You’re Not Recording That Loan Right — And It’s Costing You

Hey there,

We’ve noticed a quiet but costly pattern over the past 6 weeks. At first glance, these issues might seem like small accounting errors. But they’re actually signs of deeper problems that could be skewing your financial visibility — and potentially hurting you at tax time, during funding applications, or when making key business decisions.

Here’s what we’ve seen:

🔹 1. Booking 100% of the Loan Payment as an Expense

👎What happened:
In three client files, the full monthly loan payment — principal and interest — was being recorded as an operating expense.

🧠Why it’s a problem:

Only the interest portion is an expense. The principal is a balance sheet transaction. This mistake artificially lowers your net income and creates confusion in your financial reports.

✅ Quick Tip:
Ask your accountant to split each payment using your loan amortization schedule. You can usually get this from your lender or loan agreement. Track principal as a reduction in the liability account and interest as an expense.

🔹 2. Recording Owner Contributions as Business Income

👎What happened:
A client deposited their own money into the business, and it was labeled as revenue.

🧠Why it’s a problem:

This inflates your income, distorts your margins, and can lead to paying taxes on money you never actually earned.

✅ Quick Tip:
Make sure all personal funds added to the business are categorized as Owner Contributions or Owner Equity — never income. If you use QuickBooks, these should hit an equity account like “Owner’s Investment” or “Capital Contributions.”

🔹 3. Flat Principal & Interest Payments Every Month

👎What happened:

One client’s books showed identical principal and interest amounts every month.

🧠Why it’s a problem:

Real loan amortizations fluctuate. Fixed numbers month-to-month usually mean someone is guessing or not reconciling to the actual loan statements.

✅ Quick Tip:
Make sure all personal funds added to the business are categorized as Owner Contributions or Owner Equity — never income. If you use QuickBooks, these should hit an equity account like “Owner’s Investment” or “Capital Contributions.”

Final Thought:

When these mistakes slip through:

• Your cash flow gets misrepresented

• You may be paying more in taxes

• Your profitability and margins look wrong

• You won’t have clean books for lenders or investors

Clean books fuel clear decisions.
Let’s make sure yours are working for you — not against you.

Stay profitable,
Doyin Ogunbajo, CPA
The Profit Pilot

ASO Financial