Have you taken out a line of credit for the purpose of funding your small business? If so, you’ll need to track it. Whether it’s $1,000 or $1 million, tracking lines of credit is important because it allows you to see exactly how much of the available credit you’ve used. As a result, you can take precautions to ensure that you don’t overspend and up paying an excessive amount of interest. If you use Quickbooks Online, you can easily track lines of credit.
Create an Account for the Principle
To get started, you need to create an account for the principle of the line of credit. While logged in to Quickbooks Online, click the “Settings” button on the home screen and choose “Chart of Accounts.” From here, select “New,” at which point you can choose “Current liabilities” form the “Account Type” menu, followed by “Line of Credit” in the “Detail Type” field.
Assuming you followed these steps correctly, you should see a field for the account’s name. While you can use any name that you’d like, it’s recommended that you choose something meaningful, such as “credit line.” When finished, click “Save and Close” to complete the process.
Create an Expense Account
After setting up the principle account, you need to create an expense account for the line of credit. This is done by going back to the Quickbooks Online home screen and clicking “Settings,” followed by “Chart of Accounts” and “New.” From here, select “Current liabilities” in the “Account type” menu. Next, choose “Expenses” and “Interest Paid” for the “Detail Type” field.
Like with the principle account, you’ll have the option of naming your expense account. Once you’ve named your expense account, click “Save and Close” to complete the process.
Tracking the Line of Credit
Once you’ve created an account for the principle and an expense account, you can begin tracking the line of credit in Quickbooks Online. When you use your line of credit to make a purchase, for example, you’ll probably incur interest charges. As a result, you should record these interest payments in your newly created expense account.
Additionally, you should record payments made towards the outstanding balance of your line of credit. If you make a payment towards the balance, record the payment in your principle account By tracking all payments, you’ll have a better understanding of your small business’s financial health.
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