Loan Reconciliation: A Workpaper for Accountants

Loan reconciliation explains a loan’s closing balance from its supported opening balance and each movement during the period. Use the workpaper below to separate principal from charges, compare the result with the accounts and statement, and trace any difference.

Start With the Supported Opening Balance

Agree the opening loan balance to the preceding signed workpaper and the lender’s statement before adding new movements. Record the borrowing entity, lender or related party, account reference and reconciliation period. State whether the workpaper shows an amount owed by the client or owed to the client.

Request the loan agreement, complete statements and transaction detail from the accounts. Include the bank account used for repayments and any settlement statement for advances paid directly to a supplier. Keep a copy of each source with a reference you can trace from the workpaper.

A repayment total includes more than principal when the lender collects interest or fees with it. MYOB’s loan-recording guidance identifies the repayment breakdown as information needed to track a loan accurately. Obtain that breakdown before allocating the whole bank payment to the loan balance.

If the preceding workpaper and statement disagree, carry the difference into a documented investigation. An unsupported opening amount makes every later agreement unreliable.

Separate the Loan Movements

Record each movement once, using its source and the amount posted in the accounts as separate evidence.

1. Enter advances from the lender’s statement and settlement documents. Match an advance deposited into the bank to the corresponding loan entry. A deposit and its loan-account counterpart are two sides of one transaction, so enter one advance in the workpaper.
2. Split each cash repayment using the lender’s breakdown. Put the principal reduction in the movement calculation. Record interest and fees paid with that repayment in the separate cash-paid columns.
3. Enter interest and fees added to the debt in the capitalised-charges column. Keep their source references and descriptions separate so the reviewer can identify each charge.
4. Record other supported adjustments with their reason and approval. Use a positive amount for an increase in debt and a negative amount for a reduction.
5. Compare the workpaper movements with the loan-account detail. Investigate any source movement missing from the accounts and any accounting entry missing from the sources.

An expense classification and a loan-balance movement answer different questions. Interest charged to the loan can increase the debt while the corresponding debit is an expense. Interest paid separately in cash does not increase the debt.

Here, capitalised charges means amounts added to the loan balance. It does not decide whether a cost belongs in an asset or an expense. Confirm the agreement and applicable accounting requirements before prescribing the entry. AASB 9’s effective-interest definitions explain why certain fees and transaction costs require separate measurement consideration.

If you need to support an accrual from an agreed rate and period, use the daily interest calculator. Keep that calculation with the workpaper and distinguish an accrual from interest already charged by the lender.

Complete the Loan Reconciliation Workpaper

Download the loan reconciliation spreadsheet. It contains a blank Template, a completed Fictional example and instructions. Enter supported amounts in the blue input cells. The calculated closing balance and differences update from those inputs.

The workpaper calculates opening balance plus advances, less principal reductions, plus capitalised charges and signed adjustments. Cash-paid interest and fees sit beside the movements for checking and do not enter that formula. Enter the statement balance and the account balance independently, using the same positive-debt convention.

A Fictional Borrower’s Reconciliation

Assume the following supported movements for one period. The fictional charges are amounts from the example records, not quoted lending terms. The example assumes no separate measurement adjustment is required.

The $18,000 cash payment consists of $15,000 principal, $2,700 interest and a $300 fee. Those example fees are the total amounts in the fictional records, with no GST credit assumed. The $2,700 and $300 are paid in cash and excluded from the debt calculation.

The result is $100,000 + $20,000 - $15,000 + $1,350 = $106,350. The statement and corrected accounts both show $106,350, leaving a zero unexplained difference.

The example workbook also compares a $150 fee paid separately in cash. With no fee added to the debt, the closing balance is $106,200. Keep the cash-paid fee in its separate column. Changing the payment method changes the debt movement even when the fee’s accounting classification stays the same.

Where accounting measurement differs from the lender’s contractual balance, retain a separate bridge between them. Enter its supported signed adjustment in the workpaper. A zero statement difference alone does not prove the financial-statement carrying amount is correct.

Find the Reason for a Difference

Compare the size and direction of the difference with individual source movements before changing the accounts.

For the example, counting the $20,000 deposit twice produces $126,350. Allocating the full $18,000 cash payment to principal produces $103,350. Both are diagnostic errors shown in the workbook, not alternative closing balances.

Never force the difference into an unexplained journal. Record the missing source question, who will resolve it and the effect on the closing balance. Keep an unresolved workpaper open until the explanation and any correction have support.

Review a Shareholder Loan

Use the same movement workpaper for a shareholder or related-entity loan, with the parties and direction of the debt identified. In the lender company’s accounts, an amount owed by the borrower is a receivable. Keep separate loans distinct even when the same client group controls both entities.

For a fictional lender company, an opening receivable of $40,000 plus $6,000 of supported drawings, less $4,000 of recorded cash repayments, gives $42,000. This example assumes no interest or other adjustment. Retain the drawings detail, payment evidence and both entities’ records supporting that arithmetic balance.

A reconciled balance supports the next tax review. It does not establish that the loan complies with Division 7A or that every recorded payment counts as a statutory repayment. The ATO’s Division 7A guidance treats applicability and minimum yearly repayments as separate questions. Review the Division 7A loan requirements after supporting the balance.

For ongoing Division 7A records, Tax Genie builds yearly schedules from the loan details and benchmark rates the practice records. Staff can use a starting balance for an existing loan. Keep the supporting reconciliation with the loan so the schedule starts from an explained amount.

Sign Off the Closing Balance

Sign off the reconciliation when every movement has support and the closing balance agrees with the statement and relevant account, including any documented measurement bridge. The unexplained difference must be zero.

Before marking the workpaper complete, confirm each item below.

• The opening balance agrees with retained evidence.
• Each advance and principal reduction appears once.
• Cash-paid charges stay separate from charges added to debt.
• Corrections have supporting records and appear in the final account detail.
• Any timing or measurement differences have a supported explanation.
• The preparer and reviewer have recorded their names and sign-off dates.

Keep unanswered source questions in the client follow-up record, with an owner and due date. If a question affects the balance, leave the reconciliation unsigned. Retain the technical loan-treatment review and minimum yearly repayment calculation as separate workpapers before finalising the accounts.