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Home>>Become An Expert With QuickBooks Training & Certification How to Record Things in QuickBooks Desktop and Online? How to Record a Line of Credit in QuickBooks Desktop and Online?

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Financial management plays a significant role in the success of any business and a line of credit is by far one of the most useful tools a business could consider. Recording the line of credit in QuickBooks helps businesses keep track of the borrowed amounts and replacement activities.

It helps organizations to meet their immediate working expenses, emergencies, and uneven cash flow. In this article, we are going to discuss why you need to establish a line of credit, how to account for a line of credit in QuickBooks and how to make the process more effective and reliable to keep track of your books.

What is a Line of Credit?

A line of credit is a type of loan that allows a company to borrow money as needed up to a predetermined amount and pay it back gradually.

Examples of Lines of Credit:

  • Business Line of Credit
  • Demand Line of Credit
  • Home Equity Line of Credit
  • Personal Line of Credit
  • Securities-Backed Line of Credit

What is the Need to Set Up a Line of Credit in QuickBooks?

Line of Credit is valuable for the company since it may be used for various needs: to pay for short-term costs, to solve the fluctuations in cash flow, and to take opportunities for development. Below are a few pointers to understand it better:

  • Manage Cash Flow: Avails working capital when there is a pinch in the cash flow of the business.
  • Cover Unexpected Costs: Used in reserve planning and as an emergency fund.
  • Support Business Growth: As a source of funds to finance prospects such as an increase in inventory or marketing communications.
  • Flexible Borrowing: This allows you to withdraw only the amount required; it does not make you incur unnecessary interest charges.
  • Improve Credit Score: If you make payments on the line of credit, the company will post information on your credit reports, which will improve your business credit scores.
  • Seasonal Stability: This can assist in filling the gaps in revenue occurrence in low seasons.

How to record a Line of Credit in QuickBooks Desktop?

Record a Line of Credit in QuickBooks Desktop, create a Line of Credit account under the Chart of Accounts, record borrowed amounts as deposits, track payments using checks, document interest and fees, and reconcile the account to ensure accuracy.

Process 1: Create a Line of Credit account

Create a Line of Credit account in QuickBooks Desktop, navigate to the Chart of Accounts, select “+ New,” choose “Loan” and “Other Current Liability,” enter the account details, and save the transaction.

Following the step-by-step information below:

Step 1: Navigate to the Chart of Accounts

  1. Click on the Lists menu on the screen.
  2. Select the Chart of Accounts option.

Step 2: Create a new account

  1. Right-click on the screen and hit the + New option.
  2. Select the Loan option and press Continue.
  3. Select the Other Account Type and then choose Other Current Liability.
  4. Hit Continue on the screen to proceed.
  5. Mention the details of your Line of Credit.

Step 3: Save the transaction

  1. Once you have entered all the required details, Click on Save and close.

Process 2: Recorded Borrowed Amounts

How to record borrowed amounts in QuickBooks Desktop, go to Banking, select “Make Deposits,” choose the account, enter deposit details like vendor and amount, and then save the deposit.

Following the step-by-step information below:

Step 1: Locate for Banking

  1. Click on the main menu.
  2. Click on the Banking option.
  3. Choose the Make Deposits.

Step 2: Create a Deposit

  1. In the Payments to Deposit window, Hit OK.
  2. In the Make Deposits window, choose the account to which you want to deposit the borrowed amount.

Enter the details of the deposit:

  1. Received From: Select the vendor or financial institution from whom you received the line of credit.
  2. From Account: Select the line of credit account you created.
  3. Amount: Enter the borrowed amount.
  4. Memo: Enter a memo for reference (optional).

Step 3: Save the Deposit

  1. Hit on Save & Close.

Process 3: Record Payments on the Line of Credit

Record a payment on your Line of Credit in QuickBooks Desktop, go to Banking, choose “Write Checks,” enter payment details, select the Line of Credit account, and save the transaction.

