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Level 1

How to Amortize Loan Origination Fee

My company has recently taken out a loan for $50,000, but only $46,000 was deposited into our bank account. Yet we still have the outstanding liability (loan) for 50,000. And we would like to amortize this expense over the life of the loan. I'm unsure of how to handle this.

 

What I would do is create a journal entry, crediting the loan account for $50,000, debiting our bank account for $46,000, and debiting $4,000 to a "pre-paid loan expense" asset account. Then every month as payments are made, in addition to inputting the actual payment, I would do a transfer of funds from the "pre-paid loan expense" account to loan interest expense for a percentage of the total loan origination fee amount.

 

Would this be the correct way to handle this?

Solved
Best answer 02-03-2019

Best Answers
Highlighted
Level 15

How to Amortize Loan Origination Fee

Create two accounts

asset account - loan origination fee

expense account - amortization expense

 

annually do a journal entry

debit amortization expense

credit loan origination fee

for the amount for that year

View solution in original post

3 Comments
Highlighted
Level 15

How to Amortize Loan Origination Fee

Create two accounts

asset account - loan origination fee

expense account - amortization expense

 

annually do a journal entry

debit amortization expense

credit loan origination fee

for the amount for that year

View solution in original post

Highlighted
Level 15

How to Amortize Loan Origination Fee

You can enter all the details in the Check detail split lines:

Principal

Interest

Amortize asset negative amount

Amortization expense positive amount

 

You can Memorize this Write Check. Set it Do Not Remind Me. Each Month, double-click, fill in the splits for Principal and Interest. The Amortization is the same every time, no need to make changes to this. The Payment amount is the same every time, too, so simply Double-click the Memorized transaction to rebalance Principal and Interest. Save and Close.

 

You can even set the Memorized Transaction to Automatic, Monthly, and Number Remaining. Save it with a "budgeted split" for Principal and Interest, which you will rebalance to match Actuals, each month. This is great for cash management for recurring payments, since it gives you the Banking amount automatically, and you refine the split details, later, at least before reconciling the Loan account to the lender's statement.

Highlighted
Level 1

How to Amortize Loan Origination Fee

Thank you for the info! Much appreciated. :)

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