A loan is a liability and you need to create an A/P account for that in the Chart of Accounts, such as a Bank Loan a/c. Most loans can be set up in CORE as either a current or long-term liability, depending on when you plan on paying the loan back. CORE uses this A/P account to track the amount your company owes to others (payables).
Note: As there are different ways to enter and track loans, we recommend you to consult your accountant on this matter so that it works best for your company.
Let us start by creating a liability account in CORE:
- Create a new account in Chart of Accounts and set it up as a liability by choosing the Type as either Other Current Liability or Long Term Liability.
- Give this account a relevant Name and Description. A common identifier is Notes Payable, for example.
- Enter the loan amount as an Opening Balance for this account along with an As Of date, which should be the date when you want to start tracking the loan. This creates a journal entry in CORE that debits the Opening Balance Equity account and credits the Notes Payable account.
Alternatively, you can add your bank as a vendor in CORE and then enter the loan as a New Funds deposit in your bank account using the Deposits screen.
- You also have an option to create a vendor bill for the loan, with the bank as the vendor. When entering a vendor bill, the expense or other specified account is debited while the A/P account is credited (A/P amount is increased).
- Then record the loan repayments either by check (Checks screen), vendor bill payments (Bill Payments screen) or through journal entries (General Journal screen), selecting the liability account that you created.
- Using the Checks screen, you can enter the loan repayment for the same lender from your bank account to the Notes Payable liability account.
- When the loan or vendor bills are paid, the A/P liability account is debited (A/P amount is decreased) and the Bank Account is credited. If you credit an A/P account, it increases the A/P amount, while as when you debit it, it decreases the A/P amount. You can keep track of your accounts payable using the A/P reports and registers.
- You can use the Registers screen to review the transactions for the Notes Payable account.