Following the step-by-step information below:

Step 1: Go to Banking

  1. Press Banking from the main menu.
  2. Choose Write Checks.

Step 2: Write a Check

  1. Choose the account from which you are making the payment in the Write Checks window.
  2. Mention the check details.
  1. Pay to the Order of: Choose the financial institution to which you are making the payment.
  2. Amount: Mention the payment amount.
  3. Expenses tab:
  • Account: Choose the line of credit account you created.
  • Amount: Put the payment amount.
  • Memo: Put a memo for reference (optional).

Step 3: Save the transaction

  1. Hit on Save & Close.

Process 4: Record the Interest and Fees

To record interest and fees on a Line of Credit in QuickBooks Desktop, go to Banking, select “Write Checks,” enter payment details, choose the expense account, and save the transaction.

Following the step-by-step information below:

Step 1: Locate to Banking

  1. From the main menu, click on Banking.
  2. Choose the Write Checks option.

Step 2: Write a Check for Interest/Fees

  • In the Write Checks window, choose the account from which you are making the payment.
  • Document the details of the check:
  1. Pay to the Order of Choose the financial institution to which you are paying the interest or fees.
  2. Amount: Put the interest or fee amount.
  3. Expenses tab:
  • Account: Choose an appropriate expense account.
  • Amount: Put the interest or fee amount.
  • Memo: Put a memo for reference (optional).

Step 3: Save the transaction

  1. Hit on Save & Close.

Process 5: Reconcile the Line of Credit Account

To reconcile your Line of Credit account in QuickBooks Desktop, go to Banking, select “Reconcile,” choose the account, enter the statement date and balance, match transactions, and press “Reconcile Now.”

Following the step-by-step information below:

Step 1: Navigate to Banking

  1. From the main menu, press on Banking.
  2. Choose Reconcile.

Step 2: Reconcile the Account:

  1. In the Reconcile window, choose the line of credit account from the Account dropdown.
  2. Mention the statement date and ending balance from your line of credit statement.
  3. Press Continue.
  4. Match the transactions in QuickBooks with your statement.
  5. Press the Reconcile Now button once everything matches.

How to record a Line of Credit in QuickBooks Online?

To record a Line of Credit in QuickBooks Online, create a liability account under Chart of Accounts, then record deposits and payments accurately to manage the balance.

Process 1: Create a liability account

Create a liability account in QuickBooks, navigate to the Chart of Accounts, select “New,” choose “Other Current Liabilities,” enter the details and account name, and click “Save and Close.”

Following the step-by-step information below:

Step 1: Navigate to the Chart of Accounts

  1. Click on the Setting option on the screen.
  2. Choose the Chart of Accounts.

Step 2: Create a new account

  1. Click on the New from the Account type dropdown.
  2. Now, select the Other Current Liabilities option.

Step 3: Mention the details type and account name

  1. Click on the Detail type dropdown menu.
  2. Choose the detail type that best fits the transaction you want to track.
  3. Put the account name.
  4. Enter the description.

Note: Individuals/companies who use Line of Credit choose Loan Payable as the detailed type.

Step 4: Save the transaction

  1. Once you have entered all the required details, Click on Save and close

Process 2: Record the deposit

To record a deposit in QuickBooks, navigate to Banking, select “Make Deposits,” choose the account, enter the deposit details, and save the transaction.

Case 1: When your bank account is connected with QuickBooks Online

How to record a bank deposit in QuickBooks Online, navigate to Banking, find your bank account, enter the invoice amount and fees, ensure the net amount matches, then review and confirm.

Following the step-by-step information below:

Step 1: Navigate to the Bank account

  1. Click on the Banking option to locate the deposit.
  2. Find the bank account you use for a Line of Credit transaction.
  3. If you don’t find the bank account is not connected, enter the bank deposit information manually.

Step 2: Mention the invoice amount

  1. Choose the Split transaction option on the screen.
  2. Choose the liability account you have created for the Line of Credit transaction from the Category option.
  3. Put the original invoice amount.

Step 3: Mention the expense amount

  1. Choose the expense account used for Line of Credit fees.
  2. Put the fee amount as a negative number.
  3. Make sure that the deposit should be the same as the net amount deposited in the bank.

