How to set up loan given

Judy R · ‎April 08, 2021

My company gave another company a loan which I have listed as Other Asset. We are charging interest. However, there are 3 different types of adjustments that will get applied to the principal of the loan. Under what type of account should I list the interest and the adjustments so the balance is proper on the Balance Sheet?

Pete_Mc · ‎April 09, 2021

Actually.... If I understand correctly, you GAVE out a loan and did not take a loan. So you need to reverse what @Charies_M told you.

The money (Principal) you gave out is a Current Asset not a Liability. So in your Chart of Accounts (CoA) you want to go to New and Other at the bottom and create an Other Current Asset. Give it a name that will make sense years later like: Smith Inc Loan.

Go back to New and Other and create an Other Income account. This will be the Interest Income you earn from the loan. Give it a similar name like Smith Inc Interest.

If you've already made the payment, you may or may not need to delete and re-add it. You need to make sure that Smith, Inc. is a Customer (or could be Other), but is NOT a Vendor. If you've already made the payment and had them as a Vendor, then just Delete the entry and make a new entry. (Be sure to keep the same date that you actually made the payment.)

NOTE: If Smith, Inc happens to be also a Vendor, create a new Customer named Smith Inc Loan (or something similar) to distinguish between the two.

When you make the payment entry, the Acct associated will be the Other Current Asset:Smith Inc you just created. You'll see that account now shows a balance of the full Principal.

When you receive the monthly (or whatever) payment you will Deposit the money and make a Split entry. The Principal payment will go to the Other Current Asset:Smith Inc and the Interest payment will go to Other Income:Smith Inc Interest Acct.

You will see the Principal account go down as payments are made and the Interest will be shown as Income. So you will easily be able to see the outstanding Principal and how much Income has been brought in.

And you mentioned a 3rd adjustment. What would that be other than the Principal and the Interest?

Also.... DO make sure you reach out to your Tax Accountant. There may be differences they want made in the names or entries based on your specific type of company and how they file your taxes.

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Charies_M · ‎April 08, 2021

It's nice to see your post today, Judy R.

I've got some steps to help you set up a loan given in QuickBooks Desktop (QBDT).

To start the initial steps, you'll want to set up a liability account, vendor, and expense account.

Set up liability account:

Go to the Lists menu, then select Chart of Accounts.
Right-click anywhere, then select New.
Select Other Account Types, then select the right account type for your loan: Other Current Liability or Long Term Liability.
Click Continue.
Enter the name and number for the account.
Hit Save & Close.

Set up vendor:

Go to the Vendors menu, then select Vendor Center.
Select New Vendor.
Enter the name of the bank or the company you need to pay for the loan.
Click OK.

Set up an expense account:

Go to the Lists menu, then select Chart of Accounts.
Right-click anywhere, then select New.
Select Expense, then Continue.
Enter the account name for the interest payments or fees and charges.
Click Save & Close.

Once done, you can start recording the loan amount. For the steps, the process to Step 4 of this article: Manually track loans in QuickBooks Desktop.

In terms of the type of account to use, I recommend consulting a certified accountant or bookkeeper on this. They can share their best practices in handling loans given.

We also have our Find-a-Pro-Advisor page that will be able to assist in connecting you with a certified accountant or bookkeeper that also specializes in QuickBooks Online: https://quickbooks.intuit.com/au/find-a-proadvisor/

Of course, you're always welcome to visit us again if you need help while working with loans. It will be my pleasure. Stay safe and have a great day ahead!

Pete_Mc · ‎April 09, 2021