How to record a company loan from a company officer or owner

To record a loan from the officer or owner of the company, you must set up a liability account for the loan and create a journal entry to record the loan, and then record all payments for the loan.

The steps in the following sections provide guidance for this process.

Step 1: Set up a liability account

The first step in recording a loan from a company officer or owner is to set up a liability account for the loan.

Depending on the repayment time frame, the Account Type can be Other Current Liabilities (to be paid in full in one year) or Long Term Liabilities (to be repaid over more than one year).

To set up the account:

1. Go to Settings , then select Chart of accounts (Take me there).
2. Select New.
3. In the Account dialog, select either Other Current Liabilities or Long Term Liabilities from the Account Type drop-down list, depending on the type of loan and its repayment time frame.
4. In the Detail Type dropdown list, select either Other Current Liabilities or Long Term Liabilities.
5. Enter a Name for the account.
   For example, Loan from Officer/Owner.
6. Leave the Unpaid Balance field blank.
7. Select Save and close.

The liability account is created. The next step is to create a journal entry for the loan.

Step 2: Create a journal entry to record the loan

You must create a journal entry to record the loan, not only to record what the company owes you but also to record expenses for year-end reporting as well as tax purposes.

To create the journal entry:

1. Select + New.
2. Under Other, select Journal Entry.
3. Enter the amount of the loan and log the proper amounts to the appropriate expense accounts.
   In the following example, the Liability/Loan account is increased, or credited, while the appropriate expense accounts are decreased, or debited.

   Account NameDebitCreditComputer Equipment$1200.00Licenses and Permits$300.00Office Supplies$500.00Office Equipment$1000.00Loan From Officer$3000.00

   In journal entries, the total of the Debit and Credit columns must be equal.

4. Select Save and close.

The loan is recorded in the company books. The last step is to record payments made on the loan.

Step 3: Record loan payments

You must record all payments made for the loan.

To record a payment:

1. Select + New.
2. Under Suppliers, select Cheque.
3. From the Account dropdown list, select the liability account you created for this loan.
4. Enter the Amount of the payment.
5. Select Save and close.

The loan payment is recorded.