Knowing how the loans received by a financial institution are accounted for allows you to keep an exact control of your business finances. This will avoid accounting errors and possible associated penalties.
How are loans accounted for?
If the loan is long-term, that is, if the repayment period is greater than one fiscal year, it is recorded in the corresponding long-term debt account of credit institutions, also known as 170.
Once the loan is settled, its initial expenses are recorded directly in account 669. In addition, it is important to record the installments that allow the obligation to be paid for. To carry out these operations, it is necessary to take into account the loan amortization table provided by the financial institution.
Thus, you should easily understand the information provided in this table and know the meaning of the attributes that make up its columns.
- Fee : refers to the amount of money that must be paid monthly, this value includes interest and amortization.
- Interest : is the cost set by the financial institution for providing the agreed amount.
- Amortization : it is the amount of money that actually reduces the debt incurred on a monthly basis.
- Amortized capital : represents the total amount of money that has been satisfactorily settled.
- Capital alive or pending : is the amount that has not been paid and, therefore, remains to be paid.
To settle the approved loan, it must be subtracted from the amount received. That is, the amount you paid for the opening commission. Also, the debt is divided into two parts.
The first: called short-term, covers the amount you have to pay from month 1 to 12. In this way, its value coincides with the amortized capital , precisely in this month 12. The second: long-term contains the amount remaining. Therefore, the long-term part coincides with the outstanding capital of month 12.
Accounting for fees
Interest and amortization are included in the monthly payment we make to the financial institution. For its part, amortization is recorded in account 520. Instead, interest is reflected in account 662. It is amortization that reduces the debt incurred.
Reclassification of debt
At the end of each year, you need to reclassify the debt: the next 12 months, which were previously considered part of the long-term account, will become the new short-term account. This process is repeated every year until the entire debt is paid.
In summary, knowing how loans are accounted for allows you, as a company, to have a better understanding of the commitments made. This way, you can make a correct reporting of your accounting if required by the authorities. It is also important to find an entity that meets your needs. The best way is to compare different options in Ideal Loans , which has the best options on the market.