How to Record Loan Payable in QuickBooks Desktop & Online?

Companies get loans in order to finance fixed investments for the purpose of acquiring land and buildings, procuring machinery, or initiating new products and services research. When the company receives the loan amount, there is certainly a record of a loan in QuickBooks, as it is a liability to the accounts. They always maintain a record of each loan taken as well, and the return is done to minimize such liability. If you are using QuickBooks as your accounting software for your business, you can record loan payable in QuickBooks easily.

How to Record Loan Payable in QuickBooks Desktop?

Cash and non-cash loans, such as those for vehicles or office equipment, are considered liabilities for your company. QuickBooks allows you to record how much was lent and all your payments so you are on top of it.

Note: These steps can be followed for both QuickBooks Desktop Windows and Mac.

1. Set up a liability account

When you record a loan in QuickBooks Desktop, then you’re required to choose the liability account for it. To set up a liability account for a loan in QuickBooks Desktop, go to Chart of Accounts, choose New, select the relevant liability type, and save.

Follow the steps mentioned below to set up a liability account for your loan:

Step 1: Navigate to the Chart of Accounts

First, go to the Lists menu, then choose the Chart of Accounts option.

Step 2: Choose a New Option

Now, right-click anywhere, then choose the New option.

Step 3: Choose the Relevant Account Type for the Loan

Choose the Other Account Types option, then choose the relevant account type for your loan:

• Other Current Liability: Make use of this for short-term loans payable over one year.
• Long-Term Liability: Make use of these long-term loans payable over a longer period.

Step 4: Enter the Information

After this, click on the Continue button. Then, enter the account name and number. Select the Save & Close button.

2. Set up the vendor (Bank/lending company)

Make a new vendor for the bank or company for which you’re required to pay the loan. To set up a vendor for a bank or lending company in QuickBooks, go to Vendor Center, choose New Vendor, enter the bank’s details, and save.

Step 1: Go to Vendor Center

First, navigate to the Vendors field, then choose the Vendor Center option.

Step 2: Enter the Name of the Bank

Now, choose the New Vendor option and enter the name of the bank or company you wish to pay the loan to.

Step 3: Save the Changes

Enter the vendor information, such as phone number and email address (Optional). Once you’ve done this, choose the OK option.

3. Set up an expense account

Make an expense account so you can record interest payments or fees. To set up an expense account for interest or fees, go to Chart of Accounts, select New, choose Expense, enter the account name, and save.

Step 1: Go to the Chart of Accounts

First, navigate to the Lists menu, then choose the Chart of Accounts option.

Step 2: Choose a New option

Now, right-click anywhere, then choose the New option. Choose the Expense option, then Continue.

Step 3: Enter the Account Name

Then, enter the account name for the interest payments or fees. Choose the Save & Close button.

4. Record the loan amount

Now that you’ve your liability account for the loan, here’s how you can record the loan amount. To record a loan amount, go to Banking and select Make Deposits. If the Payments to Deposit window appears, choose Cancel to proceed.

Cash Loans

To record a loan amount, go to Banking and select Make Deposits. If prompted with the Payments to Deposit window, click Cancel to continue.

Step 1: Navigate to Make Deposits

First, go to the Banking menu, then choose the Make Deposits option.

Step 2: Choose Cancel

Now, if the Payments to Deposit window appears, choose the Cancel option.

In the Make Deposits Window

In the Make Deposits window, select the deposit account, verify the date, enter the loan amount from the liability account, and save the transaction.

Step 1: Go to Deposit To Menu

First, from the Deposit To field, choose the account into which to deposit the loan.

Step 2: Verify the Date

Now, verify the Date and enter an optional Memo.

Step 3: Enter the Loan Amount

Then, in the From Account menu, choose the Liability account you made in Step 1. Now, from the Amount menu, enter the amount of the loan. Choose the Save & Close button.

Non-cash loans

1. You need to make an asset account

To create an asset account, go to Chart of Accounts, select New, choose the account type (Fixed Asset, Other Current Asset, or Other Assets), enter details, and save.

Step 1: Navigate to the Chart of Accounts

First, go to the Lists menu, then choose the Chart of Accounts option.

Step 2: Select New Option

Now, right-click anywhere, then choose the New option.

Step 3: Choose the Account Type

Choose the account type for your non-cash loan:

• Fixed Asset: This is for items that have had useful value for more than a year (vehicles, buildings, and so on).
• Other Current Asset: Use this for items with value that can be converted to cash (like prepaid expenses).
•  Other Assets: Make use of items that are neither fixed assets nor other current assets.

Step 4: Save the Changes

After this, choose the Continue option and enter the account name and number. Once you’re satisfied, select the Save and Close button.

2. Enter a journal entry

Enter a journal entry, navigate to the Company menu, select Make General Journal Entries, debit the loan asset, credit the liability account, and save. For loan payments, use Write Checks to record principal and interest payments.

Following the step-by-step information follow:

Step 1: Navigate to the Company Menu

First, navigate to the Company menu, then choose the Make General Journal Entries option.

Step 2: Enter the Information

Now, enter the Date and journal Entry No.

Step 3: Credit the Liability Account

Choose the first line and debit the loan asset account. Then, choose the second line and credit the liability account. Select the Save and Close button.

