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Loans, real property and journal entries

Matt_UKTXMatt_UKTX Member Posts: 3

Hi,
I use Wave to manage a small business. Up the this point I have just used it to record and manage entries from a business checking account, but I recently inherited a property, which I have transferred to the business as a rental property. I've been experimenting with Journal Entries, but I must be doing something wrong...

Here are the details:
The property is worth $148,000. There is a mortgage for $92,500 on the property and we have equity of $55,000 (on paper)

To record this I created a journal entry debiting the "123 Happy St - Real Property" (Fixed Asset) account for $148,000 and crediting the "123 Happy St - Mortgage Loan" (Liability) account for $92,500 and the "123 Happy St - Equity" (Equity) account for $55,000. This appeared to work OK.

Now I am making mortgage payments from my linked checking account and I want to record those. How do I do this so the equity goes up, the mortgage goes down and it all ties to the checking account transaction log? This is what I did, but I know it's wrong...

I created a journal entry crediting my "Checking" account for $725 (the payment amount), and debiting the "123 Happy St - Mortgage Interest" (Expense) account for $375 and debiting the "123 Happy St - Mortgage Loan" (Liability) for $350. However, this doesn't increase the "123 Happy St - Equity" account, which should now have increased by $350 also (as I have $350 more in equity than I did previously).

I know I am doing something wrong, but can't figure it out. Would welcome some help!

Thanks...

in Accounting Technical Support

Comments

  • Matt_UKTXMatt_UKTX Member Posts: 3

    Seriously? No one can help...

  • Ryan_WRyan_W Member Posts: 452 ✭✭✭

    Hey @Matt_UKTX,

    Do the steps in this article clear it up? It should give you a breakdown for how to account for entering loans/mortgages and how to account for repaying them as well, but if you don't find that this works for you, please let us know!

  • KarmaKarma Member Posts: 3

    I am having a hard time. I followed the instructions so my mortgage payment is 2003.68 out of which 1027.19 is prncipal and 976.49 is interest. when I follow the instructions, I debit the loan account by 1027.19, Credit the bank account with 2003.68 and interest expense is 976.49 as debit. My bank account only gets debited by 976.49

  • ieremiasieremias Member Posts: 5

    @Matt_UKTX said:

    I created a journal entry crediting my "Checking" account for $725 (the payment amount), and debiting the "123 Happy St - Mortgage Interest" (Expense) account for $375 and debiting the "123 Happy St - Mortgage Loan" (Liability) for $350. However, this doesn't increase the "123 Happy St - Equity" account, which should now have increased by $350 also (as I have $350 more in equity than I did previously).

    I know I am doing something wrong, but can't figure it out. Would welcome some help!

    Thanks...

    According to your post, you made entries to your interest expense and liability (mortgage loan) accounts. These entries won't affect your equity account. Your principal (liability mortgage account) should have decreased by $350 dollars, however, this won't affect your equity on paper. To do this you will have to have a history that your equity in the home increased. Then you could make an adjusting entry to credit your equity account for the amount of increase and then increase your fixed asset account by that same amount. This would leave you in balance and follow GAAP policies.

    I hope this helps!

    Jeremiah

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