Bookkeeping Tip: Track Your Loan Payments the Right Way

Because not all of that payment is an “expense”

Let’s break down a super common mistake I see in small business books all the time:

💸 A business owner takes out a loan and starts making payments.
They record each monthly payment—say $500—as an expense.
But here’s the thing… it’s not all an expense!

Here’s what you really need to know:

👉 Loan Principal = The original amount you borrowed.
👉 Loan Interest = The fee the lender charges you for borrowing their money.

So when you make a loan payment, it's actually made up of two parts:

1. Principal – this reduces your liability (your loan balance on the balance sheet)

2. Interest – this is the actual expense that goes on your profit & loss report

🔍 Example:
Let’s say your monthly loan payment is $500.

• $400 goes toward the principal

• $100 is interest

✔️ Correct bookkeeping entry:

• $400 reduces the loan liability on your balance sheet

• $100 is recorded as an interest expense on your P&L

🚫 Common mistake:
Recording the full $500 as an expense.
This makes your books inaccurate and could mess with your taxes and financial reports.

📊 Why it matters:
When you separate principal and interest correctly, you get a clearer picture of your actual expenses, profit, and how much you still owe. It also keeps your CPA happy and your tax return clean. 😎

Need help making sure your loans are tracked properly in QuickBooks or other software?

✅ Join the DBR Bookkeeping Community: Click here to join on Skool
📞 Or book a free 30-min consult with me (QuickBooks ProAdvisor here to save your books):
Schedule here

Let’s start Doing Business Right 💼📘

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