How do I split a loan payment between interest and principal?

Interest is the balance outstanding times the periodic rate. Principal is the rest of the payment. Early payments are mostly interest; the principal share grows as the balance falls.

Is a loan payable current or long-term?

The principal due within twelve months is a current liability; the rest is long-term. The split is reclassified at each balance sheet date.

Journal entry for a loan repayment

When the loan is received, debit Cash and credit Loan payable. Each payment debits Interest expense for the interest portion and Loan payable for the principal portion, and credits Cash for the full payment.

Monthly payment: $3,179.97
First payment interest: $750
Total interest: $14,479.06
Entity: Illustrative company
Basis: Accrual
Currency: USD
Period: January – February 2026

The worked example

A company borrows $100,000 on January 15, 2026 at 9% for three years. The level payment is $3,179.97; the first is $750 of interest and $2,429.97 of principal, and over the term the loan costs $14,479.06 in interest.

Transaction · January 15, 2026

JE-115 Jan 2026Manualposted

Receive the loan.

Journal entry JE-1, 2 lines
Account	Debit	Credit
1000 Cash	100,000 US Dollar
2700 Loan payable		100,000 US Dollar

Totals	100,000 US Dollar	100,000 US Dollar

Balanced.

Transaction · February 15, 2026

JE-215 Feb 2026Manualposted

Make the first payment.

Journal entry JE-2, 3 lines
Account	Debit	Credit
7000 Interest expense	750 US Dollar
2700 Loan payable	2,429 US Dollar and 97 cents
1000 Cash		3,179 US Dollar and 97 cents

Totals	3,179 US Dollar and 97 cents	3,179 US Dollar and 97 cents

Balanced.

Loan amortization, first twelve payments

Computed by the same tested function the toolbelt runs. The last period absorbs any rounding, so the schedule sums to the cent.

Loan amortization, first twelve payments
Payment	Interest	Principal	Balance
February 15, 2026	750.00	2,429.97	97,570.03
March 15, 2026	731.78	2,448.19	95,121.84
April 15, 2026	713.41	2,466.56	92,655.28
May 15, 2026	694.91	2,485.06	90,170.22
June 15, 2026	676.28	2,503.69	87,666.53
July 15, 2026	657.50	2,522.47	85,144.06
August 15, 2026	638.58	2,541.39	82,602.67
September 15, 2026	619.52	2,560.45	80,042.22
October 15, 2026	600.32	2,579.65	77,462.57
November 15, 2026	580.97	2,599.00	74,863.57
December 15, 2026	561.48	2,618.49	72,245.08
January 15, 2027	541.84	2,638.13	69,606.95

What the entries do to the accounts

Every entry above posted to the ledger, starting from zero balances: the net debit or credit each account is left with. Debits equal credits, so the books still balance.

Net movement by account
Account	Debit	Credit
1000 Cash	96,820 US Dollar and 3 cents
2700 Loan payable		97,570 US Dollar and 3 cents
7000 Interest expense	750 US Dollar

Totals	97,570 US Dollar and 3 cents	97,570 US Dollar and 3 cents

Why it is booked this way

Borrowing is a balance-sheet event: cash comes in, a liability goes up, and there is no income. Repaying principal reverses part of that. Only the interest is a cost.

A level payment hides a changing split. The amortization schedule computes it from the balance each month, and the last payment absorbs the rounding so the loan ends at exactly zero.

Common mistakes

Expensing the whole payment, so the loan balance never moves.
Debiting the whole payment to the loan, so interest expense is never recorded.

Questions

How do I split a loan payment between interest and principal?: Interest is the balance outstanding times the periodic rate. Principal is the rest of the payment. Early payments are mostly interest; the principal share grows as the balance falls.
Is a loan payable current or long-term?: The principal due within twelve months is a current liability; the rest is long-term. The split is reclassified at each balance sheet date.

Terms on this page

Work with this entry

The tool that computes the schedule, the concept behind it, the entries that come next and the components that render them.

An illustrative company, not anyone’s real books. Every figure on this page is computed from the inputs in the example and posted by the same functions as the journal entry balancer. General information for US companies under US GAAP, not accounting or tax advice.