Forecast loan balances on balance sheet

Hello Tim,

I have checked into this for you. The original loan is £315,000 and if you take the total of the loan due within one year and due after more than one year, the loan account balance decreases, as follows:

Year 1: Due in one year £58,070; Due after one year £256,930; Total due: £315,000
Year 2: Due in one year £60,436; Due after one year £196,494; Total due: £256,930
Year 3: Due in one year £62,896; Due after one year £133,598; Total due: £196,494
Year 4: Due in one year £65,465; Due after one year £68,133; Total due: £133,598

The reason the amounts of the loan falling due within one year are increasing is because this amount represents the capital element of the loan due in the next 12 months. As the interest is reducing each year as a proportion of the total amount due, the capital amount due effectively increases as a proportion of the total amount paid in the following 12 months.

If you look at the loan schedule for each of the years and net the total repayments against the total interest for each of the following 12 months, this will give you your figure on the balance sheet for the amount due within one year figure noted above.

For example, for the year end 31 August 2011 the repayments are £69,612 and the interest is £9,176. The net of these two amounts is £60,436. This amount ties back to your balance sheet figure.

I know many times accountants spread the interest and capital over the loan as a fixed amount, rather than as Cash Forecaster calculates it using a reducing balance method. To do this with the way Cash Forecaster works and the other parts of the loan calculates things within the cash flow software, I’m not sure if that would work very well.

I hope that makes sense, but if you have any further questions, please ask.