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
First, you need to make an asset account for the 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.
Alternative Option to Record a Loan Payment in QuickBooks Desktop
To record a loan payment in QuickBooks Desktop, you can follow these detailed steps:
Step 1: Navigate to the Write Checks Option
- Go to the Banking menu.
- Select Write Checks.
Step 2: Choose the Bank Account
- From the dropdown, choose the Bank Account you will use to make the loan payment.
Step 3: Verify the Information
- Confirm the Check No. and Date to ensure they are correct.
Step 4: Choose the Name of the Account
- In the Pay to the Order field, select the name of the bank or lender associated with the loan.
Step 5: Enter Payment Details in the Expense Tab
- In the Expenses tab:
- On the first line, select your liability account (the account you set up for tracking the loan).
- Enter the payment amount for the principal.
- On the second line, select your interest expense account and enter the payment amount for the loan interest.
Step 6: Memorize the Check
If you want QuickBooks to enter this payment at regular intervals automatically:
- Click on Memorize.
- Fill out any necessary fields in the Memorize Transaction window.
- Click OK.
Step 7: Save Changes
- Once all information is verified and entered correctly, click on Save & Close.
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.
How to Track Loan Payments in QuickBooks?
Tracking loan payments in QuickBooks is simple and can be done in three ways: using the Banking menu, the Check option, or a Journal Entry. Here’s how:
1. Using the Banking Menu
- Go to Banking > Write Checks (or press Ctrl + W).
- Select the bank account for the payment.
- Enter the payment amount.
- Choose the liability account (loan account).
- Click Save & Close.
2. Using the Check Option
- Click + New > Check.
- Enter the check number (if applicable).
- Select the liability account for the loan.
- Enter the payment amount.
- Click Save & Close.
3. Creating a Journal Entry
- Go to Chart of Accounts.
- Locate your loan account and click View Register.
- Click Add Journal Entry.
- Enter details for interest and loan payments.
- Save your entry.
These steps ensure your loan payments are properly recorded in QuickBooks for accurate financial tracking.
How to Generate Loan Payable Reports in QuickBooks Online and Desktop?
Generating loan payable reports in QuickBooks helps you track outstanding loan balances, interest payments, and loan details. Here’s how you can easily create these reports in both QuickBooks Desktop and Online:
In QuickBooks Online:
- Go to Reports: From the left-hand menu, select Reports.
- Search for Loan Reports: In the search bar, type “Loan” or “Liabilities” to find loan-related reports like Loan Manager or Balance Sheet.
- Customize the Report: Once you’ve selected a report, you can customize it by choosing the date range, filters, and other options that best suit your needs.
- Run the Report: After customization, click Run Report to generate your loan payable details.
In QuickBooks Desktop:
- Navigate to Reports: Go to the Reports menu at the top of your screen.
- Select Loan Reports: Choose Company & Financial and select reports such as Balance Sheet or Loan Manager.
- Customize the Report: Customize the report as per your requirements by adjusting the date range and any other needed filters.
- View the Report: Click OK to view the report with your loan payable information.
Both versions of QuickBooks make it easy to monitor your loan balances and payments, giving you a clear picture of your liabilities.
How to Adjust Loan Payable Entries in QuickBooks Online or Desktop?
Adjusting loan payable entries in QuickBooks ensures your financial records are accurate. Here’s how you can do it:
- Identify the Need for Adjustment
Determine why the loan payable entry needs adjustment. This could be due to an overpayment, underpayment, refinancing, or other discrepancies in your records. - Adjusting the Loan Payable Balance
- In QuickBooks Online:
- Go to the Banking or Expenses section.
- Select the loan account and edit the transaction that needs to be adjusted.
- Update the balance, interest, or principal amounts accordingly.
- In QuickBooks Desktop:
- Open the Chart of Accounts, locate the loan account, and select Modify to adjust the transaction.
- Adjust the figures for the principal or interest as needed.
- In QuickBooks Online:
- Use Journal Entries for Complex Adjustments
If the adjustment involves multiple accounts (e.g., loan principal, interest, or expenses), use a journal entry.- Create a journal entry that debits or credits the appropriate accounts.
- Make sure to include the date, amount, and correct accounts to ensure the records are updated.
- Review and Reconcile
After making the adjustment, review the updated entries to ensure everything is accurate. Reconcile the loan payable account to ensure there are no discrepancies.
By following these steps, you can efficiently adjust loan payable entries in QuickBooks, keeping your financials in check.
FAQ
How to Set Up Different Loan Liabilities for Multiple Loans in QuickBooks
To manage multiple loans in QuickBooks, follow these steps:
- Create Separate Loan Accounts: Set up a new liability account for each loan in the Chart of Accounts.
- Record Each Loan: Enter the loan amounts and assign a vendor (bank/lender) to each loan.
- Track Payments: Record loan payments, splitting them between principal and interest using different accounts.
- Generate Reports: Create loan reports to track outstanding balances for each loan.
This method ensures clear tracking of multiple loans in QuickBooks.
Best Practices for Small Businesses Recording Loan Payables
- Set Up Separate Accounts: Create a liability account for each loan and an expense account for interest.
- Record Loan Amounts: Enter the full loan amount as a liability when you receive the loan.
- Track Payments: Record each payment, separating principal and interest.
- Use Journal Entries for Adjustments: Use journal entries for changes like refinances or loan forgiveness.
- Monitor Amortization: Track principal and interest payments using QuickBooks.
- Generate Reports: Regularly review loan reports to track balances and payments.
- Keep Records Updated: Update QuickBooks with any loan term changes.
By following these steps, small businesses can easily manage their loan payables in QuickBooks.
How to Adjust for Extra Payments or Overpayments on Loans in QuickBooks
If you’ve made an extra payment or overpayment on a loan in QuickBooks, here’s how you can adjust the loan balance correctly:
- Review the Payment: Confirm the overpayment or extra payment amount by checking your bank statement or loan details.
- Create a Journal Entry: To adjust the balance, use a journal entry to record the extra payment. Debit the loan liability account and credit the bank account with the extra payment amount.
- Apply the Payment: If the extra payment should reduce your loan balance, apply it against the loan liability. This will update your balance in QuickBooks.
- Adjust Interest if Needed: If the overpayment affects interest calculations, ensure that you update the interest account as well to reflect the correct amount.
Reconcile the Loan: Once you’ve made the adjustments, ensure the loan account reconciles with your bank statement and reflects the correct balance.
This method helps you manually track both loan and interest payments.
How to Record Interest on a Loan in QuickBooks Desktop/Online
To properly record interest on a loan, follow these simple steps:
- Set Up an Interest Expense Account:
- Go to Settings > Chart of Accounts.
- Click New to create a new account.
- Choose Expense as the account type and Interest Paid as the detail type.
- Name the account Interest Expense.
- Record the Interest Payment:
- Go to Banking > Make Payments (or New Transaction).
- Select your loan liability account.
- Enter the total loan payment amount.
- On a separate line, select Interest Expense and enter the interest portion.
Key Points:
- Separate Principal and Interest: Always record the principal and interest separately.
- Double-Check Balances: Ensure your journal entry’s debit and credit amounts balance.
- Loan Manager: Use QuickBooks’ Loan Manager to automate interest tracking.
Disclaimer: The information outlined above for “How to Record Loan Payable in QuickBooks Desktop and Online?” is applicable to all supported versions, including QuickBooks Desktop Pro, Premier, Accountant, and Enterprise. It is designed to work with operating systems such as Windows 7, 10, and 11, as well as macOS.