Does making a loan payment lower my profit?

by Joe
(Grand Rapids, MI)

If I make a lump sum payment to lower a loan will that lower my profit?



Joe, thanks for the question!

The 2 ways to lower your profit are to decrease sales or increase expenses. Making a principal payment on a loan is a decrease to a liabliity, which is great for your business, but has no effect on profit. The interest portion of a loan payment is an expense, however, and that amount will lower your profit.

Hope that helps!

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Oct 31, 2013
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yes and no
by: Anonymous

Making a loan payment lowers your profit only to the extent of the interest portion of the payment, which is posted to "Interest Expense".

Profit equals Revenue minus Expenses, so, this would lower your profit.

The principal portion of the loan payment is posted to your liability account, like "Vehicle Loan Payable" or "Mortgage Payable". That affects the liability balance on your Balance Sheet.

Hope that helps!

Kathy

Oct 30, 2013
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lenutaa_mirceaa.small business
by: lenutaa_mirceaa

does making a loan payment lower my profit?

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