Answers · Bookkeeping
How Should Business Loans Be Recorded in Bookkeeping?
Loan proceeds create a liability, not revenue. Principal payments reduce the liability; interest is separately recorded and may be deductible subject to tax rules.
How it works
The rule, and what it turns on.
Use the lender statement or amortization schedule to split each payment. Loan fees can require separate treatment.
Example
A $1,200 payment containing $900 principal and $300 interest debits Loan Payable $900, Interest Expense $300, and credits Cash $1,200.
Common mistakes
What we see go wrong, and what we do instead.
- Expensing full loan payments.
- Recording loan proceeds as income.
A better approach
- Reconcile every loan to lender statements at least at year-end.
Authority
Where this comes from, so you can check it.
IRC §163; business-interest limits may apply under IRC §163(j).
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
Also asked
The same question, the other ways people put it.
- How to Record Loan Principal vs. Interest
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