Loan Receivable Setup

How do I record a Loan Receivable?

Loan Receivable is when someone owes you or your company/business money. Its a loan that does not use a bank or an outside lender. When you lend money you create an asset to yourself.

This is a 3 step process:

1. Setup an Asset (Loan) Account.
2. Setup an Other Expense Account.
3. Setup an Other Income Account.

• These accounts will be used to show the income and expenses to and from the loan.
• This expense account will be used for withdrawing funds for the loan. Use this account to set the loan principal, and any time the amount owing needs to increase. 
• This income account will be used for loan repayments (or to reduce the amount owing on the loan (i.e. value of the asset).

For the purposes of illustration, we will use the example of a loan to a family member. A family member borrows $10,000 and agree to pay back $200 per week.

Step 1: Setup a Asset (Loan) account:

• Click on Chart toolbar option.

• Click on the Asset tab.
• Click on the Add button.
• Account Code - e.g. 445 (Keep account code in same number range as other asset accounts.)
• Description - give a meaningful name like Loan - name of individual you are lending the money to.
• Account Type - Asset
• GST Category - 10. Non- Reportable Payments
• Reporting Group - CURRENT ASSET
• Click OK button to save.

Note: If you are using Cashbook Platinum, the Reporting Group will most likely be 7-730 Other Current Assets.

For example:

Step 2: Setup an Other Expense Account.

• Still in Chart.
• Click on the Add button.
• Account Code - e.g. 196.
• Description - e.g. Loan to Family Member
• Account Type - Other Expense
• GST Category - 10. Non- reportable Payments
• Balance Sheet Link - loan account created in Step 1
• From the Balance Sheet Link drop down menu, select the Asset Account you have just created (eg. 445  Loan - Bill Smith)
• Cliick OK button to save.

For example:

Step 3: Setup an Other Income Account.

• Still in Add to Chart of Accounts window.
• Click on the Add button.
• Account Code - e.g. 083.
• Description - give a meaningful name like Loan Repayments from individuals name you are lending the money to. e.g. Loan Repayments-Family Member.
• Account Type - Other Income
• GST Category - 11. Non- reportable Receipts
• Balance Sheet Link - loan account created in Step 1
• From the Balance Sheet Link drop down menu, select the Asset Account you have just created (eg. 445  Loan - Family Member)
• Cliick OK button to save.

For example:

For information on how to record the initial loan transaction and loan repayment transactions click here.