When paying for a loan, churches often set aside money specifically to pay off that loan, such as a Mortgage Repayment fund, and this often takes the form of an Equity-Backed fund, where contributors are giving specifically towards that fund. When paying for a loan, since the principal of the loan is tracked in the liability, but also acts as an offset account to the transaction, alongside an expense account for the interest and escrow on the loan. Therefore, to track this accurately, we need to make two separate transactions:
1. A basic loan payment (or check) transaction:
This payment will show the principal loan being paid against the liability (Principal), and the expense side of the equity-backed fund for the interest and escrow.
2. Reduction of the Equity-Backed Fund
The second transaction you create will be a transfer from the Equity of your Equity-backed fund to your Book Equity for the amount of the principal you paid. This will reduce the balance of your equity-backed fund while increasing your book equity.