NetLoan Journal Entries Overview - Lender
Loan Journal Entries
Unless stated otherwise in the specific example, all entries below are based on a loan with the following characteristics:
- Schedule Calculation Type: Default
- Origination Date: 1/1/2021
- Initial Payment Date: 2/1/2021
- Loan Term: 120
- Initial Loan Balance: $1,500,000
- Initial Payment: $15,600
- Payment Day: 1st
- Business Day Convention: Unadjusted
- Day Count Convention: 30/360
- Annual Percentage Rate: 4.5%
- Down Payment: $5,000
Go-Live Entry
This is a one-time entry that is booked at the end of the implementation process. It is the entry that puts the note receivable and interest receivable (if applicable) on the books. A manual entry is needed to remove any amounts related to the loan that were booked prior to the implementation of NetLoan. Entry based on loan criteria noted above for Go-Live Date of 1/1/2023:
Manual Entry:
| Debit | Credit | |
| Go-Live Clearing | 1,260,163.07 | |
| Note Receivable - Noncurrent | 1,255,611.48 | |
| Other Receivable (Interest Receivable) | 4,551.59 |
Initial Balance Entry
For new loans added after NetLoan is fully implemented, a go-live entry is not necessary. Instead, an initial balance entry will be used to put the note receivable on the books. Manual entries are needed to offset the amount NetLoan books to the Loan Proceeds/Origination Clearing account for any cash paid or received.
Initial Balance based on loan criteria noted above:
Offsetting manual entries
1. To record initial cash paid:
| Debit | Credit | |
| Loan Proceeds/Origination Clearing | 1,500,000 | |
| Cash/Payable | 1,500,000 |
2. To record down payment:
| Debit | Credit | |
| Cash/Receivable | 5,000 | |
| Loan Proceeds/Origination Clearing | 5,000 |
Initial Balance based on loan criteria noted above plus $5,000 Capitalized Origination Fees:
Offsetting manual entries
1. To record initial cash paid:
| Debit | Credit | |
| Loan Proceeds/Origination Clearing | 1,500,000 | |
| Cash/Payable | 1,500,000 |
2. To record capitalized origination fees:
| Debit | Credit | |
| Cash/Receivable | 5,000 | |
| Loan Proceeds/Origination Clearing | 5,000 |
3. To record down payment:
| Debit | Credit | |
| Cash/Receivable | 5,000 | |
| Loan Proceeds/Origination Clearing | 5,000 |
Monthly Amortization Entry
NetLoan generates the amortization schedules and automates monthly amortization entries. A manual entry is needed to record the receipt of the loan payment and zero out the clearing account--this is usually done by the Accounts Receivable team and can also be automated using NetLoan. Below is an example of an amortization entry where the monthly loan payment is $15,600 paid on the first of the month. The Other Receivables account represents the accrued interest receivable from the end of the prior month.
Offsetting manual entry made by Accounts Payable team:
| Debit | Credit | |
| Cash or Accounts Receivable | 15,600 | |
| Loan Payment Receivable Clearing | 15,600 |
If the payment date falls on any day other than the end of the period, NetLoan will book an additional monthly entry to accrue interest through the end of the period.
If there are Capitalized Fees, NetLoan will also book an additional monthly entry to amortize those fees.
Loan Modifications
There are several types of loan modifications available in NetLoan. A brief explanation for each type along with applicable journal entries are included below.
1. Adjust Loan Terms: Loan term changed from 120 to 180. The amortization schedule will update for the increased term. No journal entry recorded at the time of modification--future journal entries will now book through the extended term to reflect the modification.
2. Adjust Loan Balance: $500,000 increase in loan balance. With adjustments to loan balances, you will choose the offsetting account to notes receivable and then there won't be a journal entry booked at the time of modification. Instead, the loan schedule will update and then the modification journal entry will book when you run your monthly amortization entry.
An offsetting manual entry is needed as part of the Accounts Receivable process:
| Debit | Credit | |
| Loan Proceeds/Origination Clearing | 500,000 | |
| Cash or Accounts Payable | 500,000 |
3. Pay Off Remaining Balance: At the time this modification is performed the loan schedule will be updated to reflect the payoff. The journal entry to remove the note receivable and record the payoff will be generated when the monthly amortization entries are run for the period in which the modification was performed.
An offsetting manual entry is needed as part of the Accounts Receivable process:
| Debit | Credit | |
| Cash or Accounts Receivable | 1,249,232.13 | |
| Loan Payment Receivable Clearing | 1,249,232.13 |
Short Term/Long Term Reclass
The Short Term/Long Term Reclass entry reclasses the short-term portion of the note receivable from the long-term account to the short-term account. A second journal entry is booked the subsequent day to reverse the reclass entry. When done on a monthly, quarterly, or annual basis, this correctly categorizes the short-term portion of the note receivable at period close.
Reclass entry on 1/31/2023 (this entry must be run in NetLoan under Process Monthly Transactions)
Reversal entry on 2/1/2023 (this entry is automatically booked by NetLoan)
A link to the reversal can be found on the Reclass journal entry as shown below: