How do I set up and track a line of credit

Thanks for the information.  When making payments back to the loan account how would I track the interest?  Do I need to set up an interest account for the LOC and make an entry there as well?

Thanks for the information.  One final question how would I track the interest that accrues on the loan?  Would I need to set up an interest account and make an entry into that account every time I make a payment that would show principal and interest on loan?  Do I reconcile the account the same as I would a bank account?

Yes and yes. Set up an expense account called Interest if you don't already have one. Then when you make the payment you can split it between the principal amount going to the LOC account on line 1 of the transaction detail and the interest amount going to Interest expense on line 2. When you receive your periodic statements for your LOC showing the ending balance you should reconcile it just like a bank account.

How to reconcile a line of credit when the transaction is already matched to the checking account? I wanted to change all the transactions in my LOC because it was recorded as a transfer from checking ( even the interest paid and principal they recorded it as a transfer ). But it was already matched to the checking account that has been reconciled.

Let me help you get around with it, Jschreed.

You'll have to undo the reconciliation so you can change the transfer and unmatch or delete the transaction. Create the correct one, then reconcile again.

First, here's how to undo a reconciliation:

1. Click Lists.
2. Go to Chart of Accounts.
3. Select the bank account, right-click, then select Reconcile.
4. Click Undo Last Reconciliation.

Next, is to delete the matched transaction, then create a correct one before reconciling it again.

As always, I'd suggest reaching out to your accountant on the best way to handle this.

We're just around if you have other QuickBooks technical concerns. Take care!

I need help with setting up a line of credit that is used to pay the vendor directly instead of the funds going into the bank account and then paying the vendor.

Hi there, monikalynn.

A Line of Credit account can't be used directly to pay vendor transactions because it is set up as a liability account. At the moment, we can only use a cash, Bank, or a Credit Card Account to pay for vendor expenses. 

You'll want to set it up as a credit card account. However, I would suggest reaching out to your accountant before doing this to make sure you're setting up the account correctly. Here's how:

1. Go to the List menu and select Chart of Accounts.
2. Press CTRL + New, then select Credit Card.
3. Click Continue and enter all the required details.
4. Click Save and close.

If you want to keep it as a Current Liability account, you can record the payment as a Journal Entry. Here's a guide for more details: Create a Journal Entry in QuickBooks Desktop.

The Community is always here if you need anything else. 

Hi! I was wondering your suggestion on how to categorize the principal payment. I don't have any categories that seem to fit. If I need to create a new one, what is the proper way to do so? 

Hi carnall,

Welcome and thanks for getting help with creating an account for your principal payment transactions.

I'll share the steps to create an account. However, I'm unable to suggest which account type should you choose. Your accountant is the best person to answer that.

1. Go to the Lists menu, then select Chart of Accounts.
2. From the Account ▼dropdown, select New.
3. Select an account type, then select Continue.
4. Complete the account details.
5. Select Save & Close.
   
   

Here's an article for your additional reference: Add, edit, or delete accounts in QuickBooks Desktop.

Let me know if you need more help with your accounts. Have a good one!

I have a LOC set up as a Long Term Liability. My problem arises when I get a statement showing the interest charge. When I enter this as a bill it does not show up on the account but when I pay the bill it shows up as a payment. The monies that we transfer in and out of the account show up properly but since the interest does not show up except as a payment there is no way to match it - my reconciliation is always wrong. What am I doing wrong?

Hello there, @JP41.

I'd like to ensure that we're on the same page, so I can provide you with the right amount of information so you can proceed with reconciling your account in QuickBooks Desktop.

What specific account do you want the interest to show up? How did you record the bill?

Furthermore, does the interest show up as a separate charge on your bank statement? It would also be great if you could include some screenshots so I can better understand it.

I'd appreciate any additional details you can provide. I’m looking forward to your reply. Have a great rest of the day.

To try and answer your questions:

I am just trying to reconcile this account. The statement from the bank shows a Total Balance which includes the interest payments. Further down it shows a Total which shows the balance without the interest payment.

I don't care where the interest shows up I just want to balance the LOC account. The statement gives a principal balance and a total balance. To which one am I supposed to balance the LOC account? Attached is a copy of the most recent statement. 

What would be the GJ entry to put this account correct according to the statement?

Should I include the interest in the account or record it separately?

In my case, the company owner that set up this LOC account, but he did it wrong. He set up as a bank account. When I was trying to fix it, switching to a liability account, QB said that it's not possible because there a check transaction registered. How can I fix it?

QB message regarding it: "This account is being used on a Check, Deposit, Payment or other transaction where an account of type 'Cash' or 'Undeposited Funds' is required. You must locate and change those transactions to use a different Cash account before you can change the Account Type of this account. To find the transactions using an Account, run an Account QuickReport, or use the Account Register."

You can transfer the transactions to the correct bank account. After transferring the transactions to the new account, delete the transactions from the Line of Credit (LOC) created by the owner and then set the account to inactive in QuickBooks Desktop (QBDT), @PatriciaW1. I'd be glad to walk you through the process.

Here's how:

1. Sign in to your QuickBooks Desktop Company File.
2. Go to the Banking menu and select Transfer Funds.
3. Choose the account you want to transfer funds from using the Transfer Funds From drop-down menu.
4. Choose the account you want to transfer funds to in the Transfer Funds To drop-down menu.
5. Enter the transfer amount and date.
6. If needed, add a memo such as Fund Transfer to provide additional context for the transaction.
7. Once done, select Save & Close.

The next step is to delete the transactions from the Line of Credit (LOC) account created by the owner and then make the account inactive.

Furthermore, you can reconcile your accounts monthly to ensure they align with your bank and credit card statements.

Keep in touch if you have further concerns about handling accounts in QBDT. I'll be happy to return to this post to address your queries. Stay safe, and have a great day ahead.