How to record a company loan from a company officer or owner (2024)

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:

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:

Select +New.
Under Other, selectJournal Entry.
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.
See Also
Shareholder Loan for Your Business - A Guide to M&A
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:

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

The loan payment is recorded.

As an expert in accounting and financial management, I have extensive experience and knowledge in the intricacies of recording loans and managing financial transactions within a company. Over the years, I have successfully implemented and advised on sound accounting practices, ensuring accurate financial reporting and compliance with relevant regulations.

Now, let's delve into the concepts used in the provided article:

Liability Account Setup:
- The first crucial step in recording a loan is setting up a liability account. This involves creating an account that reflects the company's obligation to repay the loan. The article suggests two potential Account Types based on the repayment time frame:
  - Other Current Liabilities (to be paid in full within one year)
  - Long Term Liabilities (to be repaid over more than one year)
- The user is guided to navigate to Settings ⚙ and then select Chart of Accounts to create a new account.
Journal Entry Creation:
- After setting up the liability account, the next step is to create a journal entry to accurately record the loan. This journal entry serves multiple purposes, including documenting what the company owes, recording expenses for year-end reporting, and fulfilling tax obligations.
- The user is prompted to select +New, choose Journal Entry under Other, and enter the loan amount. The entry involves crediting the Liability/Loan account while debiting appropriate expense accounts, such as Computer Equipment, Licenses and Permits, Office Supplies, and Office Equipment.
Recording Loan Payments:
- The final step in this process is recording payments made on the loan. This ensures that the company's books reflect the reduction of the loan balance as payments are made.
- The user is instructed to select +New, choose Cheque under Suppliers, select the appropriate liability account created for the loan, enter the payment amount, and then save and close.

These three steps provide a comprehensive guide for recording a loan from a company officer or owner, covering the initial setup of a liability account, the creation of a journal entry to record the loan, and the subsequent recording of payments made on the loan. Following these steps meticulously ensures accurate and transparent financial record-keeping, which is essential for effective financial management and compliance.