To record the payment on a loan, you or QuickBooks 2012 makes a journal entry like the one shown in the following table. For example, suppose that in connection with the loan shown in Journal Entry 13, you need to pay $2,200. Suppose that this amount is for $1,200 of loan interest and $1,000 of principal.
In this case, you debit loan payable for $1,000, debit loan interest expense for $1,200, and credit cash for $2,200.
| Account | Debit | Credit |
|---|---|---|
| Loan payable | 1,000 | |
| Loan interest expense | 1,200 | |
| Cash | 2,200 |
Sometimes, the tricky thing about loan payments is breaking the payment amount into its principal and interest components. Hopefully, the lender will provide you with an amortization schedule that breaks down payments into principal and interest.
If a lender doesn’t provide such an amortization schedule, you can calculate the interest expense yourself by using either a spreadsheet or a calculator. (You can find some free amortization schedules available at Stephen Nelson's website.) Then, after you’ve calculated the interest expense, you can deduce the principal component by subtracting the interest from the payment amount.
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