Loan-term loan repayment

@steven-maus87-gm 

If you assigned an opening balance to the loan liability account when you set it up, then your bank account  must be short the loan amount in cash.   

When you set up a loan liability account in QB, you don't want to assign an opening balance to it.  You want to create a deposit and assign your loan liability account to the deposit.  Or, you can also create a journal entry - debit your bank account, credit loan liability.  Both will increase you bank account and loan liability by the same amount.  Then, when you make payments, assign the principal portion to the loan liability account and the interest portion to interest expense.  That will reduce your loan balance by the principal amount of each payment.

It's an honor to have you here, Steven.

I can add information about setting up a loan and recording a payment in QuickBooks Online.

As Rainflurry has mentioned, if you don't want to add an opening balance to your liability account, you can create a deposit or journal entry to increase the amount. Otherwise, you can add an opening balance to keep the record accurate.

Moreover, you can proceed to the steps below once you're ready to record a loan payment:

1. Please make sure to switch to the Accountant view.
2. Select + New on the left pane, then select Check.
3. If you plan to send an actual check, add a check number. Also, you can enter Debit or EFT in the Check no. field for direct withdrawal or EFT.

After that, enter the following in the Category details section:

1. Choose the liability account for the loan on the Category dropdown, then enter the amount.
2. For the interest, pick the expense account from the Category dropdown and enter the amount.
3. You can also add any additional fees on additional lines. Please ensure to select the appropriate accounts from the Category dropdown.
4. Review all the details, then select Save and close.

To help you further with your liability account, I recommend seeking advice from your accountant. You can visit this website if you don't have one yet: Find a QuickBooks ProAdvisor.

On the other hand, you might consider scanning this material to learn more about connecting bank and credit card accounts to acquire transactions automatically: Connect bank and credit card accounts to QuickBooks Online.

Please don't hesitate to update us here in the Community for additional questions when setting up a loan with QuickBooks Online. We're always here to lend a hand.

Thanks for the reply! That all makes sense.

The equity question was actually in regards to a different loan, that was me getting mixed up. So, I also have a 10 year debt to payback money that was borrowed to purchase the company. A down payment was already made and recorded separately, and now I have set up the long-term liability account, but I didn't get any cash from it - rather, I owe the money. QB offset that created liability with a negative opening equity amount. Is that correct, or should I be doing it differently?

Now, as I pay cash towards the loan amount I can record loan payments and interest as expenses, and then move the principal balance amount from the liability to slowly restore the equity, payment by payment. Does that sound right?

I'm here to assist, Steven.

I recommend seeking advice from your accountant before creating a long-term liability account with a negative opening equity amount, recording loan payments as expenses, and gradually transferring the principal balance amount from the liability to restore the equity. This'll ensure that the amounts are booked correctly and that you receive further guidance.

In case you need to record a loan for an asset or track customer loans, feel free to check out these articles:

• Record the loan for an asset in QuickBooks Online
• Track customer loans in QuickBooks Online

If you have other concerns regarding loan repayment, please let me know by hitting the Reply button. I've got your back.

@steven-maus87-gm 

"So, I also have a 10 year debt to payback money that was borrowed to purchase the company. A down payment was already made and recorded separately, and now I have set up the long-term liability account, but I didn't get any cash from it - rather, I owe the money. QB offset that created liability with a negative opening equity amount. Is that correct, or should I be doing it differently?"

When you bought the business, you bought assets.  Those assets (not opening balance equity) are what offset the loan.  So, you need to create a journal entry that allocates the assets to the loan.  For example, say a $200K loan financed the purchase of $100K in goodwill, $90K in equipment, and $10K for a non-compete agreement.  The journal entry to record that would look like this:

Since the down payment was part of the purchase price for the assets, make sure that was recorded properly. 

"Now, as I pay cash towards the loan amount I can record loan payments and interest as expenses, and then move the principal balance amount from the liability to slowly restore the equity, payment by payment. Does that sound right?"

That is not right.  When you make a payment on the loan, assign the principal portion to the loan payable liability and the interest portion to interest expense.  Only the interest portion is an expense.  The principal portion is a reduction in your loan payable liability.  None of this has anything to do with equity except the down payment that you made since, presumably, that came from personal funds. 

That makes perfect sense, thank you!