Loan interest accrued: entry in accounting

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

In the course of business activities, organizations often take out loans and borrowings, on which interest is charged. The accounting system provides for a certain procedure for accounting for such transactions. Let's consider it in more detail.

Loan settlements

The Chart of Accounts provides for account 66 of the same name, which summarizes information on short-term loans received by the organization. Based on the form in which the funds were received, passive account 66 is debited with cash accounts: 50, 51, 55, 60, etc.

The amounts of interest due to be paid are accounted for as follows:

DT66 KT91 - interest on the loan has been accrued. A posting is generated each time a debt is accrued. Loans not repaid on time are accounted for separately. Analytical accounting is kept separately by types of loans and creditors

Accounting for creditor transactions

The loans themselves are divided into short-term and long-term, which are accounted for in accounts 66 and 67, respectively. These are passive accounts that, in the event of an overpayment, may have a surplus.

Issuing a loan to lenders is done in this way:

• DT58 KT61 - loan granted.
• DT58 KT91 - interest on the loan has been accrued. Posting is generated monthly or quarterly, depending on the terms of the contract.
• DT51 KT98 - interest paid.
• DT51 KT98 - loan returned.

Regardless of the term of the loan, the entry “Interest accrued on a short-term loan” will look the same as in the case of a long-term loan.

Accounting for operations by the borrower

Account 66 reflects the debt on all financial investments, regardless of their maturity. This inconsistency in charting accounts affects loan calculations. Accounting regulations allow long-term loans to be recorded on account 66 as soon as their maturity is reduced to one year.

Wiring:

• DT51 (10, 41) KT67 - a loan was provided in rubles, in the form of material assistance, goods.
• DT67 KT51 (10, 41) - loan repayment reflected.

To account for additional costs (interest, consulting services, exchange rate differences) on loans, sub-accounts are used. These expenses are written off in the period in which they were accrued. But not in all cases.

Exception first

If borrowed funds were used to prepay inventory, then the accrued interest before receiving the goods increases the receivables, and after - they are taken into account in the generalrules.

• DT51 KT66 - loan granted.
• DT60 KT51 - prepayment made.
• DT60 sub-account “Advances”, KT60 sub-account “Interest” - interest for using the loan has been accrued. The posting is formed before the actual receipt of the goods.
• DT60 KT51 - prepayment of the inventory was made.
• DT10 KT60 - goods received from supplier.
• DT19 KT60 - VAT charged.
• DT60 subaccount “Advances”, KT60 subaccount “Interest” - advance payment credited.
• DT68 KT19 - tax deductible.
• DT91 KT66 - interest accrued on a bank loan. The posting is formed after the goods are received.
• DT66 KT51 - interest paid.
• DT66 KT51 - loan repayment.

Exception two

A separate procedure for accounting for interest is provided if the loan is issued for the acquisition or construction of assets for which depreciation is charged. Then the cost of servicing the asset is reflected in the original cost of the object. At the same time:

• The organization must prove that the facility will generate economic benefits in the future.
• The Borrower shall independently compensate all costs for the construction of the facility.
• The work should be started by the time of costing.

Example 1

• DT51 KT66 - loan granted.
• DT60 KT51 – prepayment made.
• DT08 KT60 – OS object received.
• DT19 KT 60 - VAT charged.
• DT60 KT60 sub-account "Advances" - prepayment credited.
• DT68KT19 - VAT included.
• DT08 KT66 - interest on the loan has been accrued to the bank. The wiring is formed before the facility is put into operation.
• DT66 CT – interest repaid.
• DT01 KT08 - OS object accepted for use
• DT91 KT66 - interest accrued on the loan.
• Entry DT 66 KT51 reflects the repayment of the loan.

In practice, enterprises often acquire fixed assets at the expense of loans issued for other purposes. The costs of using such a loan are included in the initial cost of the object, but are calculated at a weighted average rate. The ratio of borrowing costs not related to the acquisition of an asset and the weighted average amount of loans is determined. The latter is determined by summing up the outstanding loan balances on the first day of the reporting month.

After the “Interest accrued on a long-term loan” entry is completed, taxable income is reduced, provided that the amount of accrued interest does not differ greatly from the average interest income on such obligations. This compares loans issued in the same currency for similar terms and in similar volumes.

If the organization does not have comparable loans, interest accrued at the Central Bank rate and increased:

• by 110% - on ruble deposits;
• by 15% - on deposits made in foreign currency.

Bonds

Having become familiar with how the “interest accrued on the loan” posting looks like, we proceedto the question of bonds. Loans raised through bonds are accounted for separately. If the market price of a security is higher than the nominal value, then postings are made in the BU:

• DT51 KT66 - bond issue.
• DT98 KT66 - for the difference in prices.

In subsequent periods, the accrued income from account 98 is evenly written off to “Other income”, account 91. If the market price is lower than the face value of the security. then the difference is evenly credited to account 91 for the entire turnover period of the security. According to PBU 15/01, the accrued interest on loans are related to operating expenses, regardless of the terms of payment:

• interest accrued on granted loans;
• bond interest;
• difference between the redemption amount and the face value of the bill;
• exchange differences arising from the payment of loans;
• related consulting services, duplicating works;
• expenses for expert examinations, payment for communication services, etc.

Example 2

LLC sold bonds for 200 thousand rubles. The nominal value of the Central Bank is 180 thousand rubles. Interest income - 3%. Let's register this operation in the BU:

• DT51 KT68 - 180 thousand rubles. – posting of sales proceeds.
• DT51 KT98 - 20 thousand rubles. – excess of the price over the face value.
• DT91 KT66 - 1350 rubles. – interest accrual at the end of the first quarter (5, 4/4).
• DT98 KT91 - 5 thousand rubles. - excess of the price over the face value after interest accrual.

This is how interest on a loan is accounted for in accounting.

Promissory Notes

A separate sub-account is used to account for discount transactions with a maturity of less than a year. The holder of the bill reflects all operations on account 66, which is debited from the account. 50, 51, 52, etc. When the bill holder returns the funds received under debt obligations due to non-fulfillment of obligations, an entry is made under DT68 and КТ51 (52). At the same time, the debt with the counterparty, which is secured by an overdue bill, continues to be listed on the accounts receivable. Analytical accounting is carried out for promissory notes and creditors.