IFRS for SMEs / For bookkeepers / How to categorise loan and vehicle-finance instalments
How to categorise loan and vehicle-finance instalments
The rule
A loan received is a borrowing, a liability, and a financing cash flow (7.17). Each instalment repays part of the loan and pays interest. Only the interest is an expense: a finance cost (5.5(b)).
How to split an instalment
- Use the lender's statement or amortisation schedule to find the interest in each instalment.
- Post the interest to finance costs and the rest against the loan account.
- At year end, agree the loan balance to the lender's statement.
The warning sign
A loan account with a debit balance usually means the instalments were posted but the loan itself was never recorded. When a vehicle is financed, record the vehicle as an asset and the finance as a liability on the day of purchase.
Worked examples
| Bank statement line | In or out | Categorise to |
|---|---|---|
LOAN ADVANCE | In | Loan account |
VEHICLE FINANCE INSTALMENT | Out | Loan account, with the interest to finance costs |
Related
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