How to track loans out to family or friends? (edited)

Question

Can't find this topic exactly covered elsewhere, apologies if I have missed it

I have some loans 'out' to family and friends, some interest bearing and some not. To be paid back over a period of time. They are like investments, I suppose, but the current investment categories don't seem to work for a 'simple' cash loan, more for shares or 401K

They aren't bank accounts exactly, as they are an asset and a bank account would show the negative figure, or if it was the positive asset then the principle payback and interest would only increase the loan amount, not reduce it…

I need to record the principle pay back, and the interest as income.

Would appreciate suggestions on how to handle this

Thanks!

DryHeat · Accepted Answer

You can create an asset account for each loan, or a single "Loans to Friends" asset account for all of them. The initial lending transaction in your checking account would be a transfer to the loan account.

If you use a single combined asset account, you can use Tags to identify the principle and payments on that principle as being for a particular loan. That way you can filter the register or reports down to see a single loan's relevant transactions.

If you charge interest, you should split the repayment transaction (in your checking account) so that the correct amounts go to the asset account and to some sort of "Interest Income" account.

SRC54 · Accepted Answer

Agree completely with DryHeat's advice especially if it is going to involve interest and multiple payments.

You also might use the Refund feature for the smaller loans especially when it will be a one-time payment with no interest.  It's basically a reminder that will show up in the account where you expect to deposit the money.

I admit that I have rarely used this feature.  They're under Bills & Income.

I supposed you could use Transfer as the category (instead of an asset account) or create an expense category called Small Loans.  Just a thought.

FrameAndFinance · Accepted Answer

Great, thank you for the advice and comments - much appreciated