In the course of running and growing your business, you may need to get a loan to buy new assets. Vehicles, equipment, machinery, buildings, and other assets used for business gradually lose value over time. This decrease in value is known as depreciation.
In QuickBooks Online, you can easily record the loans, assets bought with the loans, loan payments, and depreciation of the assets.
Note that the following instructions only cover the basics on how to set up loans for assets. Many things are taken into consideration when assessing the original value of a purchase, such as trade-in, down payment, fees, taxes, and so on. Consult with your accountant about how to account for these variables.
To record a loan for purchasing new assets (car, truck, etc.), you'll first need to set up a liability account. If you are buying a truck, for example, you might create an account called "Loan - Truck". Depending on the repayment time frame, choose either Current Liability (to be paid in full within one year) or Long-term Liability (to be repaid over more than one year).
To set up a liability account for a loan:
- Select Gear Icon at the top.
- Under Your Company, select Chart of Accounts.
- On the right, click New.
- Select either Other Current Liabilities or Long-term Liabilities.
- Choose a detail type (a description is listed for each option), then select Next.
- Name the account.
- Leave the Unpaid Balance blank, then select Save.
Now that you've created an account for the loan, you'll need to create a Journal Entry to apply the loan to the proper asset accounts.
- Select + New.
- Under the Other column, choose Journal Entry.
- For the first line under the Account column, select your new liability account.
- Enter the amount of the loan you’re applying to the asset under the Credits column.
- For the second line, select the appropriate asset account under the Account column.
- Under the Debits column, enter the amount of the loan you’re applying to the asset.
Here's an example:
|Loan - Truck (liability account)||$12,345|
|Truck (asset account)||$12,345|
You'll notice that the debits and credits are the same value. Whenever you make a journal entry, the credits and debits values should cancel each other out since we're taking money from one account and applying the amount to another.
In the above example, we are increasing, or crediting, the loan/liability account and increasing, or debiting, the appropriate asset account.