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Level 2

Line of Credit

We have a $10K line of credit. The accounts were not previously setup correctly. Research in QB on the web indicates it can be a current liability or credit card or bank account. I set it up as a liability. Problem is when linking to Chase, the only options to connect the account to are credit card and bank account. Are there preferred ways to do this? Any help is appreciated.

Solved
Best answer 08-04-2017

Accepted Solutions
ProAdvisor

Re: Line of Credit

I am in the same situation it looks like. I have a Chase Line of Credit that I did as a credit card account in the desktop version. Now that I have converted to QBO I need to get this acount set up properly. I haven't attempted just yet to link it to the Chase bank feeds. My question is that it really doesn't give you a opening and closing balance at each month so how would I go about reconciling it. I presume journal entry like @jgtexas suggests is the way to go at the end of each month.

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Level 15

Re: Line of Credit

A LOC is your liability, not a Bank type of account. As Bank, it will always be Negative, since you are confusing Asset account with Liability activity.

 

The data entry tools for Credit Card accounts are nice, which is why people use that as the function for LOC, since these are both Liability. This works fine when you are allowed to Draw against the LOC, not running it through your real Bank account, such as a Construction Loan when payments on your behalf are made directly by the Bank.

 

But it also matters if your drawing on the LOC results in deposits to your regular Checking. If so, you only need Liability, because you are depositing and paying to and from checking and there are no details for any data entries for the LOC running balance.

 

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15 Comments
Level 2

Re: Line of Credit

Hi! Set it up as a bank-
True, it's a liability but you do a journal entry at month end to set up the liability. Reverse it in the next month and repeat.
ProAdvisor

Re: Line of Credit

I am in the same situation it looks like. I have a Chase Line of Credit that I did as a credit card account in the desktop version. Now that I have converted to QBO I need to get this acount set up properly. I haven't attempted just yet to link it to the Chase bank feeds. My question is that it really doesn't give you a opening and closing balance at each month so how would I go about reconciling it. I presume journal entry like @jgtexas suggests is the way to go at the end of each month.

View solution in original post

ProAdvisor

Re: Line of Credit

If you're using bank feed (sync with your bank account), you should use Credit Card type in QuickBooks which is also the current liability in the Balance Sheet. You can name account as Line of Credit if you want. It makes so much easier to transfer funds between accounts.
Forget writing Journal Entries. Those days are gone. Or someone is not up to speed.

Level 2

Re: Line of Credit

Hi Steve,

It shouldn't take too long to sort this out. I'm happy to jump on a call with you today to get it straightened out.

My office line is 204-500-1100

 

Best

 

Chris

Level 2

Re: Line of Credit

thank you @vpcontroller. That's what I will do!

Level 2

Re: Line of Credit

Classifying it as a credit card is going to summarize to the "Credit Card" sub-heading on the quickbooks balance sheet. I wouldn't send a statement out to the bank that was presented like that. 

I haven't noticed any impact when transfering funds between accounts. What happens for you?

Level 15

Re: Line of Credit

A LOC is your liability, not a Bank type of account. As Bank, it will always be Negative, since you are confusing Asset account with Liability activity.

 

The data entry tools for Credit Card accounts are nice, which is why people use that as the function for LOC, since these are both Liability. This works fine when you are allowed to Draw against the LOC, not running it through your real Bank account, such as a Construction Loan when payments on your behalf are made directly by the Bank.

 

But it also matters if your drawing on the LOC results in deposits to your regular Checking. If so, you only need Liability, because you are depositing and paying to and from checking and there are no details for any data entries for the LOC running balance.

 

View solution in original post

Level 2

Re: Line of Credit

Steve

we can download a statement each month from Chase, just like checking and card, so I a, able to reconcile the account. In our account, I still have to do a journal to transfer out the interest si ce the lump some is what transfers from Chase.

Level 2

Re: Line of Credit

Steve

we can download a statement each month from Chase, just like regular bank accounts.

ProAdvisor

Re: Line of Credit

Thanks for the clarity @vpcontroller. This is the approach that makes sense to me!

ProAdvisor

Re: Line of Credit

Your last paragraph you said  here... "But it also matters if your drawing on the LOC results in deposits to your regular Checking. If so, you only need Liability, because you are depositing and paying to and from checking and there are no details for any data entries for the LOC running balance." actually hits the mark for what I have. It has me thinking what to do if I already set up the LOC as a credit card. I have not yet attempted any bank feeds but I do get the bank feeds into the regular checking.

 

I am learning so much in this conversation thread. Thank you everyone for the comments.

ProAdvisor

Re: Line of Credit

I know we can connect bank feeds with Chase credit cards just like regular checking accept that it is reversed. I'm seeing that my Line of Credit just has a running balance which is new to me as I don't receive a statement that has a definite starting and ending balance number at the end of each month. 

Level 15

Re: Line of Credit

"what to do if I already set up the LOC as a credit card...I know we can connect bank feeds with Chase credit cards just like regular checking accept that it is reversed"

 

When you see it Backwards, you have the wrong account type. LOC draw is a Liability = you are more in debt. Putting it into Checking to use it is why it isn't Also bank; you already have Bank = the real checking account, for the process.

 

If you Spend from the LOC, it is like a Cardless Credit Card account, and the debt increases = does not show negative, because increasing debt as Positive values is the "normal" activity for CC account use = your Spending.

 

Or, you draw from the LOC such as, overdraft protection to Banking = Deposit to Checking, from LOC liability or Short Term Liability account. All actual spending is in Checking.

 

"my Line of Credit just has a running balance which is new to me as I don't receive a statement that has a definite starting and ending balance number at the end of each month"

 

If you can download a statement, you are seeing the activity and you Can Reconcile this account. All statements show a starting and an ending balance. Transaction or Activity reports might not inlcude a starting or ending or running balance.

 

Think about it like this: Would you borrow from someone that Never told you, "Here is where your account balance is, for this specfic date?" They have a Fiduciary responsibility to you and they report to you that data, which is your Outside Source of Reference to use to Reconcile your data to theirs.

 

Remember, they can be the one that Made a mistake. Reconciliation isn't just for your Own Needs.  For one of my client accounts, Bank of America sent Customer Payments ACH (eft) three months in a row. The typical customer pays $60 a month. These payments were nearly $2,500 each month. It wasn't our money and we knew they would be getting it back.

ProAdvisor

Re: Line of Credit

True, true, and true. That is the best explanation and speaks to me. So relevant. Thank you kindly for taking some of your generous time to really speak to me. I am better off, thank you @qbteachmt

CG1
Level 1

Re: Line of Credit

I am trying to set up a line of credit account in my chart of accounts, can you please help me with the setup?

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