Split a loan repayment into principal and interest

A loan repayment is usually not all expense. Principal reduces the amount owed; interest and other components need their own treatment. Use the lender’s statement or amortization schedule for the payment allocation.

Prepare the loan accounts

Confirm that the original borrowing and opening principal are already recorded in the correct liability account. Money borrowed into company checking is generally a loan liability, not sales revenue. Your accountant should select the appropriate current/noncurrent loan accounts and the interest treatment.

Do not create another loan balance simply because you see a repayment in Banking. If you are migrating, compare with the starting Balance Sheet first.

Example: a $550 payment

Assume the lender confirms $500 principal and $50 current-period interest, with no fees, escrow, or previously accrued interest:

Component	Account effect
$500 principal	Debit the loan liability: amount owed falls by $500.
$50 interest	Debit the appropriate interest expense.
$550 total paid	Credit business checking: cash falls by $550.

The interest cost is $50, not $550. The lender’s cash receipt and the bank withdrawal should both be $550.

Record from an unposted bank row

1. Open Banking → Bank transactions, select the business bank account, and locate the outgoing $550 row.
2. Check whether this payment already exists in the books. If it does, follow the matching/correction workflow instead of posting another split.
3. Open Split from the row’s categorization controls.
4. Enter one $500 line for the loan liability and one $50 line for interest expense. For this simple outgoing-payment example, both split amounts are positive allocations of the withdrawal.
5. Add the lender/contact where applicable and a statement or payment reference.
6. Confirm Net split is $550 and Remaining is zero, then review and submit the split. Submission posts the categorization; it is not merely saving a draft.
7. Check the posted bank row, loan-account balance, and interest expense against the lender statement.

See the split-transactions walkthrough for the controls and validation rules.

Handle other components separately

Fees, escrow, insurance, and extra principal should follow the lender’s breakdown and your accountant’s account treatment. If interest was already accrued, its payment may clear an interest payable rather than create the expense again. Do not force every difference into interest expense simply to balance the split.

If the loan balance differs from the lender’s principal balance, compare opening principal, additional borrowing, principal repayments, and adjustments. Review the relevant dates and any current/noncurrent reclassification; the Profit and Loss interest total alone cannot reconcile a loan.