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Recording Loan Interest

Keep your borrowing costs visible and organised in Officaid.

Track the True Cost of Borrowing

Interest is the cost your business pays for borrowing money. Unlike the principal (which reduces as you repay), interest is an expense that appears in your profit and loss. Recording it separately gives you a clear picture of what your loans actually cost.

Want to understand why interest is recorded separately from principal? See Understanding Liabilities and Expenses.

Where to Record Interest

Loan interest is recorded in the Expenses module using the Interest Expense category. This keeps your interest payments grouped together and ensures they appear correctly in your financial reports.

Step-by-Step Guide

  1. 1 Navigate to Finance → Expenses from the main menu
  2. 2 Click the + Add New Expense button
  3. 3 Select Interest Expense from the category dropdown
  4. 4 Enter the interest amount and payment date
  5. 5 Add a description to identify which loan this relates to (e.g., "Working Capital Loan - December interest")
  6. 6 Select the account the payment was made from
  7. 7 Click Add Expense to save
Not sure how to add expenses? See How to Record an Expense for a detailed walkthrough.
Use consistent descriptions that include the loan reference. This makes it easy to filter and find all interest payments for a specific loan.

Breaking Down Your Loan Repayment

Most loan repayments include both principal and interest. When you make a payment, you'll need to record each portion in the right place:

  1. Check your loan statement for the breakdown of principal versus interest.
  2. Record the principal portion in the Loans module as a repayment.
  3. Record the interest portion in Expenses using Interest Expense.

For example, if your monthly repayment is $500 with $400 going to principal and $100 to interest, record $400 as a loan repayment and $100 as an expense.

Frequently Asked Questions

Check your loan statement or contact your lender. Most statements show exactly how each payment is split between principal and interest. If you have a fixed repayment schedule, this breakdown is usually provided when the loan is issued.

It's best to record interest separately for each loan with a clear description. This makes it easier to see how much each loan costs you and keeps your records organised for tax time.

No. Interest payments don't reduce your loan balance in Officaid. Only principal repayments reduce the balance. This is correct accounting practice since interest is a cost of borrowing, not a repayment of what you owe.

What's Next?

Now that you know how to record loan interest, explore these related guides:

loans finance interest expenses