loan question

NMO

We started a construction loan in 2020. We were given the money as we needed it. The loan was finalized in March of 2021. I made interest payments each month but May was my first official payment. So how do i document the money received for the loan in 2020 and 2021? In the right catagory.

Tom Young

"So how do i document the money received for the loan in 2020 and 2021? In the right catagory."

Assuming that you're were building a house or other piece of real estate and want to show this new asset on your balance sheet, then ultimately all that money, along with any other money you borrowed or spent from your savings, will end up is some asset Account on your balance sheet.  There isn't any necessity to use Categories here, though there are ways to do this. 

Why no "Categories?"  Because Categories are for "period expenses", i.e., costs that you don't expect to recover, cost that will show up in a Spending report with their concomitant reduction of your net worth.   You presumably weren't borrowing money to ultimately reduce your net worth, you were borrowing money to build a new asset - that house or whatever - that has a value at least as much as every dollar you put into it.

(I assume you drew money from the loan that was deposited in your checking Account, from whence you paid for labor and material.)

The draws against the construction loan are easy enough:

Debit (increase) Checking Account $XXX
Credit (increase) Construction Loan Account $XXX

The money you paid out from this loan (and other resources) are also easy enough:

Debit (increase) New "House" Asset Account  $XXX
Credit (decrease) Checking Account  $XXX

That's the super-simple, and correct, accounting for your activity.

If you want to keep better detail of how this money was spent, there's a couple of ways of doing this. 

If you do your accounting in the super-simple way above, you could add Tags for each expenditure, like "foundation", "framing", "roof", "plumbing", "electrical", "permits", "engineering" and the like  This will allow you to track what each house component cost.

You could also use Categories to keep track of all your costs and either transfer all these costs to your new asset Account either at the end of the project or monthly.  In this case you could use a "contra" construction" Category where you make a negative entry for all the costs incurred over the project's duration or the end of each month.  This entry would result in the costs having no net effect on your Spending report - all the costs incurred would be zeroed out with the dollars in the contra Category - but all the cumulative costs would always be available to you by using a suitable spending report.

There's no "cookbook" as to exactly how you're "supposed" to keep track of money spent to build a new asset beyond the super-simple method outlined above where all that money ends up in an asset Account.  That accounting is perfectly correct, but ultimately less useful, than documenting expenditures using Tags and Categories or even both.You create these Tags and Categories as you see fit.