From time to time, you might find that your business needs to borrow a bit of money for one reason or another. Therefore, it’s important that you know how to record loans in QuickBooks, so that you can keep track of this liability and maintain accurate records. But how do you track loans in QuickBooks? and why is it important to do so?
This article will explain everything you need to know. We will explain how to set up a loan in QuickBooks Desktop, how to record loans in QuickBooks Online, and how to update your register for loans in QuickBooks in 2022.
Can You Record Loans in QuickBooks?
Yes, absolutely. With both QuickBooks Desktop and QuickBooks Online, you can set up a liability account to track both your short-term and long-term loans. The process for opening these sorts of accounts is very similar in both versions of the software, and allows you to track the amount owing, interest owing, and various other metrics that can help you reduce the liability associated with these credit facilities.
Why is it Important to Record Loans in QuickBooks
Accounting software like QuickBooks enables you to accurately track your company’s assets and liabilities, which will enable you to make informed business decisions. Recording loans in QuickBooks enables you to track the outstanding loan amount, the interest rate and the repayment terms. You can also track the number of loan repayments you have made and the money you have repaid to the lender.
Tracking loans in QuickBooks will also enable you to produce accurate financial reports. This will allow you to demonstrate how you financed your operations in the past and how you plan to fund future operations. This can help your company obtain future financing from investors, lenders, and other sources more easily and at more favorable rates.
The Benefits of Recording Loans in QuickBooks
Tracking loans in QuickBooks will enable you to easily see the total outstanding loan balance, the number of monthly payments and the total interest paid. This can help you identify loans that are taking longer than expected to repay, allowing you to take action to bring the loan to an end sooner.
Tracking loans in QuickBooks will also help you calculate your loan repayments based on the outstanding loan balance and the agreed interest rate. QuickBooks will also track the date each loan payment is due. You can even set up automatic reminders that will alert you when the payment date is approaching. This will enable you to make sure payments are made on time and reduce the risk of losing loan repayment privileges.
How to Record a Loan in QuickBooks Desktop
The first step to recording a loan in QuickBooks is to create a liability account. The account type will depend on the term of the loan: short-term or long-term. The liability account will be used for recording all loan payments, including interest and other fees.
You can create a new liability account by following the steps below:
1. Click “Add an Account” at the top of the “Accounts” tab in the “Company” menu
2. Enter a name for the new liability account and click “OK.”
3. Next, go to “Chart of Accounts” and select the liability account you created for the loan.
4. Now, click the “Edit” button and enter the loan details.
The “Amount” field will show the initial loan amount, interest rate (if applicable) and repayment schedule.
Be sure to check this tab often for all of the information related to the loan, and to update information manually if you ever need to, such as if you decide to make additional payments on your loan that weren't set up when you created the liability account in QuickBooks initially.
How To Record a Loan in QuickBooks Online
The process used to create a liability account and record a loan in QuickBooks Online is nearly identical to the process described in the section above for creating and monitoring a loan account in the QuickBooks Desktop software.
Of course, the login process is different, rather than opening the application from your desktop, you will need to navigate to the QuickBooks online web portal, but once signed in you will follow the same process to create a liability account and track any outstanding loans your company has taken out.
How To Close A Liability Account In QuickBooks
When you pay off a loan, you reduce the total amount of money that you owe. When you reduce the loan amount in your QuickBooks records, you also need to close the corresponding “loan liability” account.
Closing the loan account in QuickBooks helps you to accurately reflect your loan repayment progress. When you pay off a loan, you can simply enter the loan payment amount in the “Amount” field of the loan account or enter the payment amount in a separate loan repayment account. You then need to close the loan account and transfer the remaining amount to a new account such as “Cash”.
To close a loan account and transfer the remaining balance to the “Cash” account, do the following:
1. Click the “Chart of Accounts” in the “Tools” menu
2. Click the “Edit” icon (pencil) beside the loan account
3. Enter the loan payment amount in the “Amount” field
4. Click “Save & New” or click “Save & Close”
Summary
Loans are an important source of capital for many businesses both large and small. If your business ever needs to borrow money, it is important to record the loan in your accounting system so that you can accurately track repayment and cash flow.
QuickBooks allows you to record a loan by setting up a loan liability account and entering the loan amount, interest rate and repayment period. You can also track your loan repayments and pay off any remaining balance when necessary.
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