Loans payable

Definition. Loans payable are amounts a business has borrowed and must repay, such as bank loans, government-backed loans or loans from directors. The balance is the capital still owed; interest is a separate cost.

Where it sits in the accounts. Loans payable are a liability. UK balance sheets split them into “Creditors: amounts falling due within one year” for repayments due in the next 12 months, and “amounts falling due after more than one year” for the rest. Interest is charged to the profit and loss account.

Worked UK example

A company borrows £60,000 from its bank, repayable in equal instalments of £12,000 a year over 5 years.

• Loan received: Debit Bank £60,000, Credit Bank loan £60,000
• Annual repayment: Debit Bank loan £12,000, Credit Bank £12,000
• Interest for the year: Debit Interest expense, Credit Bank

Immediately after drawdown, £12,000 is shown as due within one year and £48,000 as due after more than one year.

FAQs

Is a loan payable an asset or a liability?

A liability. The cash received is an asset, but the obligation to repay it is a liability.

What type of account is loans payable?

A liability account with a credit balance, split between current and non-current liabilities.

What is the difference between a secured and an unsecured loan?

A secured loan is backed by an asset, such as property or a debenture, that the lender can claim if repayments stop. An unsecured loan has no such security.

Related terms: Liabilities · Secured loan · Trade creditors · Net assets