Most businesses at some point during their operations will take a loan from a bank or
personal financier to help purchase equipment, consolidate debt, or use a line of credit to help meet the cash flow needs of the business. Booking the subsequent loan into QuickBooks isn’t a blanket entry for every situation. Depending on the kind of loan and what it was used for different account types in QuickBooks will be used. First, we’ll go over the different loan types then talk about how these loans are paid down.
Here is a list of the common loan account types we typically see with clients:
The Loan Payment – Most banks require a monthly cash payment on your loan that they have given to you. Unless you’ve been lucky and financed by a personal party who has given you an interest free loan you’ll have to book the loan interest. To book the loan interest first make the payment in QuickBooks to the loan:
You’ll find though with some bank loans they don’t break the payment down by principal and
interest, this is typical with a Line of Credit. In this case I would book the full amount of the check against the loan. When the statement is produced to show the month’s interest go to the loan’s account register and increase the loan balance by offsetting it to an interest expense.
Reconcile – Most loans should produce a statement to show the loan being paid down this means you should always be reconciling liabilities in QuickBooks if it produces a statement!. If you don’t have one you can call your bank to ask that they produce one. To reconcile your loan right click the loan in the chart of accounts and click reconcile. Enter the closing date and the current outstanding amount in the reconcile window and reconcile away.
Properly recording loans in QuickBooks is another very important part to your monthly bookkeeping processes. It not only helps book the interest expense to your financial statements but it also shows what your business's true liabilities are to its debtors giving you, the business owner, a better understanding of the overall financial health.