Bookkeeping for a line of credit and perhaps some loans as well, can be confusing when those monthly closing statements list BOTH a Principal Balance and a Total Balance.

The question you may have to ask yourself is which balance do you want to reconcile to each month?

 

Example:

A Business Line of Credit statement may list all of the following:

  • Beginning and ending principal balances.
  • Beginning and ending total balances.
  • The detailed account activity that occurred during that time period that will clue you in as to how the bank arrived at both of these ending balances.

 

Really the difference between the ending principal balance and the ending total balance is simply going to be a bank fee or interest charge that has NOT been debited from your bank or line of credit account yet. Instead what the bank is doing here is simply charging you a fee (similar to what a credit card company will do as well) but you have not paid for this fee yet, however in a loan or line of credit (unlike a credit card account), you will be paying for this accrued fee the very next month (most likely) in one of two ways:

  • The bank will debit your bank account for the fee, or:
  • The bank will simply take your scheduled loan payment (during the amortization process) and apply only a portion to principal, with the remainder paying for this accrued interest fee.

 

Overall, you may want to consult with your C.P.A. as to which balance you reconcile to each month. If you want to reconcile to the total balance, then you are recognizing this unpaid bank fee or interest charge before you actually pay for it. However, if you want to reconcile to the principal balance, then you are simply waiting to recognize a bank fee or interest charge until you have actually paid for it.

 

Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.

 

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