When an Asset is sold or disposed of before the Asset Loan has been fully paid, a final payment of the current loan balance may be made once the payment of the Asset Sale has been received. 

Generally, the Asset Loan has two liabilities accounts:

• The Loan Account, which includes the Balance of the principal payment plus any unexpired interests;
• The Loan Account Unexpired Interests, which reports the total loan interest not yet expired

If the balance of the loan is paid before the end of the loan, some of the interest originally estimated at the start of the loan may no longer apply. 

In this example, the Business sold a vehicle originally financed for 5 years, after only 1 year of making loan repayments. The Business is then using the money made from the vehicle sale to pay the balance of the loan.

• The original vehicle loan was for $40,000, plus $3,500 interest.
• $700 of interest were expired as part of the previous EOFY Journals.
• Finally, a total of $3,600 of repayments were also made to the vehicle loan. 

The Finance Company confirms the payable balance to settle the loan is $37,600 as some of the original interest no longer applies. Therefore, after the payment is made and allocated to the Loan account, the Loan account balance is reduced to $2,300.

Close the Loan and Unexpired Interest Accounts

1. In Xero go to Accounting > Manual journals
2. Click on [New Journal]
   
   è  The New Manual Journal screen opens
   
   
   
   
3. Select/Enter the following details
   • Narration > Type: Motor Vehicle Loan #regoplate or #assetname pay out interest adjustment
   • Date > Type the date of the final payment of the Loan
   • Amounts are > select No Tax
   • Line 1: Accounts > Select the Motor Vehicle Loan #regoplate or #assetname Unexpired Interest and post the current balance of the account in the Credit column
   • Line 2: Accounts > Select the Motor Vehicle Loan #regoplate or #assetname and post the current balance of the account in the Debit column
   • Line 3 Accounts >Select the Interest on Loan expense account and post the journal balance in the Debit column
4. Click on [Post]

If this is the last step of your Asset sale and disposal process all the Balance Sheet accounts related to the original Asset purchase and finance should now report a $0.00 balance in your Chart of Accounts. If this is the case, these accounts should then be archived.

è  The Chart of Accounts screen