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"For the first transaction, since I had a little accounti...

"For the first transaction, since I had a little accounting knowledge, I created a General Journal entry, debiting "Business purchase valuation" for $110,000 and crediting "owner's equity" for $100,000 and crediting "accounts payable" for $10,000."

The mistake is: this is not AP. It is a different Liability entirely.

"Then once a month, when I paid my monthly payments, I created a General journal entry, debiting "accounts payable", debiting "interest expense" and crediting "owner's equity" (I made 6 of these total from personal bank account)."

That also is a mistake. Your Check or Bill has Splits:



And using Equity here also is a mistake. The Credit would be "payment from Checking."

This happens Behind the scenes of the Payment Transaction: Debit Liability, Debit expense, Credit Bank

"I ended up paying a total interest of $74.

Now, my accounts payable shows a balance of $0, but when I go to reports and select company and financial and select standard balance sheet, I see a balance of -$74 in accounts payable."

Man, you have made this very difficult. The program is really basis. When you are in debt, you pay it using Check, or credit card, or a Bill to pay later. The Bill already IS AP. That is why you don't post to AP manually or directly.

"Double clicking the report to investigate, I found out that QuickBooks appears to debit the accounts payable account for the total amount paid each time (sum of actual accounts payable amount + interest expense amount, which is equal to the owner's equity line)"

That's because all of this is wrong.

"After a lot of playing around, I found out that if I create a new "current liability account" and post everything to this new account instead of "accounts payable", the problem with the balance sheet goes away."

You should never post any of this to AP.

"I know QuickBooks likes to handle accounts payable through "bills", but what am I missing here?"

You are running the data in circles.

"Shouldn't the general journal entry have the same effect in the background any way?"


"Is there some kind of "rule" that I'm not aware of in regards to the way accounts payable is handled in QuickBooks? Could this be a bug?"

The rule is, Never use JE for AP, AR, Credit Cards, Payroll, Sales Taxes and Inventory.

You bought a program with an Interface = tools.

AP = Enter bill.

But this debt is not AP, anyway. That was the first error. It is a different Liability.