an asset and liability amount of 50000 in the balance sheet. In the first month I make a loan re-payment of 1000 of which 400 is interest (which I record as an expense in the income statement) and 600 principal repayment. How do I account for the principal payment ie. what are the journal entries?

Best answer by Rustler

Normally you use write checks, even if it is an online bill pay, just change the cehck number to EFT

line one is the liability account, 600
line two is the interest expense account, 400

same thing in  a journal entry if you use that

debit banking 1,000

credit the other two accounts

1 reply

Rustler
RustlerAnswer
October 19, 2018

Normally you use write checks, even if it is an online bill pay, just change the cehck number to EFT

line one is the liability account, 600
line two is the interest expense account, 400

same thing in  a journal entry if you use that

debit banking 1,000

credit the other two accounts

D
dpowning
January 20, 2019

Hello sir.  I have tried your suggestion.  It seems obvious. However, in looking at the chart of accounts, it served to increase, not decrease, the long term liabilities and did not change the value of interest expense.  I feel like I am going crazy.   Don't know how I receive any answer that you may provide, so am providing my email address of [email address removed].  

A
Anonymous
January 21, 2019

Hi there, Mitchell-n,

 

Thanks for joining the conversation. I can add a bit more about recording your liability in QuickBooks Online.

 

Rustler's answer is correct. When you create an expense/check using the liability account, it should decrease your balance. This goes the same way when crediting an expense account in a journal entry.

 

You may want to check this article to learn more about recording your loan and payments: Record a loan and its payment. The article contains in-depth information to help you track your loan correctly.

 

Please let me know how it goes, Mitchell-n. I'm here to help you whenever you needed me. All the best!

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