Loan payments  are tricky  because they  include both  the principal  and interest  on the  loan. The  interest is  an expense  and only  the principal  portion of  the payment  should be  posted to  the loan  account.

Since you don’t know the interest amount when you pay the payment it gets hard. Interest is determined by the company receiving the payment as of the date of receipt. Normally when you get next months payment request it shows you how much of last months payment was for interest and principal.

To have a reaonably correct loan balance in the liability account, this is what needs to happen

• 1. Post the total payment to the loan liability account.
• 2. When next months statement comes in

2a. Bring up the general journal
** debit the interest expense account with the amount of interest paid last month
** credit the loan liability account with the amount of the interest paid last month
** set the date of the journal entry to the date of last months payment

2b. Do step 1.

Basically what you are doing here is removing the interest portion of the payment from the loan liability account when you get the statement that shows how much it was.