Payment of a Loan through a Vendor

How to enter a loan payment, such as a mortgage or auto loan. Loan payments affect two different GL numbers; interest is expensed, and the loan liability is paid down.

Before You Begin

• If recording payments to vendors is new to you, see: Issue a Check to a Vendor.
• The original entry for the loan is discussed in Journal Entry for a Loan.

Payment for a Loan

Below is a sample entry for the payment of a loan, such as a car loan, that covers both interest and principle. The liability (payment of principal) is entered as a negative amount, because that portion of the payment is reducing the balance owed on the loan.

In this example, the principle (-487.61) and interest (47.83) amounts are known for a total payment of 535.44. If you do not know the interest/principal breakdown, you can post an estimated amount and make a correcting journal entry later on. Ask your accountant for details.