When you receive the bank statement and see the monthly loan deduction, the temptation is great to record it as a single line in accounting. The problem is that each payment contains at least two distinct components (principal and interest), sometimes three with borrower insurance. Misallocating these amounts skews the result, the balance sheet, and complicates the closing of the fiscal year.
Allocation of principal and interest: the trap of the global deduction
On the bank statement, the deduction appears as a single amount. From an accounting perspective, this amount breaks down into well-defined parts.
The principal repaid reduces the debt on the balance sheet, not the result. You debit account 164 (loans from credit institutions) and credit account 512 (bank). The interest, on the other hand, constitutes a financial expense: you debit account 6611 (interest on loans) and credit account 512.
If the payment includes borrower insurance, it is recorded by debiting account 616 (insurance premiums). Knowing how to properly account for a loan repayment requires having the amortization schedule provided by the bank at hand, which details the monthly distribution.
Without this schedule, one navigates blindly. The interest portion decreases with each payment while the principal portion increases. Recording a flat amount as financial expenses each month leads to overestimating expenses at the end of the loan and underestimating them at the beginning.
Accounting entry for a loan payment: detailed or global method
Two approaches are encountered in practice. The first, the most rigorous, involves recording each payment by immediately allocating principal, interest, and insurance. For a given payment, the entry takes this form:
- Debit account 164 for the repaid principal portion
- Debit account 6611 for the interest portion for the period
- Debit account 616 for borrower insurance, if applicable
- Credit account 512 for the total amount deducted
The second method, sometimes used in smaller organizations, records the global deduction as a debit to a suspense account, and then the allocation is adjusted at closing by reconciling the balance of account 164 with the remaining principal indicated by the bank. The adjustment at the end of the fiscal year is riskier: it accumulates discrepancies and complicates the reconciliation if multiple loans coexist.
Case of group insurance on a single deduction
Some banks include insurance in the payment without detailing it on the statement. The allocation can be found in the amortization schedule or in the separate payment notice. If the insurance amount is not identifiable, the responses vary on this point according to the firms, but the common practice is to request an annual statement from the insurer to reconstruct the expense.
Accrued interest not due at the end of the fiscal year
At the closing date, it is rare for the payment to fall exactly on the last day of the fiscal year. One must then recognize the accrued interest not due, that is, the portion of interest that accrues between the last paid payment and the closing date.
The entry is simple: you debit account 6611 and credit account 1648 (accrued interest on loans from credit institutions). At the beginning of the following fiscal year, you reverse this entry to avoid double counting when the full payment is deducted.
Forgetting this entry underestimates the financial expenses of the closed fiscal year and overestimates them in the following year. The result of each period must reflect the interest actually consumed, even if it has not yet been disbursed.
New PCG applicable from 2025: check your accounts
The ANC regulation no. 2022-06 applies to fiscal years opened from January 1, 2025. This reform has reduced the nomenclature of the general accounting plan and eliminated several transfer accounts.
In practice, accounts 164, 6611, and 512 remain the pivots of the accounting entry scheme for a loan repayment. What changes is the presentation of financial statements and notes, particularly for monitoring financial debts. Before continuing with an old entry model, it is important to check that the accounting software settings have been updated accordingly.
An old entry may remain technically balanced while becoming unsuitable for the new framework. The account titles, exports, and closing procedures deserve a review before the first closing under the new PCG.
Borrowing costs that can be incorporated into the cost of an asset
A often overlooked point: borrowing costs directly attributable to an eligible asset (construction, long-term development) can be incorporated into the cost of that asset instead of being recorded as financial expenses. This option requires a consistent and permanent method, documented in the notes. In practical terms, if the company builds a building financed by a dedicated loan, the interest paid during the construction phase increases the value of the asset on the balance sheet rather than burdening the result.
Tax treatment of loan repayment in a SCI
For a SCI, the distinction between principal and interest takes on a direct tax dimension. The repayment of principal is never a deductible expense: it reduces the debt, not the taxable result. Interest, on the other hand, can be deducted depending on the chosen tax regime and the nature of the financed asset.
Confusing the two items in a SCI subject to income tax leads to declaring overstated deductible expenses, which exposes one to an adjustment during an audit. The amortization schedule remains the supporting document to keep for each fiscal year.
Whether managing a commercial enterprise, an association, or a SCI, the accounting logic of a loan repayment always relies on the same mechanism: separating what extinguishes the debt from what constitutes the cost of financing. An up-to-date amortization schedule and compliance with the applicable PCG settings are sufficient to secure the entire process.