Step 4: Record loan payments

Important Note:

• QuickBooks notes the payment for the principal amount as a deduction to the liability account. Once all the payments are completed, the value of the liability account will become zero.
• QuickBooks records the interest payments as if they were company expenses.

Step 1: Navigate to the Write Checks Option

First, navigate to the Banking menu, then choose the Write Checks option.

Step 2: Choose the Bank Account

Now, choose the Bank Account you wish to use to pay the loan.

Step 3: Verify the Information

Confirm the Check No. And Date.

Step 4: Choose the Name of the Account

From the Pay to the Order menu, choose the name of the bank.

Step 5: In the Expense tab

• From the first line, choose the liability account you made in Step 1. Then, enter the payment for the principal amount.
• From the second line, choose the interest expense account. Then, enter the payment for the loan interest.

Step 6: Memorize the Check

Remember to check if you wish QuickBooks to enter the payment automatically at regular intervals.

1. First, select Memorize.
2. Fill out the fields as needed.
3. Choose OK.

Step 7: Save the Changes

Once you’re satisfied, choose the Save & Close button.

How to Record Loan Payable in QuickBooks Online?

In QuickBooks Online, you can record a loan and its payments by setting up a liability account. This account keeps track of what you owe.

To record a loan payable in QuickBooks Online, set up a liability account, determine the loan balance, and record repayments. Create a liability account under Chart of Accounts, enter the loan balance, and use Check to record repayments, including principal, interest, and any fees.

Follow the step-by-step information given below:

1. Set up a liability account to record what you owe

To set up a liability account for a loan, go to Chart of Accounts, select New, choose Long Term Liabilities or Other Current Liabilities, and name the account appropriately.

Follow the steps mentioned below to do so:

Step 1: Navigate to the Chart of Accounts

First, go to the Settings menu, then choose the Chart of Accounts option.

Step 2: Select the New Option

Now, choose the New option to create a new account.

Step 3: Choose the Notes Payable Option

From the Account Type drop-down menu, select Long Term Liabilities, then select Notes Payable from the Detail Type drop down menu.

Note: If you wish to pay off the loan at the end of the current fiscal year, then choose the Other Current Liabilities Account Type from the drop-down menu. Alternatively, choose Loan Payable from the Detail Type drop-down menu.

Step 4: Provide a Relevant Name

Give the account an appropriate name, for example, a loan for a car.

2. Determine the loan balance

How to determine the loan balance, set the Opening Balance to $0, categorize the bank deposit in your liability account, and record any remaining balance. Use a journal entry to adjust if needed.

If the loan money was deposited to your bank:

• First, leave the Opening Balance at US $ 0 and choose the Save option.
• Now, set up the beginning balance by categorizing the bank deposit in your liability account.

A prior loan that has been added to QuickBooks Online and was half-paid should be added to the current payoff balance.

Step 1: Select a Date

First, from the Opening Balance menu, select the Date you wish to begin tracking your finances. 

Step 2: Enter the Balance

Now, for that Date, enter the account balance. Then, select Save.

Note: The starting balance will be posted to Opening Balance Equity. This will balance out the transactions in the Charts of Accounts.

If you add up a balance in the liability account during step 2, and your bank feeds display the deposited loan amount, then you’re required to create a second journal entry when you record the deposit.

Note: The opening balance entry in the liability account created the first journal entry in the account’s register.

Follow the steps to learn how to create a journal entry:

Step 1: Navigate to Journal Entry

First, select the + New option, then choose Journal entry.

Step 2: Remove or Reduce Opening Balance

Now, choose the liability account from the Account field. Then, enter the opening balance amount in the Debit column to remove or reduce the opening balance.

Step 3: Choose the Opening Balance Equity Account

Choose the Opening Balance Equity account. Then, enter the exact balance from line 1 into the Credit column to balance out the transaction in the Chart of Accounts.

Note: Verify the amounts. The amount should be the same as in the Credit column on one line and the Debit column on the other. This will justify as the accounts are balanced.

Step 4: Enter Relevant Information

Enter the required information in the memo section so you are aware of why you made the journal entry. Then, choose the Save and Close button.

3. Record a loan repayment

When you’re all set to pay back the loan, then follow the instructions to record each repayment. To record a loan repayment, select +New, choose Check, enter the check number or EFT details, input payment and interest amounts, add any fees, and save the transaction.

Follow the step-by-step information given below:

Step 1: Navigate to Check

First, choose the +New option, then select the Check.

Step 2: Enter the Check Number

If you plan to send an actual check, add a check number. If you utilize direct withdrawal or an EFT, enter the Debit or EFT into the Check no. menu.

Then, enter the following information in the Category description menu of the Check:

Step 1: Enter the Payment Amount

From the first line, choose the liability account for the loan from the Category dropdown menu. Then, enter the amount of payment.

Step 2: Enter the Interest Amount

On the second line, choose the expense account for the interest from the Category dropdown menu. Then, enter the amount of the interest.

Step 3: Add any Additional Fees

On the additional lines, add any additional fees. Choose the relevant accounts from the Category drop-down menu.

Step 4: Save the Changes

When you’re satisfied with the changes, choose the Save and Close button.

This implies that the loan payable should be recorded at certain intervals so that all company accounts are balanced at the end of a fiscal year.