How to Record Loan Payments in QuickBooks?

QuickBooks is a premium accounting software with loads of benefits. Firstly, it helps its users to keep track of all business finance. Besides, it also monitors sales and there is no chance of error. Before you learn the steps to record loan repayment in QuickBooks, you must open a liability account. As a loan can be a cash or non-cash asset or both. QB allows you to monitor the loan through these types of similar or distinctive accounts. As you proceed further in this article, you will come across a comprehensive guide. 

Creating a Liability Account in QuickBooks

Creating a liability account is the first step to updating a loan repayment transaction in QuickBooks. While setting up the account you need to remember certain points. They are:

• Type of Liability Account
• Tracking the expense of interest payment
• The payee

Scroll the following details to know more :

Building a Liability Account

• From the “Lists” menu in QuickBooks, tap on “Chart of Accounts”.
• Click “New”.
• Select the account type. In case you have a long-term loan, select the Long-term Liability Account. On the other hand, if it is a short-term loan, choose the Other Current Liability Account.
• Enter the details such as name and number. Click “Continue”.
• Save and it’s done!

Building an Expense Account

To keep updated about the interest payment of the loan, you must:

• Click on the “Lists” menu and choose “Chart of Accounts”.
• Click New
• Tap on Expense and “Continue”
• Enter the name of the account
• Save and close

Building a Vendor Account

A vendor account is needed when you have to pay to the bank or any other financial institution.

• Tap on Vendors Center, from the Vendors list
• Hit on New Vendor.
• Enter your vendor’s details such as the company name and the contact information.
• Click Ok

Steps to Record Loan Payments in QuickBooks Desktop

In QuickBooks Desktop, there are two ways to record loan payments. Though you can update loans related to both non-cash and cash assets, the method is non-identical.

Recording a Non-cash Asset 

• From the “Lists” menu in QuickBooks, tap on “Chart of Accounts”
• At the blank space, right-click the mouse
• Choose the account type. It would help if you chose a fixed asset for long-term value. Other current asset types are those which can be converted into cash. Still confused? Select the other assets type.
• Continue
• Enter the number and name of the assets
• Save and close

With the above steps, you can open a non-cash asset account in QuickBooks. The following procedure will help you to do the journal entry:

• Click Company and then “Make General Journal Entries”.
• Set the transaction date.
• Enter the number
• Choose a loan asset account and debit from the first line
• Choose a liability account and credit from the second line
• Save and close

All the details about the loan are now saved. You can use the portal for loan repayment and record them from the next cycle onwards.

Recording a Cash Loan

• Go to “Make Deposits”. You will find it under the “Banking” menu.
• Close the “Payment to Deposits” window when it pops up.
• Enter details in the “Make Deposit” screen. The details must consist of the date and memo.
• In the “Deposit through the field” select the account where you will be depositing the loan.
• The “From account” will be the liability account that you have already set up.
• In the amount place, type the loan amount.
• Save and close.

Alternative Steps to Record Loan Payments in QuickBooks Desktop

You can also automate the method of recording loan payments in QuickBooks Desktop. To do so you have to:

• Select “Write Checks” from the banking menu.
• Click on the dropdown and select the account to enable autopay.
• Review the date and check number.
• You can choose the bank under “Pay to Order”.
• The expense tab will show two lines. The first line is for a liability account as you are repaying a loan. The second line is for recording the interest. 
• Save. 

Note: Automation benefits users whose payment amount and loan payment frequency are the same.

In the desktop version, there is an option for memorizing the check. Check memorization will automatically enter the repayment details at routine intervals. 

Steps to Record Loan Payment in QuickBooks Online

Recording a loan repayment is convenient in QuickBooks Online. However, in this version also you need to open a liability account. 

Opening a Liability Account

• From the “Lists” menu in QuickBooks, tap on “Chart of Accounts”.
• Click “New”.
• Select the account type. In case you have a long-term loan, select the Long-term Liability Account. On the other hand, if it is a short-term loan, choose the Other Current Liability Account.
• Select the payable notes from the dropdown options.
• Enter the details such as name and number. Click “Continue”.
• You will get the option of tracking the finance at your convenience. By selecting “Today”, the software can start tracking the day from the same day. The ‘other’ option is the one where you have to enter the date from when you want the recording.
• Enter the account balance in the amount column.
• For a loan always put the entire amount. It must be a negative number as it is a liability.
• Save and it’s done!

Recording the Loan Amount

As the loan account is created, now you can track the amount. To do this, there are two ways:-

• New and then Journal Entry.
• Select the liability account you set up earlier.
• In the credit place, you must enter the entire amount.
• In the debit place, enter the bank account which you will use for storing the loan.
• Save.

Using the Loan Figure and Not the Bank Savings

Consult your accountant if you have decided to do so. It is a daunting task and must be done under the supervision of a professional.

Repaying Loan In QuickBooks Online

• Go to New and then “Check”
• Enter the check number. For direct withdrawal enter Debit in the number field.
• Select the liability account from the dropdown menu under the category section.
• Enter the loan amount to be paid.
• In the dropdown menu of the second line, choose the expense account.
• Enter the loan interest amount.
• Also, provide the details of the additional fees (if any).
• Save.

Conclusion

The recording of loan repayment is important. It helps you to keep track of your expenses. Moreover, Quickbooks has an exclusive feature of auto loan repayment. Thus, you no longer have to worry about the monthly installments. Another important fact regarding loan repayment is the method of QuickBooks Desktop is a bit different than that of QuickBooks Online. Thus, check out all the steps given above. 

FAQs

How can I categorize the loan payment in QuickBooks?

You need first to click the plus icon on the homepage. However, before that, you must have a liability account. The liability account is the one where you enter the payee type. It makes the loan payment record easier.

Is there any way to record the forgiven employee loan in the portal?

Go to New under the “Chart of Accounts” section. Select the type of account. From the dropdown, while choosing the other details add a name like “customer loan”. In this way, the forgiven employee loan will be recorded in the portal.

Why is Liability Account important?

A liability account is important because it is a pivotal step toward keeping track of the loan in QuickBooks. A loan is an Expense that is always treated as a liability. QuickBooks also does the same; opening the account makes it easier for the software to categorize the expense.