It is possible that the breakdown of a payment into principal and interest that Microsoft Money makes will be incorrect. Rounding errors, payment delays, and perhaps even a bug in either Money's or the bank's calculations may mean that the loan balance that Money shows for a loan or mortgage is incorrect.

Understanding the problem

When the ending balance that Money shows is incorrect, it simply means that Money has incorrectly split one or more loan payments between principal and interest. What you need to do, in this case, is adjust the ending balance and categorize the adjustment as falling into the same interest expense category and subcategory as you are using to track the interest component of the loan payment. To make this sort of adjustment, display the account register for the loan or mortgage that you need to adjust. Then click Update Amount Owed in the list of common tasks. Money then displays the Adjust Loan Balances dialog box.

Fixing the principal balance error

To adjust, or correct, the loan balance, enter the correct ending balance in the New Ending Balance box and the ending balance date in the As Of Date box. You should be able to get this information from the end-of-year or end-of-month loan statement that alerted you to the loan balance error.

Fixing the interest expense error

To fix the interest portion of the loan record-keeping error, enter the interest category and subcategory you used in the Category For Adjustment boxes. For example, if you used Loan as the category and Mortgage Interest as the subcategory, enter this category and subcategory in the two boxes.

While it might seem curious to use the loan interest categories for categorizing an adjustment to the loan balance, remember that loan payments are split between principal and interest. Therefore, if you overstate the principal components of a loan payment, you implicitly understate the interest components--and vice versa.

In effect, adjusting the loan ending balance is the same thing as adjusting the cumulative principal payments made on the loan. And that means you need to also adjust cumulative interest payments made on the loan.