This article deals with different ways of recognizing interest fees associated with Lines of Credit.

A line of credit is just credit extended with the ability to make cash draws against this when funds are needed. Lines of credit always have limits and, of course, interest will be owed as well for the temporary use of this credit line. There are different types of Lines of Credit, but typically you see them in the form of:

• Credit Card
• Business LOC
• Personal LOC
• HELOC

Interest fees are going to be charged at some point and, either added to the overall balance owed, or just simply subtracted out from your next payment applied to the principal balance, depending on the line of credit and its terms. A lot of times, users of a large lines of credit (such as home builders) will simply just make minimal monthly interest payments and then there will be one large balloon principal payment owed at the end of a fixed term to settle this credit line.

The overall bookkeeping concerns are when and how to apply interest fees.

It is recommended to consult with your CPA, but I typically post interest fees only when they either:

• Add to your overall principal balance, or
• When actually paid out.

This keeps your bookkeeping simple as both methods above affect a cash or principal credit balance in your books. However, a lot of times, interest fees will be accrued instead and thus will not affect, yet, a principal balance, but instead a payoff balance.

So, overall, read your lines of credit statements carefully each month to ascertain what your true recognized balances are.

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.