Managing a long-term liability, such as a mortgage or equipment loan, requires a specific setup to ensure your principal balance decreases over time while your interest expenses are tracked accurately.

To do this correctly, you will use a Split Transaction. This allows you to record one payment from your bank account that is divided between your debt (the liability) and your costs (the interest).

Step 1: Set Up Your Accounts

Before recording your first payment, you need two specific accounts in your Chart of Accounts.

1. Liability Account: This tracks the remaining balance of the loan.

   • Account Type: Liability.

   • Name: e.g., "Main Street Mortgage" or "Truck Loan."

2. Expense Account: This tracks the money you pay the lender for the privilege of borrowing.

   • Account Type: Expense.

   • Name: e.g., "Interest Expense."

Step 2: Enter Your Starting Loan Balance

Once your accounts are created, you must tell the system how much you currently owe. This ensures your Balance Sheet reflects the correct debt amount from day one.

Depending on whether this is a brand-new loan or a loan you've had for a while, follow the method below:

Option A: Using the "Opening Balance" Field

If you are just now setting up your Chart of Accounts, you can enter the balance during the account creation process.

1. Navigate to Fund accounting -> Accounts -> Starting Balances

2. Find the line item for your liability you just created

3. Enter the total amount you owe on the day you want to start recording the payment in Aplos

Option B: Recording a New Loan (Journal Entry)

If you received the loan mid-year and the cash was deposited into your bank, you should record the "opening" of the loan to reflect that cash influx:

1. Create a Journal Entry.

2. Debit your Bank Account (this increases the cash you received).

3. Credit your Liability Account (this creates the debt you owe).

Note: If the loan was used to buy an asset directly (like a vehicle or building) and the money never hit your bank account, you would Debit the Asset account (e.g., "Company Truck") and Credit the Liability account instead.

Step 3: Calculate the Split

Every loan payment is typically made of two parts:

• Principal: The amount that reduces the actual balance of the loan.

• Interest: The fee charged by the lender (this is a business expense).

Refer to your most recent loan statement or amortization schedule to find these exact numbers for the current month.

Step 4: Record the Payment

When it’s time to record the payment in your bank register, follow these steps:

1. Open your Register by going to Fund Accounting -> Transactions -> Registers.

2. Select the asset register your payment was withdrawn from.

3. Select the "add new" option to the right and select "payment"

4. Select the Create Split button.

5. Enter the breakdown as follows:

   • Line 1: Select the Liability Account and fund this is being tracked to and enter the Principal amount.

   • Line 2: Select the Interest Expense Account and fund this is being tracked to and enter the Interest amount.

6. Ensure the Total of the split matches the total amount withdrawn from your bank and be sure to enter in the fill amount in the first amount box towards the top.

Example Walkthrough

If your total monthly payment is $1,000, your split might look like this:

Why This Matters

• Accurate Debt Tracking: By pointing the $300 principal to the Liability account, your Balance Sheet will show that you owe $300 less than you did last month.

• Tax Readiness: By pointing the $700 to an Interest Expense account, you are accurately tracking tax-deductible expenses.

Pro Tip: Since the ratio of Principal to Interest changes every month (amortization), you should check your loan statement each month to update these split amounts.