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rprimmer
Level 2

Setting up note receivable for sale of a property

I am trying to set up a notes receivable for a property that is being sold on contract.  I've done a lot of research but I'm just not getting it quite right.  I set up an Other Asset account for the note.  To get an opening balance in place, I created a journal entry debiting the asset account and crediting the accounts receivable.  I set the buyer up as a customer and used this on the transaction.  Only that's not working because when I go to apply payments, it thinks he has a credit that can be applied to the outstanding balances in the amount of the full loan.  The asset account looks okay but the customer has a huge credit that can be applied to outstanding invoices. That's problem #1.  #2 when I create the invoices for payments due, I am linking to the payment due item to the asset account for the note.  As expected, it shows up on the asset account however it hasn't truly been paid so I'm concerned that I have this incorrect too.  I think it should show on the asset acct only when it's paid. Instead, when it's paid, it shows against the Accounts receivable. #3 When it is paid, I want to split the payment between principal and interest.  I don't see any way to split it using Make Payments from the customer screen. Make Deposit allows me to split it but it doesn't seem to reflect on the customer acct even though I'm selecting the customer as the payee. How can I accomplish adjustment to the outstanding invoice as well as splitting the payment in the deposit.  And finally #4, the initial transaction included a down payment from the buyer as well as a credit to him for property taxes which means I need to reflect an expense to property taxes.  Do I start the opening balance of the loan at the beginning balance and then deduct these to get to the actual balance carried?  I had created entries on the asset account deducting these and applying them to expense accounts.  However, because the opening balance which was apply to the accts rec above does not reflect in the customers outstanding balance as I did not apply these pmts through accts rec.  I applied them to the other asset register and expensed them so they would show in the totals for property taxes expenses.  please advise.

Solved
Best answer December 10, 2018

Best Answers
qbteachmt
Level 15

Setting up note receivable for sale of a property

"I set up an Other Asset account for the note."

Yes.

"To get an opening balance in place, I created a journal entry"

No; not if you are expecting to use QB for this as Customer Name activity. Never use JE for Customer activity.

Create an Item, such as Service Type item, linked to Other Asset. Name this "Financed Agreement."

You would have already listed the actual Sales for what you are financing, such as a Mobile home or car. That is your charge item that links to Income. This is on an Invoice; now you have a Balance Due. They might be making a downpayment and financing the rest.

The "rest" of the balance owed is the entry for the "Financed Agreement" item on a Credit Memo. This moves the AR balance (a Current Asset) to your new Other Asset.

Now, put this item on an Estimate for that customer. Then, you are going to Progress Invoice for the Principal due each month. This makes the Current Payment an AR activity to be seen and managed for late fee. Add the interest Income item to the invoice, as well.

"#2 when I create the invoices for payments due, I am linking to the payment due item to the asset account for the note.  As expected, it shows up on the asset account however it hasn't truly been paid so I'm concerned that I have this incorrect too."

This Monthly Invoice shows on cash or accrual basis, because it hits two Asset accounts.

"I think it should show on the asset acct only when it's paid."

The Balance Sheet would not be "in balance" for the Notes Payable account unless the invoices Show, even if not paid yet, on Cash Basis. This is different than P&L.

"#3 When it is paid, I want to split the payment between principal and interest."

You control what you listed for the Charges, on the Invoice. The Payment is just Banking.

"Make Deposit allows me to split it but it doesn't seem to reflect on the customer acct even though I'm selecting the customer as the payee."

That is a Banking worksheet and not a Customer Transaction. Try not to use this for Customer activities, manually.

"And finally #4, the initial transaction included a down payment from the buyer as well as a credit to him for property taxes which means I need to reflect an expense to property taxes."

Exactly :)

On the original invoice, there is you processing a Receive Payment for the amount of the Downpayment, leaving a Balance Due.

On the Credit Memo, use the Financed item and list anything else here, such as an Other Charge type item linked to an expense account for Taxes. Don't try to put negatives here; the Credit Memo already is the opposite of Charges to the customer.

"I had created entries on the asset account deducting these and applying them to expense accounts."

There is no need to move things around, handling them more than once, or manually. Let the program do the work.

"However, because the opening balance which was apply to the accts rec"

There is no "Opening Balance" because you will have Transactions.

"I applied them to the other asset register and expensed them so they would show in the totals for property taxes expenses.  please advise."

Don't work in the Register; you want Customer Activities to affect that account.

View solution in original post

5 Comments 5
qbteachmt
Level 15

Setting up note receivable for sale of a property

"I set up an Other Asset account for the note."

Yes.

"To get an opening balance in place, I created a journal entry"

No; not if you are expecting to use QB for this as Customer Name activity. Never use JE for Customer activity.

Create an Item, such as Service Type item, linked to Other Asset. Name this "Financed Agreement."

