At present, Buildium does not have a formal feature for tracking loans. Our accounting system can track a loan for you through other functions.
A loan is an amount of money that is borrowed with a contractual promise of being paid back by the debtor, typically with interest.
- John received a loan from the bank so that he could purchase the supplies necessary to complete his home improvement project.
- Sarah offered to loan the money to John to complete the project but she needed to be paid back sooner than John would have the money.
In this article, you'll learn how to:
- Add the loan to your chart of accounts
- Record the loan in Buildium
- Pay off the loan
- Report on the loan
To track a loan, or borrowed money, in Buildium, begin by adding the loan to your Chart of accounts. This will help you track the loan on your financial reports.
A loan is typically considered a long term liability account with the assumption that it will not be paid back, in full, within a year.
The rule of thumb is that short term liabilities will be paid back within the year versus long term liabilities that will be paid back in more than a year.
If you have multiple loans to track, consider naming the liability account after the lender.
Example: Loan #2856 - Bank Name is much easier to decipher than the generic "Loan".
Once your loan is added to the system for tracking, add your first loan entry.
Record the initial loan with a general journal entry.
- Credit the loan liability account.
- Debit the bank account, expense, or fixed asset.
By crediting the liability account we are showing the total that we owe back to the lender.
By debiting (the bank account, expense or fixed asset), we are increasing our cash to show that the loan is spendable cash or that we have purchased something with the money.
If you've already made some payments, balance the general journal entry using Opening Balance Equity as the offsetting account. This shows what you have paid back and reduces the liability owed to the lender.
For example, let's say the original loan was for $10,000. You've been making payments for a few years and the remaining principle balance is now $8,000. The general journal entry for this loan would be:
DEBIT: Asset*- $10,000 (Value of the purchase)
CREDIT: Loan - $8,000 (What you still owe)
CREDIT: Opening Balance Equity - $2,000 (What you have contributed)
Making loan payments is easy. Record a check using the lender as the payee. When you write the check, apply the money to the loan liability and to interest expense.
The loan liability account is the loan's principal.