Suppose that you make $75 monthly payments on a $5,000 loan. Also suppose that the lender charges 1 percent interest each month. The following journal entry records the first month’s loan payment:
| Debit | Credit | Explanation | |
| Interest expense | $50 | Calculated as 1% of $5,000 | |
| Loan payable | $25 | The amount left over and applied to principal | |
| Cash | $75 | The total payment amount |
| Debit | Credit | Explanation | |
| Interest expense | $49.75 | Calculated as 1% of $4,975, the new loan balance | |
| Loan payable | $25.25 | The amount left over and applied to principal | |
| Cash | $75.00 | The total payment amount |
You can record loan payments by using either the Write Checks window or the Enter Bills window. Just use the Expenses tab to specify the interest expense account and the loan liability account.
You can check your loan accounting whenever you get a loan statement from the bank. What the bank shows as the ending balance for a particular month should match what QuickBooks says is the balance for that month.
To correct discrepancies between the loan balance that the bank shows and the loan balance that QuickBooks shows, make a general journal entry that adjusts both the interest expense and the loan principal at the same time. If the loan balance is too low (say, by $8.76), you need to increase the loan balance and decrease the loan interest expense by using the following journal entry:| Debit | Credit | Explanation | |
| Interest expense | $8.76 | Adjusts the interest expense by the same amount as loan balance changes | |
| Loan payable | $8.76 | Increases the loan principal balance to match the lender’s statement |