How to record loans, credit cards and interest

Loans and credit cards cause more bookkeeping errors than almost anything else, usually because the whole repayment is recorded as an expense. That overstates expenses and leaves the loan balance wrong. This guide shows the correct entries.

By Awais Jameel, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. Checked against official sources on . 2 minute read.

Short answer

To record a loan in bookkeeping, debit the bank and credit a loan liability when the money arrives. Each repayment is split: principal reduces the loan liability, and interest is an expense. A business credit card is also a liability: purchases are recorded as expenses against the card account, and payments from the bank reduce the card balance. Interest on business borrowing is generally deductible.

At a glance

Loan received
Debit bank, credit loan liability
Repayment
Principal reduces the loan; interest is an expense
Card purchase
Debit expense, credit card liability
Card payment
Debit card liability, credit bank
Interest
Generally deductible on business debt
Reconcile
Loan and card balances to statements monthly
How to record loans, credit cards and interestSteps: 1. Create a liability account for each loan and card; 2. Connect card feeds; 3. Split each loan payment; 4. Reconcile monthly.THE PROCESS AT A GLANCEHow to record loans, credit cards and interest1Create a liabilityaccount for each loanand cardSeparate from bank accounts2Connect card feedsSo purchases are recordedagainst the card account3Split each loanpaymentUsing the amortizationschedule4Reconcile monthlyLoan and card balances to thelender's statementsChecked against official sourcesTax BakersHow to record loans, credit cards and interestSteps: 1. Create a liability account for each loan and card; 2. Connect card feeds; 3. Split each loan payment; 4. Reconcile monthly.THE PROCESS AT A GLANCEHow to record loans, credit cardsand interest1Create a liability account foreach loan and cardSeparate from bank accounts2Connect card feedsSo purchases are recorded against the cardaccount3Split each loan paymentUsing the amortization schedule4Reconcile monthlyLoan and card balances to the lender'sstatementsChecked against official sourcesTax Bakers
The process at a glance: 1. Create a liability account for each loan and card; 2. Connect card feeds; 3. Split each loan payment; 4. Reconcile monthly.

What are the loan entries?

EventDebitCredit
Receive a $20,000 loanBank $20,000Loan payable $20,000
Monthly payment of $650: $520 principal, $130 interestLoan payable $520; interest expense $130Bank $650
Loan used to buy equipment directlyEquipmentLoan payable

Use the lender's amortization schedule or statements for the split. Only the interest is an expense; the principal repaid is not.

What are the credit card entries?

EventDebitCredit
Purchase of suppliesSupplies expenseCredit card
Refund from a supplierCredit cardSupplies expense
Interest and fees chargedInterest or bank fees expenseCredit card
Payment from the bankCredit cardBank

The payment is a transfer between accounts, not an expense; the expenses were recorded when the purchases were made. Recording both would count them twice. See business credit cards.

How should you set it up?

  1. Create a liability account for each loan and card

    Separate from bank accounts.

  2. Connect card feeds

    So purchases are recorded against the card account.

  3. Split each loan payment

    Using the amortization schedule.

  4. Reconcile monthly

    Loan and card balances to the lender's statements.

When is interest deductible?

Interest on money borrowed for the business is generally deductible. Interest on the personal-use portion of a loan or card is not. Very large businesses face a limit on business interest deductions, but businesses with average annual gross receipts of $32 million or less for 2026 are generally exempt from it. Loan fees are usually spread over the loan term rather than deducted at once. See deductible business expenses.

What if the owner borrows personally for the business?

If the owner takes a personal loan and puts the money into the business, record a contribution or a loan from the owner in the business books, and track the interest separately; it may be deductible if the money was used in the business. See contributions vs loans.

Loan and card balances not matching?

We set up your loans and cards correctly, split each repayment between principal and interest, and reconcile balances every month.

Book a call Chat on WhatsApp

Questions people ask

How do I record a business loan?

Debit the bank and credit a loan liability when you receive it; split each repayment between principal and interest.

Is a loan repayment an expense?

Only the interest part. Principal repayments reduce the loan liability.

How do I record a credit card payment?

Debit the credit card liability and credit the bank. The purchases were already recorded as expenses.

Is business loan interest deductible?

Generally yes, for money used in the business. Most small businesses are exempt from the business interest limit.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IRS Publication 535: Business Expenses, interest
  2. IRS Revenue Procedure 2025-32: 2026 inflation adjustments, gross receipts test
  3. IRS: Recordkeeping

Rules and fees change. If you are reading this long after October 1, 2026, confirm the figures with the source before you rely on them.

BookkeepingHow to do a bank reconciliationBanking and paymentsBusiness credit cards for a new LLC: what you need to qualifyBookkeepingHow to set up a chart of accounts

More in Bookkeeping

Previous in this topicBookkeeping for S corporations: payroll, distributions and shareholder loansNext in this topicBookkeeping mistakes that cause tax problemsTopicAll 30 guides in Bookkeeping

This guide is general information. It is not tax or legal advice for your situation.