How do I track a loan to a customer?

The first step to recording a loan to a customer is to determine the purpose of the loan:

• If the loan will be used to close all open invoices under the account, follow the steps in Part I.
• If loan is intended for another purpose, and you intend to write a cheque, follow the instructions in Part II.

Part I
Create an account to track the loan and its repayment.

• Create an Other Current Asset if the loan is to be repaid within the current financial year.
• Create an Non-current asset if the loan will be repaid after the current financial year.

1. Click the Gear Icon > Chart of Accounts.
2. Click New and select Current Assets from the dropdown.
3. Select under detail type Loans to Others and click Next.
4. Give it a meaningful name, like "Customer Loan - Lastname".
5. To create the account, click Save and Close without entering an opening balance.

Now, create a journal entry to establish the opening balance for the loan and to create a credit in Accounts Receivable for that customer, so the credit may be applied to the open invoices.

1. Select + New.
2. Select Journal Entry.
3. On the first line, in the Account field, enter the name of the customer loan account.
   • In the Debits field enter the loan amount.
4. On the second line, in the Account field, enter Accounts Receivable.
   • In the Credits field enter the loan amount.
   • In the Name field enter the Customer Name.

Part II

Create an account to track the loan and its repayment.

• Create an Other Current Assets if the loan is to be repaid within the current financial year.
• Create an Non-current assets if the loan will be repaid after the current financial year.

Example: A customer loan to be repaid within the current financial year.

1. Click the Gear Icon > Chart of Accounts.
2. Click New.
3. Select Current Assets and click Next.
4. Select under detail type Loans to Others and click Next.
5. Give it a meaningful name, like "Customer Loan - Lastname".
6. To create the account, click Save and Close without entering an opening balance.

To Pay the Customer:

1. Select + New.
2. Select Cheque.
3. Select the Account used to fund the loan (e.g. Transaction, Money Market) for Bank Account.
4. Select the account used to track the loan as the off-setting account on the area beneath the cheque.
5. Click Save and Close.

Customer Repayments:

1. Select + New.
2. Select Bank Deposits.
3. Make sure the appropriate Deposit To account is selected at the top.
4. Under New Deposits enter the following information:
   • Received from: Customer Name
   • Account: Name of the customer loan account
   • Memo: Enter a memo that helps record-keeping
   • Payment Method: Choose cheque, cash etc.
   • Ref no.: Enter the cheque number
   • Class: If you are using Class tracking
   • Amount: Amount of the cheque
5. If you are charging the customer interest, on the first line, enter only the principal amount of the payment. On the second line, select your Interest Income account and under Amount, enter the interest part of the payment.
6. Click Save.

If you want to create recurring invoices to go the customer for monthly payments, first create a product service item that uses the customer’s loan receivable account.

1. Click the Gear Icon > Products and Services List.
2. Click New and then click Non-inventory
3. In the Name field, type, for example, Loan Payment Due.
4. From the Account drop down list, select the customer’s loan receivable account.

Next, create a recurring invoice:

1. Click the Gear Icon > Recurring Transactions.
2. At the top right, click New.
3. Select Invoice, click OK.
4. Select the customer name.
5. From the Product/Service drop down list, select the Loan Payment Due product service item.
6. Under Amount enter the amount of the payment due.
7. Click on the Edit Schedule button. Enter the "Interval", "Start date" and if applicable "End" if applicable.
8. Click OK.
9. Click Save Template.

When payment is received:

1. Select + New.
2. Select Receive Payment. Enter the payment information. If you don't see Receive Payment, click Show More at the bottom.
3. Next to the reference number, under Deposit to, select Undeposited funds.
4. Click Save.

*Calculate the interest due on the current payment. Take the loan balance and multiply by the interest percentage, then divide by 12 for one month’s interest.

To enter the deposit and adjust for interest received:

1. Select + New.
2. Select Bank Deposits.
3. Click on the box next to the payment, to make a check mark.
4. In the Add New Deposits section, from the Account drop down list, select the loan payable account.
5. Enter the amount of interest as a negative amount.
6. On the second line, select the interest income account, and enter the amount as a positive number. This adjusts the loan balance from the invoice entry, adding the interest amount back into the loan receivable account and posting the interest to income.

Calculate the Interest
QuickBooks Online (QBO) does not calculate interest automatically. To calculate the interest manually within QBO.

1. In any Amount field, enter a calculation.
2. Press Tab. QBO will calculate the results.
3. Example: Amount: $100.00
   Interest to be calculated: 8.5%
4. In the Amount field enter 100*.085/12 then press the Tab key. The amount will now be $.71.