You would have already listed the actual Sales for what you are financing, such as a Mobile home or car. That is your charge item that links to Income. This is on an Invoice; now you have a Balance Due. They might be making a downpayment and financing the rest.

The "rest" of the balance owed is the entry for the "Financed Agreement" item on a Credit Memo. This moves the AR balance (a Current Asset) to your new Other Asset.

Now, put this item on an Estimate for that customer. Then, you are going to Progress Invoice for the Principal due each month. This makes the Current Payment an AR activity to be seen and managed for late fee. Add the interest Income item to the invoice, as well.

"#2 when I create the invoices for payments due, I am linking to the payment due item to the asset account for the note.  As expected, it shows up on the asset account however it hasn't truly been paid so I'm concerned that I have this incorrect too."

This Monthly Invoice shows on cash or accrual basis, because it hits two Asset accounts.

"I think it should show on the asset acct only when it's paid."

The Balance Sheet would not be "in balance" for the Notes Payable account unless the invoices Show, even if not paid yet, on Cash Basis. This is different than P&L.

"#3 When it is paid, I want to split the payment between principal and interest."

You control what you listed for the Charges, on the Invoice. The Payment is just Banking.

"Make Deposit allows me to split it but it doesn't seem to reflect on the customer acct even though I'm selecting the customer as the payee."

That is a Banking worksheet and not a Customer Transaction. Try not to use this for Customer activities, manually.

"And finally #4, the initial transaction included a down payment from the buyer as well as a credit to him for property taxes which means I need to reflect an expense to property taxes."

Exactly :)

On the original invoice, there is you processing a Receive Payment for the amount of the Downpayment, leaving a Balance Due.

On the Credit Memo, use the Financed item and list anything else here, such as an Other Charge type item linked to an expense account for Taxes. Don't try to put negatives here; the Credit Memo already is the opposite of Charges to the customer.

"I had created entries on the asset account deducting these and applying them to expense accounts."

There is no need to move things around, handling them more than once, or manually. Let the program do the work.

"However, because the opening balance which was apply to the accts rec"

There is no "Opening Balance" because you will have Transactions.

"I applied them to the other asset register and expensed them so they would show in the totals for property taxes expenses.  please advise."

Don't work in the Register; you want Customer Activities to affect that account.

View solution in original post

rprimmer
Level 2

Setting up note receivable for sale of a property

That was amazingly helpful! Thank you!
StackTier
Level 1

Setting up note receivable for sale of a property

It seems an Installment Sale aligns with FASB standards if a conservative approach is merited.

 

Initial Sale:

DR - Installment A/R 

CR - Inv

CR - Deferred GP (Contra Installment A/R)

 

Pmts Received:

DR: Cash

CR: Installment A/R

DR: Deferred GP

DR: COGS (S/L 

CR: Sales 

 

References: https://corporatefinanceinstitute.com/resources/knowledge/accounting/installment-sale/

http://accounting-financial-tax.com/2008/12/accounting-method-for-sales-and-profit-of-real-estate-co...

 

Update: Guess this isn't allowed (will receive this message) in QuickBooks, need to use clearing account, or a more unconventional method using another asset account type (i.e. Other Asset). 

brenhoek
Level 1

Setting up note receivable for sale of a property

How do I enter things if we sold a few acres of land (that was purchased decades ago) and we sold it on a land contract? Would I still use an invoice for the sale? Can I even get QB to figure the interest from that or do I need a separate excel sheet? You lost me with 'you go to progress invoice for the principle due', I am very unsure of the accounts receivable aspect of QB since we don't list cattle as assets much less the land. When we sell something, it currently just goes in as a deposit and the income account that is dedicated to keeping track of that income source; we never inventoried the milk either when we milked a few years ago. Thanks

JoR
Level 1

Setting up note receivable for sale of a property

This is the way I handle this problem in our QB, it's a little simpler (we file our taxes on a cash basis). We sold rentals on a land contract where we hold the mortgage.  The buyer is making monthly payments to us while we continue to pay the insurance and taxes on their behalf.  I keep a spreadsheet in Excel, I have Excel calculate the interest, reducing the mortgage (I've never seen a place that QB could calculate mortgage interest).  I then take the calculations made in my Excel sheet and split the deposit between, interest, long term capital gains plus offset the taxes and insurance in expenses on each payment received.  My properties are currently still listed in my assets at their original value and will remain there until the properties are paid in full. I use classes, so I can print a P&L just for these contract sales for my year end.  My CPA  completed the initial contract sale form which accounted for the recouping the depreciation taken prior to the sale, plus files the annual form 6252 with the IRS.  I no longer take a depreciation expense on these properties. If I used the accrual basis I would have to figure out how to put these mortgage balances in QB as receivables.

 

I was actually researching how others were setting up this type of transaction simply in QB, when I noticed your post.  I hope this helps.  

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