Interest Paid on Loan from Family

Gogrizz

I received a loan from a family member that they funded using their own PLC. The agreement is that I pay them the interest that they get charged by their bank every month, then once my business gets rolling I start chipping away with higher payments back to them. I'll know exactly how much interest I'm paying each time, and then I'm able to increase my minimum monthly pay-back....so I also control how much I'm putting down on the principle. How do I account for this in Wave? Either an interest-only payment or a interest+principle payment.

Samd

Hey @Gogrizz, great question!

You'll want to add a Liability account in Accounting > Chart of Accounts, Loan and Line of Credit. You can name the loan whatever you'd like. Then, head to Accounting > Transactions, click More > Add journal transaction. You need to create a transaction that indicates the availability of the loan funds, so you’ll debit your checking account and credit your newly created liability account with however much you have set aside for a loan.

For paying off your loan, you'll need to generate another journal transaction. This time, you'll be debiting the loan account and crediting your business account. The debit to the loan account (when you are also paying interest) should only be the principle. Your business checking would be credited for the full amount, but to balance out the journal transaction, you'll also be adding a debit for the interest, which you can categorize as an Interest Expense.

I've attached an article that goes over it more thoroughly here: https://support.waveapps.com/hc/en-us/articles/360000041883-How-to-account-for-a-loan