1. Create a loan

2. Set the short-term account as an account payable type

This will ease the loan payment reconciliation

3. As an example, create the loan for $12,000 with 3% interest at $325.44. The duration is 12 months.

4. Compute the loan

5. Every month, three journal entries will be created.

First journal entry 10/31/2024 reclassification.

Debit (DR.) Long-term liability account $11021.04 (Outstanding balance)

Credit (CR.) Account payable (AP) $11021.04

Second journal entry: 10/31/2024 Pricipal and interest

DR. Long-term liability $978.96

DR. Expense $48.33

CR. AP  $1027.29    (a1)

Third journal entry: 11/1/2024 Reversal reclassification (reversal of first journal entry)

CR. Long-term liability account $11021.04

DR. AP $11021.04

6. When the user makes a payment for the loan, the vendor payment journal entry will show as below.

DR. AP $1027.29    (a1)

CR. Bank $1027.29