Loan Accounting

Posted by Robert Neville on April 28, 2009, 9:34 am

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I spent a couple of hours this past weekend cleaning up a bunch of loan accounts
I had in Quicken, but now I'm wondering if I needed to do that.

Previously, I had been accruing the interest for the loan as a transaction in
the actual loan account, and then recording a transfer for the principle &
interest payment from the checking account as the bill was paid.

For reasons that escape me, I decided that was wrong, deleted the individual
interest transactions in the loan accounts and made the payments a split
transaction, with an interest amount assigned to a category and a transfer of
principle to the loan account. The loan account still being tied to the asset as
applicable.

It looks cleaner in Quicken and there are less transactions, but does it make a
difference?

Posted by TomYoung on April 28, 2009, 10:16 am

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> I spent a couple of hours this past weekend cleaning up a bunch of loan a=

ccounts

> I had in Quicken, but now I'm wondering if I needed to do that.

> Previously, I had been accruing the interest for the loan as a transactio=

n in

> the actual loan account, and then recording a transfer for the principle =

> interest payment from the checking account as the bill was paid.

> For reasons that escape me, I decided that was wrong, deleted the individ=

ual

> interest transactions in the loan accounts and made the payments a split

> transaction, with an interest amount assigned to a category and a transfe=

r of

> principle to the loan account. The loan account still being tied to the a=

sset as

> applicable.

> It looks cleaner in Quicken and there are less transactions, but does it =

make a

> difference?

At the end of the day, from an accounting perspective, No. You end up
in the same place using either method.

The only "difference" between the two methods is that the loan account
briefly *increased* when you made your interest accrual, though the
balance instantly fell to the correct amount when you debited your
full payment out of checking.

Tom Young

Posted by Robert Neville on April 28, 2009, 7:22 pm

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>At the end of the day, from an accounting perspective, No. You end up

>in the same place using either method.

>The only "difference" between the two methods is that the loan account

>briefly *increased* when you made your interest accrual, though the

>balance instantly fell to the correct amount when you debited your

>full payment out of checking.

Thanks - I couldn't see a problem either way, but limiting the loan accounts to
principal only transactions looks a lot cleaner.