Loan (Long term Liabilities) & principal payment

luzbeaty1 · ‎June 13, 2019

Hello,

the company borrowed money from a personal bank acct., the money was transferred to the business bank account to cover business expenses, business purchase price etc. (the accountant suggest to handle it using Long Term Liability account).

Borrow

$ 441,800

from bank with 4.3% interest

Assets (cash) + 441,800

(Pledged Asset Line CS) Long term Liabilities + 441,800

Pay principal and interest from Loan:

Example Jun-19

Principal (Pledged Asset Line CS) Long term Liabilities - 14,000

Interest Interest paid (Expense/Equity) - 1,500

Asset (Cash) - 15,500

1. Considering that the deposit in the business checking account (visible in "Banking" tab in QB)of 441K was categorized in the account "Pledged Asset line CS" (Long term liability), will QuickBooks address the loan as I tried to picture it in the table above?

2. I understand that once a transfer is made to pay the loan (principal and interest) in the business checking account (banking), we will category it into “Interest paid” (expense) and “Pledged Asset line CS” (long term liability), as show up in the table above.

2.1 We would like to confirm that once we start paying the Principal (categorizing the expense in Long term Liability account), it will decrease the Long Term Liability.

2.2 We´ll make only ONE transfer with the total value, we will need to split it in QB using both categories/accounts “Interest paid” and “Long term liability)?

Thank you so much for your support!

john-pero · ‎June 14, 2019

When you record 2, the transfer, this should reflect the full payment due including both principal and interest. Line 1 of the detail of Check/Expense would be the account you have set up for the liability and line 2 is the interest you are being charged. I always like to record principal first. You can do either one first but I find on most of my loan statements that principal is recorded first even though the bank applies the payment against interest first - if that makes sense. Personal preference I guess for me.

What I gather is you are now recording a bank to bank transfer from business to the shareholder? Skip that even if that is what happens and simply record the entire transaction as one. You can make the payment payable to the shareholder as a pass through if the loan is not in the name of the company but entering one transaction saves time and achieves same result.

What you actually have in place is a shareholder loan to the S Corp funded by the shareholder privately borrowing and you are covering their payments or giving them the money to make their payments so in effect the transactions are all between the company and the shateholder

View solution in original post

john-pero · ‎June 13, 2019

Are you a C corporation or a multi shareholder S Corp? Is the private money from a shareholder or other member/owner of the company? Even a multi member LLC can borrow private money from one of the members and this is treated exactly as if it were borrowed from a real bank. What you described is the same as you would have done if the deposit you banking came from aoan at JPMorgan/Chase. So yes you have it correct. Principal portion of any loan payment as a line item is to the actual liability and reduces it accordingly

luzbeaty1 · ‎June 14, 2019

Hello @john-pero thank you so much for replying and your help.

The company is a S-Corporation. The money was borrow from a bank using the owner's personal bank account. An accountant suggested us to use "Long term liability" account.

Let me confirm that I understood correctly.

1. What I described shows the loan deposit from a bank to JPMorgan/Chase bank account. It shows up correctly how it handled by QB.

2. Once I transfer the money from my Chase bank account to pay the principal, that transaction will need to be categorized through the Banking page in (Pledged Asset Line CS) Long term Liabilities, so the liability will be decreased.

Could you please help me with the 3rd question from my original post?

Thank you so much and have a great day,

LB

john-pero · ‎June 14, 2019

When you record 2, the transfer, this should reflect the full payment due including both principal and interest. Line 1 of the detail of Check/Expense would be the account you have set up for the liability and line 2 is the interest you are being charged. I always like to record principal first. You can do either one first but I find on most of my loan statements that principal is recorded first even though the bank applies the payment against interest first - if that makes sense. Personal preference I guess for me.

What I gather is you are now recording a bank to bank transfer from business to the shareholder? Skip that even if that is what happens and simply record the entire transaction as one. You can make the payment payable to the shareholder as a pass through if the loan is not in the name of the company but entering one transaction saves time and achieves same result.

What you actually have in place is a shareholder loan to the S Corp funded by the shareholder privately borrowing and you are covering their payments or giving them the money to make their payments so in effect the transactions are all between the company and the shateholder

luzbeaty1 · ‎June 14, 2019

Thank you John,

so, once I made the payment (including principal and interest), I will split them so I can categorize them to the liability account and interest paid account. I will follow your idea, line 1 for principal and line 2 for interest.

Thank you so much again for all your ongoing support. I really appreciate it.

Have a nice weekend.

LB

AThomason427 · ‎January 19, 2023

We use accrual based accounting and took out a line of credit (LT liability) from the managing member of the LLC. Is there any way for QuickBooks to calculate the interest accrued each month on the balance, and post the interest to show the principal and interest line of credit balance? We are a construction company, so we will be paying down the line of credit when spec homes sell, but borrowing more next year or the year after. The note is for 130% mid-term AFR, and states no interest will be due until the entire line of credit is paid in full at the end of the 9 year term, so we can't expense the interest until it's paid, right, even though the balance is accruing simple interest monthly. Would I set up a sub account of the line of credit account for the accrued interest? And, is there any way to create a memorized transaction in the sub account that will look at the month ending balance of the primary liability and calculate the interest on the last day of each month? We want our financials to reflect the full amount owned to the managing member. Thanks!

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Loan (Long term Liabilities) & principal payment