In today's economy, most small business owners need capital in order to start a business. It is common for a business owner, a bank, or another interested party to make a loan to a new business and it is the business's responsibility to properly manage the accounting for a loan. Loans are liabilities and accounted for in the liability section of the balance sheet. Each time you make a payment to repay the loan, you must record the amount paid against the principal and the amount paid in interest. The interest is an expense (the cost of borrowing the money) and the principal is a reduction in the amount owed. Therefore, with each loan payment you will record an expense and also reduce the principal in your accounting system.
QuickBooks Online is # 1 in cloud accounting for small businesses1. It organizes your financial data in one central location so that you can easily track every dollar you make (revenue), every dollar you spend (expense), and every dollar you owe (liability). It puts all of your financial information at your fingertips so that you always know where your business stands. QuickBooks Online has everything you need to track loan details, make loan payments, account for loan interest, and more. It makes accounting for loans easy. Try QuickBooks Online for free today.
QuickBooks Online makes accounting for a loan easy
When a business receives a loan from a business owner, an investor, or the bank, the loan agreement states the amount borrowed, the interest rate, the loan term, and any collateral pledged to secure the loan. The amount borrowed is a liability and the interest is an expense. The business is responsible to comply with the loan terms and to accurately track the amount due (liability), payment due dates, interest owed, and more. In QuickBooks Online, it's easy to manage the accounting for loans, and you can setup a new loan in a few easy steps.
To setup accounting for a loan in QuickBooks Online, you will add a new liability account to your Chart of Accounts. Go to Company > Chart of Accounts and click on New. In a few clicks you can name this account and specify if it is a Current Liability (to be paid in full within one year) or a Long-Term Liability (to be repaid over more than one year). You can easily create a new account for each loan or debt you owe. Click on finish and you're ready to start accounting for a loan.
Next, you likely deposited the money into your bank account and will want to record this deposit in QuickBooks Online. Go to Banking > Deposits and choose the bank account into which you deposited the money from the drop-down menu. Then, assign the deposit to your new liability account from the drop-down menu of accounts at the bottom of the screen. QuickBooks makes the appropriate debits and credits for you behind the scenes so that your books are always balanced.
QuickBooks Online makes accounting for a loan payment easy, too. To make a loan payment, simply go to Banking > Write Check and complete the information on the screen. At the bottom of the screen you will find a drop-down list of your Chart of Accounts. Choose the liability account for the principal portion of the payment, and an interest expense account for the interest amount of the payment. Accounting for a loan in QuickBooks Online is easy.
In QuickBooks Online, you can access your financial statements and reports anytime and from anywhere. When accounting for a loan, you can double-check your entries by reviewing the balance sheet. Simply go to Reports > Balance Sheet and your balance sheet is generated in seconds. The balance sheet details what a business owns (assets), what it owes (liabilities), and its net worth (equity) at a specific point in time. Scroll down to the liabilities section to find your new liability account. Click on the total amount to drill-down into the transactions used to calculate this amount. QuickBooks Online makes it easy to manage accounting for a loan. Try it for free today.