I have recently paid off a loan in full which I started keeping track of in a double-entry personal accounting software. Because I was paying before I started tracking I entered the current loan balance at the time (3 years ago) with the first entry as:

  • Debit >> Equity::OP BAL - $$open balance at the time
  • Credit >> Liability::Long-Term::Education Loan Principal

As I made my payments from my Asset::Bank::CheckingAccount I put the interest charge in an Expense::Interest::Education Loan Interest account and the balance was debited to Liability::Long-Term::Education Loan Principal. So the entry treatment was like this:

  • Credit >> Asset::Bank::CheckingAccount $My Monthly payment
  • Debit >> Expense::Interest::Education Loan Interest $Interest Portion
  • Debit >> Liability::Long-Term::Education Loan Principal $Principal Portion

Now this year I paid off my loan balance in full so I did the same treatment as above. Now how do I adjust the negative balance of what is left in OpBal account? Do I put the interest savings in a Equity::retained earnings to offset OpBal? Or do not book that at all and there will always be a negative balance for the original transaction. Any help is much appreciated; this has had me so confused for days now.

  • I don't understand what "interest savings" refers to, and what it has to do with Opening Balance.
    – base64
    Commented Aug 25, 2015 at 0:57
  • The amount I saved on interest charges factored over the term by paying off early. It was a 15 year loan I paid off in 6 years. Can't I track that in an account as income? or am I totally thinking of that wrong.
    – JpbLucky24
    Commented Aug 25, 2015 at 1:14
  • Interest is accrued over time. Each month's interest is Outstanding Principal x Interest Rate. Your Loan is paid off when Outstanding Principal reaches $0.
    – base64
    Commented Aug 25, 2015 at 1:22
  • Thank you for your response base64. I understand that and that is how I treated the entire transaction. But so does a loan always cause negative equity? What would bring an OpBal account out of the negative?
    – JpbLucky24
    Commented Aug 25, 2015 at 1:31
  • Your Opening Balance (of Equity) is negative because you spent all the loan proceeds before the start of the year, leaving no money at the bank (i.e. you didn't have enough assets). Opening Balance will never change, unless you "Close Books", i.e. combine Opening Balance, Retained Earnings (Income/Expense), Reserves into a single Opening Balance for Next Year. Opening Balance represents your initial situation, not your current total equity. Now that you have repaid your loan, your Income/Retained Earning must be huge, and Total Equity should be positive.
    – base64
    Commented Aug 25, 2015 at 1:37

1 Answer 1


Avoiding a cost (interest) isn't quite the same as income. There is no entry, nothing for you to consider for this avoided interest.

What you do have is an expense that's no longer there, and you can decide to use that money elsewhere each month.

  • Ok. Thanks Joe. So other than calculating my savings is there any contra sort of account that I can use for the savings to know how much to spread into other accounts. Or just by shear virtue of having a positive balance in my bank current assets account I can see what money I have to spend. I suppose I was looking for a way to see how much I could "reallocate" from interest avoided to other accounts.
    – JpbLucky24
    Commented Aug 26, 2015 at 22:19

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