How to remove installment payments posted to loan accounts from showing up in profit loss

Gonzo1982

Hello, I use the chart of accounts to set up individual loan accounts and each month I go in and add the installment payment as "income" and category "installment payments" to each account to show the reduction in the loan balance. This skews my profit loss by showing my total income higher than it actually is for this year. How can I get this to not show that way?

ConnorM

Hey @Gonzo1982! I think this one begs the question of if you're accounting for the initial expense in giving that loan out. Has that been entered as an expense in those individual loan accounts?

Gonzo1982

Not sure of what you're asking? I'm just using those accounts to keep up with our total equity/worth based. I account for paying those loans in the business checking account. Then have to manually go in and add a deposit to these accounts of just the installment. This makes it appear as more income than we really have and skews our reports/graphs.

ConnorM

Totally hear you, @Gonzo1982. This one is tricky due to the difference in accounts. That's going to appear as income as long as the account from which the expense has occurred (your business checking account) isn't the one that the repayments are going to. I'd recommend reaching out to a local tax professional to discuss the best way to account for this within an accounting software.

Mikeg

@Gonzo1982,
It would be helpful to understand what your business does. If you are loaning money and receiving payments back then, the repayments go against an asset account - Loans Receivable and the interest that you charged is the part the goes on the income statement.

Gonzo1982

Rental houses. I’m dividing up the installment and interest in the checking side. This is only to keep up with the loan amount on the houses so that I can keep up with worth/equity in the business.

Mikeg

@Gonzo1982,
I'm not sure I'm following you. When you own rental houses you typically collect rent. That is income. You also may have a mortgage loan payment. The loan is a liability of the business. When a payment is made it is split between interest expense and reduction of liability.

Gonzo1982

Except to reduce the liability is to enter it as a deposit which shows as income on the profit loss statement.

Mikeg

@Gonzo1982,
It sounds like you have the loan set up on the chart of accounts under the income statement and not the balance sheet - Liabilities

Gonzo1982

Long term liabilities

Mikeg

Then it would not be possible for payments categorized to that account to show up on the income statement. Can you post some screen shots?

Gonzo1982

don’t see an upload option to attach a pic, here’s a share from Dropbox. https://www.dropbox.com/s/jwhtdwcgqj06psr/2019-12-16%2020.46.17.jpg?dl=0

https://www.dropbox.com/s/o7yyti6vjoekq7b/Photo%20Dec%2016%2C%208%2053%2015%20PM.jpg?dl=0

Gonzo1982

One more, https://www.dropbox.com/s/tgah1jzqm2wg30b/Photo%20Dec%2016%2C%208%2057%2043%20PM.jpg?dl=0

Mikeg

So you are using invoicing? If you are, then that is why it is showing up in revenue.

Gonzo1982

No never used

Mikeg

You have something called installment payment which is classified as an income account. Hence why it's on the income statement. When cash comes in that is a debit to cash and credit to ?
When cash goes out it is a credit to cash and a debit either to a loan or expense.

Gonzo1982

So create another category in a different section like liability accounts and tag these entires that?

Mikeg

I'm getting ready to retire for the eve. I'm on the east coast. Give me a call tomorrow at 443-851-4054. Be better to talk through it.