How do I record a loan payment which includes paying both interest and principal?

Often a loan payment consists of both an intrest payment and a payment to reduce the loan 's principal balance. *The intrest portion is an expense whereas the principal portion is a reduction of a liability. *If a company uses the accrual method ,it's logical to record the intrest expenses and the intrest liability at the end of each account period.

Debit the Loan Payable 

Debit also the Interest Expenses

And Credit to Cash Account 

Loan Interest      Dr

Principal              Dr

 

    To Bank/Cash                 Cr

as  entry                      debit                      credit

 loan  interest               200

 principal                       15000

    cash or bank                                             15200

 as example

 

Recording a loan payment which contains both interest and principal payments will involve a debit to Interest Expense, a debit to Loan Payable, and a credit to Cash. The credit balance in your liability account Loan Payable should agree with the principal balance on your lender's records.

Recording a loan payment which contains both interest and principal payments will involve a debit to Interest Expense, a debit to Loan Payable, and a credit to Cash.

 The credit balance in your liability account Loan Payable should agree with the principal balance on your lender's records. You can confirm that your balance in Loan Payable is correct by comparing it to the loan balance shown on the loan statement furnished by your lender. If such a statement is not provided, you can phone your lender and ask for the principal balance on your loan.