How to account for loans and lines of credit with income and expense transactions

Here's how to use transactions to enter receiving a loan or line of credit into Wave, and record re-payments made to it.

Accounting for the loan or line of credit received

Firstly, you’ll need to create an account to represent your loan or line of credit:

  1. Head to Accounting > Chart of Accounts.
  2. Open the Liabilities & Credit Cards tab, scroll down to Loan and Line of Credit, and click Add a new account.
  3. Enter a name which will allow you to easily recognize the loan or line of credit, and choose a currency.
  4. Click Save.

Next, you’ll need to create a transaction that records the deposit of the loaned funds into your bank account:

  1. Head to Accounting > Transactions.
  2. Click Add income;
    1. Under Account, choose the bank account the loan was deposited into.
    2. Under Category, choose Transfer from Bank, Credit Card, or Loan, then select the new loan or line of credit account.
    3. Enter in the date, amount and description.
  3. Click Save, and Wave will automatically create the other half of the transfer for you.

If you’ve connected your bank account to Wave, or upload bank statements, it will import the deposit transaction showing the loan funds available in your checking account. Instead of creating a new transaction, categorize the imported transaction as a transfer from your new loan or line of credit account.

Accounting for loan or line of credit repayment

You'll need to create a new expense transaction or, if your bank account is connected or you upload statements, categorize the imported transaction. For example, if you made a loan or line of credit repayment of $100, where $5 of the payment was interest and $95 was principal, you can categorize the expense as such:

  1. Head to Accounting > Transactions.
  2. Click Add expense, or find the imported expense transaction under your bank account.
  3. Click the drop down arrow under Actions, then select Edit more details to open the transaction details panel. If you created a new transaction;
    1. Under Account, choose the bank account you paid the loan or line of credit off from.
    2. Select the Date of the payment.
    3. Enter $100 into the Amount box.
  4. Below the Amount box, click the Split this withdrawal button.
  5. In the first line of the split, in the Category dropdown menu, select Transfer to Bank, Credit Card, or Loan, then select the loan or line of credit account. Enter $95 into the Amount box.
  6. In the second line of the split, in the Category dropdown menu, select Interest Expense. Enter $5 into the Amount box.
  7. Click Save, and Wave will automatically create the other half of the transfer for you.

 

We hope this article gives you the basic information you need to start tracking your loan or line of credit in Wave. If you need more specific information, we recommend you get in touch with an accountant or bookkeeper who can provide information based on your business’s situation. You can also check out our in-house accounting services with Wave Advisors here.