How to record interest earned on loan to subcontractor
Hi, I need to record interest earned from a loan to one of our subcontractors: loan was $8000 and we agreed on $800 to be repaid fortnightly plus $33 interest,so $833 will be deducted from his invoice payment each fortnightly. I created a cheque on his name for $8000 on the date the money was loaned that came our of my bank (see pic 1 attached), then i recorded a Journal entry (see pic 2,3,4) for the loan repayment of $800) this reduced the loan amount to $7200 (pic 5) and automatically reduces his payment amount by $800 when paying his work invoice that fortnight (pic 6)
I need to know how to record the $33 interest we are earning, how to make it come up in the deductions/ credits log?
Hi Aracelli, sorry I can't see what your screen shots are showing as the print is too small. However I'll quickly walk you through your entries and you can see what you've missed booking:
1. Record the loan:
Debit Cash in Bank (make the cheque payable to the person you have lent the money to.) $8,000
Credit Loan Receivable (a current assets account) $8,000
2. Record the fortnightly repayment of the loan:
Debit Loan - principal only $800
Debit Interest Expense $33
Credit Cash in Bank (This happens automatically when you use the Deposits screen under the banking menu.) $833
Hope this helps.