Most businesses borrow at least some money from banks or other outside financial institutions. Whether you borrow $100 or $10,000, though, it’s important to keep track of this information in your books. Assuming you use Quickbooks, you can easily set up and record loans and loan payments.
To set up a business loan in Quickbooks, log in to your account and click the gear icon, followed by Chart of Accounts > New > Other Current Liabilities > Loan Payable. You will then be prompted to enter a name for the loan. You can choose any name you’d like, though it’s recommended that you use a descriptive name associated with the financial institution from which you acquired the loan. After giving the loan a name, click “Save and Close” to complete the process.
Now that you’ve created the loan in Quickbooks, you must go back and enter an opening balance for it. This is done by clicking the plus (+) icon, followed by “Bank Deposit.” Next, click the drop-down menu and choose the bank account to which the funds will be deposited. Next, enter a date for the initial loan deposit (e.g. date on which you were loaned the money). In the “Account” column, you’ll need to enter the loan payable account that you recently created as well as the amount for the loan. Double-check this information to ensure it’s correct, after which you can click “Save & Close” to complete the process.
By following these steps, your loan should now be displayed in Quickbooks. Of course, you aren’t out of the woods just yet. Whenever you make a payment on the loan, you’ll need to record it. To record a payment for the loan, simply click the plus (+) icon, followed by “Check/Cheque.” Next, complete the fields with the appropriate information associated with the payment (e.g. date, amount, etc. You should also enter the check number when sending an actual physical check. For online payments, enter “Debit” or “EF” in this field.
For the “Account details” window, you must enter the liability account as well as the amount of the payment that’s being applied towards the principle. Additionally, you’ll need to add the interest expense account as well as the amount of the payment that’s being applied to the interest. Assuming there are fees, you should add them here as well. When finished, click “Save & Close” to complete the process and record the payment.
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