Loans
An instalment is not an expense: separating capital from interest, recording a loan already running, following the schedule and the outstanding capital.
When your church repays 850 a month to the bank, that is not an expense of 850. It is two distinct things:
- the capital repaid, which does not make you poorer: it turns cash into a reduction of debt;
- the interest, which is the only real expense.
Recording it all as an expense inflates your result and leaves your debt frozen on the balance sheet as if you had never repaid a cent. It is the most widespread mistake in church accounts, and the easiest to avoid.
Recording a loan
- Open Finance, then Reports, Accounting section, Loans tab.
- Click Add a loan: label, lender, capital, annual rate, term, date of first instalment.
- Answer "Is the money coming into your accounts now?".
- Choose the cash source concerned.
- The screen computes the instalment and tells you what the loan will cost in interest over the whole term.
Point 5 is the figure a board wants before signing, and that nobody computes in their head. A loan of 60,000 at 3.4% over 15 years does not cost 3.4%: it costs close to 17,000 in interest.
Note: if your contract states an instalment different from our calculation, enter theirs. It is the one that counts: our formula and the bank's rounding do not always land on the same cent, and it is the bank statement that will be confronted with your accounts.
Is the money coming in now?
This question avoids a very costly double entry.
| Your answer | What the system posts |
|---|---|
| Yes, we are receiving it now | The debt is created and your cash increases by the same amount, at the start date. |
| No, this loan is already running | Only the debt joins the balance sheet, at your opening date. You then give the outstanding capital on the opening day, not the capital borrowed. |
Warning: for a loan already running, inventing a cash inflow today would inflate the current year with income that never happened. The figure to enter is the one on your lender's statement: part of the capital is already repaid.
The cash source concerned
This is the cash box that receives the money and from which repayments will leave. It is what avoids the second double entry: each instalment produces its own cash outflow.
You therefore never have to record the 850 outflow on top of the instalment. Doing so would count it twice.
Recording an instalment
Each month, click Record the instalment. The system posts the correct entry, with the right split.
For an instalment of 850 of which 190 is interest:
| Account | Debit | Credit |
|---|---|---|
| 170 Loans | 660.00 | |
| 6500 Interest expense | 190.00 | |
| 550 Bank | 850.00 |
The debt falls by 660, 190 goes to expense, and 850 leaves the bank. Next month the split will have shifted slightly: in a classic loan you pay much interest at the start and much capital at the end.
Warning: this entry is sealed in the journal as soon as it is recorded. There is no delete and no undo, and taking it back requires a reversal. Check the amount before you confirm.
When the amount paid differs from the plan
It happens, and it is not an error: early repayment, revised rate, end-of-loan rounding. Enter the amount actually paid. The screen flags the gap with the planned instalment and records it as it is.
A schedule that refused reality would force you to lie in the accounts to stay consistent with itself.
The schedule
Click View the schedule to unroll every instalment, each with its interest part, its capital part and the remaining balance. Instalments already recorded are ticked.
Three figures summarise the state of the loan at the top of the card:
- Outstanding capital: what you still owe.
- Interest paid so far: the real cost of the loan to date.
- Instalments paid: where you are in the calendar.
Warning: the outstanding capital shown is derived neither from the capital borrowed nor from the number of months elapsed. It comes only from the instalments you have actually recorded. If you forget some, your balance sheet will show a higher debt than reality.
Tip: record the instalment on the day the direct debit goes through, not at the end of the month "to do it all at once". It is the only way for the bank reconciliation to find the line on the right day.
When no rate is stated
Some loans (an advance from a member, a loan between churches) state no rate, only a capital, a term and an instalment. Those three numbers reveal one.
The system derives it and shows it to you. Without that deduction, the schedule would clear the capital before the end and the last instalments would stay unexplained.
Note: if the three numbers do not repay the loan, the screen says so and names the missing amount. It is nearly always a term entered wrongly.
Common mistakes
- Recording the instalment as an ordinary expense in Finance. It will be counted twice, and the debt will not move.
- Entering the capital borrowed for a loan already running. Your debt will be overstated by everything already repaid.
- Forgetting instalments then catching up in bulk. The outstanding capital is right at the end, but the statement of net assets was wrong at every intermediate cut-off, including those already presented to the board.
- Not recording the loan at all. The consistency check then flags that instalments debit an account never credited, and that the balance sheet shows a receivable instead of a debt.