Payments were made on a note payable, but never recorded in QuickBooks

GG69 · ‎April 21, 2021

Hello,

The client has a note payable, and was making payments (somewhat sporadically). But the note was never set up in QuickBooks or the payments recorded - the payments were recorded to the expense line, the reason for the note (a franchise fee). This spans more than one accounting year. When setting up the note payable in QBO, it prompts me for an opening balance. Questions:

1. Do I enter the opening balance there? If I do, the amount comes up as (negative) opening balance equity. And I know that having OBE is usually not desirable.

2. If that is correct, I'm assuming the JEs to reduce the notes (the payments already made) would be DR: Note Payable CR: Opening Balance Equity?

If I'm wrong and/if there's a better way, please let me know.

Regarding prior periods: The client's tax accountant is now aware of this, and I will work with him on this.

Thanks in advance!

Rustler · ‎April 22, 2021

Yes, if you put a starting balance on the account when creating it, it does make an entry to OBE. In this case a negative (debit) entry.

The payment made on a notes payable is composed of two parts, the principal portion and the interest portion. Only the interest portion is an expense.

The payments made came from a bank account, what is wrong is tagging the whole payment as expense. I would suggest you get with the loaner and find the starting balance as of 1/1/2020 and the total interest paid for 2020 and start there. Edit each payment to show the split between principal paid and interest paid. Then file 2020 taxes, there is about 3 weeks left to get it done. And of course carry on the split payments for 2021

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Rustler · ‎April 22, 2021

Yes, if you put a starting balance on the account when creating it, it does make an entry to OBE. In this case a negative (debit) entry.

The payment made on a notes payable is composed of two parts, the principal portion and the interest portion. Only the interest portion is an expense.

The payments made came from a bank account, what is wrong is tagging the whole payment as expense. I would suggest you get with the loaner and find the starting balance as of 1/1/2020 and the total interest paid for 2020 and start there. Edit each payment to show the split between principal paid and interest paid. Then file 2020 taxes, there is about 3 weeks left to get it done. And of course carry on the split payments for 2021

GG69 · ‎April 22, 2021

Hi, Rustler -

Thanks for your reply.

As you recommend, I was planning to set up the note as of the beginning of 2020. Fortunately there was no interest.

I guess I wasn't making myself clear. The payments were recorded as expenses only because the person recording them was told that's what they were - the owner also had other credit card charges to the same vendor ("vendor" who holds the note. Note payments were made by credit card).

So, are you suggesting I go back and edit the individual credit card charges and apply those payments to the note? I was hoping to just make JEs for 2020 and 2021, and wanted to ensure I was crediting the correct account, which I'm thinking would be OBE.

Thanks again!

GG69 · ‎April 22, 2021

Additional info: Nobody on the accounting end knew about this note until very recently, which was why it wasn't set up in QuickBooks.

GG69 · ‎April 22, 2021

Additional Info:

I'm sorry about the piecemeal info. Not only did nobody on the Accounting end know about the note until just recently, but there were not funds advanced to the client - the client was paying a fee to the vendor over the life of the note. So there was never a bank account debited at the time of the note.

Again, thank you.

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Payments were made on a note payable, but never recorded in QuickBooks