Step 4: Review the transaction

  1. Once you have entered all the required details, Click on Apply and confirm.
Screenshot of Review the transaction

Case 2: When there is an intercepted payment

When a customer pays the invoice within the first 30 days, QuickBooks capital appies the payment to pay off your Line of Credit loan, which is known as intercepted payment.

Step 1: Create a journal entry

  1. Click on the + New option on the screen.
  2. Choose the Journal entry.

Step 2: Select the liability account

  1. Choose the liability account ( which you have created to track the Line of Credit loans) under the Account drop down menu.
  2. Mention the full invoice amount received from the customer in the Debit column.
  3. Choose the Undeposited Funds option under the Account drop down menu.
  4. Mention the full invoice amount in the Credit column. 
  5. Click on Save and Close button.

Note: Make sure that the journal entry should balance on both the debt and credit side.

journal entry in QuickBooks

Step 3: Locate the Bank deposit

  1. Click on the + New option on the screen.
  2. Choose the Bank deposit.

Step 4: Pick the bank account

  1. Click the Account dropdown menu on the screen.
  2. Choose the bank account.

Step 5: Enter the transaction details

  1. Put the date when the payment is received under the Date option.
  2. Locate the payment and check the box.
  3. Locate the journal entry for the same amount and check the box. The deposit should show $0.00.

Step 6: Save the transaction

  1. Once you have entered all the required details, Click on Save and Close.

Case 3: When a customer pays the invoice outside QuickBooks Online

To record an invoice payment made outside QuickBooks Online, log the payment as an expense, select your liability account, enter the amount, review details, and save the transaction.

Following the step-by-step information below:

Step 1: Record the invoice payment

In order to record the invoice payment, follow the steps mentioned under the heading “How to Record an Invoice in QuickBooks Online,” then proceed further.

Step 2: Locate to Expense

  1. Click on the + New option on the screen.
  2. Select the Expense option.

Step 3: Pick the liability account

  1. Click on the Category drop-down menu on the screen.
  2. Choose the liability account you have created for the Line of Credit transaction.

Step 4: Enter the transaction details

  1. Put the total payment under the Amount section.
  2. Make sure the payment matches the invoice amount to pay off the loan.

Step 5: Review the transaction

  1. Check the date and the bank account.
  2. Click on Save and Close.

Tips for Better Recording of Line of Credit in QuickBooks

Follow the tips below to better record your line of credit in QuickBooks:

  • Categorize Properly: Make sure the line of credit is established as a liability account so that it is not confused with other accounts.
  • Track Interest and Fees: Any interest paid on such securities or any fees paid on the securities should be recorded in specific expense accounts for better record-taking purposes.
  • Reconcile Regularly: Compare the QuickBooks record with the bank statements in order to delete the difference.
  • Use Clear Descriptions: To enhance tracking and auditing procedures, it is recommended that memos related to withdrawals, repayments, and other connected transactions be entered in a greater degree of detail.
  • Consult a Professional: In case of doubt, consult an accountant to keep books of account business-like and avoid legal repercussions.

Conclusion

Keep track of the line of credit using QuickBooks, make timely payments and stay updated on the fund utilization from the borrowed accounts. It is important to record the borrowed amount and any payments made toward a line of credit in QuickBooks to ensure that your financial statements are accurate. Businesses can easily clarify the Line of Credit as a liability and monitor interest costs accordingly.

Frequently Asked Questions:

Q1. What is the difference between a line of credit and a loan?

A line of credit is a type of credit in which the borrower has an open line of credit. He can use any amount of credit he wants at any given time, and the credit amount can be borrowed, repaid, and borrowed again, while a loan is a lump sum credit advanced at a particular period/or time to a borrower, with the agreement that the borrower will repay the loan with an agreed interest over a specific period of time.

Q2. How do I record a line of credit repayment in QuickBooks?

Repayments should be recorded as transfers from the bank account created for the line of credit to the liability account that was established for it. However, interest and fees should be recorded in separate expense accounts.

Q3. What personal expenses can I have using line credit?

A line of credit ought to be used for business-only expenses, as it is confusing to have personal and business funding in one account.

Q4. How often should I reconcile my line of credit in QuickBooks?

You should balance your line of credit at least every month to ensure QuickBooks matches your bank.