User Query: I want to understand how do I recording a loan to a customer?

Loan receivable is the amount that your customers owe you. The method to record the receivable differs according to the type of loan. In this article, you’ll find steps to record a loan receivable in QuickBooks.

Lending relationships are often mutually beneficial to both parties involved. Loan receivable is an amount owned by the customer, while the debt they owe can be recorded in QuickBooks accounting software. The procedure of recording a loan receivable depends on the type of loan in question. We will share all the information here and help you learn how to record that amount in your accounting software.

There’s a feature in QuickBooks that allows you to “record a loan payment” by creating liability accounts. The cash and non-cash liability account is where you’ll track both the amount and interest paid for each of your loans. We’ll explore this process below in this article.

What is the Procedure to Record a Loan Receivable in QuickBooks Accounting Software?

Loan receivables are a new designation in QuickBooks accounting software, and these transactions may be used to record loans made to client/customer, loans made to employee, and loans given to other company. Recording these transactions is imperative because it ensures getting repayment and recording. Accountants need to create an asset account before recording loan payable transactions:

The loan can be for many different reasons, but here, we’re concerned with bifurcating them into two cases:

  • Case I – If the loan amount will be used to close open invoices.
  • Case II – If the loan amount will be used for any other purpose, and the amount is provided via a check.

Case I: If the loan Amount will be Used to Close Open Invoices.

To record the loan and track its payment, you need to create a new account. You can select one of the following account types to begin recording loan receivables:

  • Other Current Asset: If the loan amount will be repaid by the customer in the current fiscal year.
  • Non-Current Asset: If the loan amount will be repaid by the customer after the current fiscal year.

Read More: How to set up a car loan in QuickBooks Desktop?

To Create a New Account to Record Loan Receivables in QuickBooks

Follow the steps provided below:

  1. Go to the Gear Icon.
  2. Select Chart of Accounts.
  3. Go to New and click on Current Assets.
  4. Click on Detail Type and select Loans to Others. Hit Next.
  5. Enter a descriptive name for the account. For instance, ‘Loan to Customer – Customer Name’.
  6. Don’t input any opening balance for the account. Click on Save and Close.

If the loan wouldn’t be paid in the current financial year, then you can create a non-current asset account.

Before you apply the credit to all open invoices for the customer, you need to create a journal entry. This journal entry will not only establish the opening balance but also create a credit in Accounts Receivables.

Follow the steps provided below:

  1. Click on +New.
  2. Click on Journal Entry.
  3. In the first line:
    1. Enter name of the account created in the aforementioned steps.
    2. Enter the loan amount in the Debits field.
  4. In the second line:
    1. Enter the loan amount in the Credits field.
    2. Enter customer name in the Name field.

Now you can apply the credit to all the open invoices for that particular customer. This is the easiest way to record loan receivable in QuickBooks if you’re planning to use it to close all open invoices for the customer.

Case II: If the loan amount will be used for any other purpose, and the amount is provided via a check.

To record the loan and track its payment, you need to create a new account. You can select one of the following account types to begin recording loan receivables:

  • Other Current Asset: If the loan amount will be repaid by the customer in the current fiscal year.
  • Non-Current Asset: If the loan amount will be repaid by the customer after the current fiscal year.

To create a new account to record loan receivables, follow the steps provided below:

  1. From the Gear Icon, click on Chart of Accounts.
  2. Click on New and select Current Assets. Hit Next.
  3. Click on Detail Type and select Loans to Others. Hit Next.
  4. Enter a descriptive name for the account. For instance, ‘Loan to Customer – Customer Name.’
  5. Don’t enter any opening balance. Click on Save and close.

If the loan wouldn’t be paid in the current financial year, then you can create a non-current asset account.

Now, we’ve to create a check to pay the loan amount to the customer. After this, we’ll use bank deposits to record customer repayment. We’ve also provided steps to record interest payments on the provided loans.

To record the loan amount paid to the customer, follow the steps provided below:

  1. Click on +New.
  2. Click on Cheque.
  3. From the list, click on the Bank Account which was used to fund the loan.
  4. In the area beneath the cheque, select the account created using aforementioned steps. This will be used as an off-setting account.
  5. Click on Save and Close.

To record the repayment of loan by the customer, follow the steps provided below:

  1. Click on +New.
  2. Click on Bank Deposits.
  3. Select the apt Deposit To account.
  4. Enter the required following information under New Deposits:
    1. Received From – Name of Customer
    2. Memo – Description for record keeping.
    3. Class – For class tracking
    4. Amount – Amount of Loan provided
    5. Account – Loan Account created for recording the loan receivable
    6. Ref No. – Cheque Number
  5. In the first line, enter the loan amount paid to the customer.
  6. In the second line, select the appropriate Interest Income account and enter the interest charged on the loan.
  7. Click on Save and Close.

In QuickBooks, users have the option to create recurring invoices which are automatically sent to the customer for repayment of the due amount. This is a convenient method of reminding the customer of the repayment and recording the repayment.

To create recurring invoices for monthly payment of the loan amount, you need to create a new item which uses the loan receivable account of the customer. To create such an item, follow the steps provided below:

  1. From the Gear Icon, click on Products and Services List.
  2. Click on New.
  3. Select Non-Inventory.
  4. Enter a Name in the name field.
  5. Click on the Account drop-down menu and select the loan receivable account for the customer.

To create a recurring invoice for loan repayment, follow the steps provided below:

  1. Go to the Gear Icon, and Click on Recurring Transactions.
  2. Click on New.
  3. Click on Invoice. Hit Ok.
  4. Choose Customer Name.
  5. Click on the Product/Service drop-down list and Select the item created using aforementioned steps.
  6. Enter the amount due in the Amount field.
  7. Click on Edit Schedule. Select the Interval.
  8. Click on Ok, then Save Template.

When you create a recurring invoice, a new invoice is sent to the customer at regular intervals. You can also include a payment link in the eInvoice.  However, when you receive a payment against the loan, you need to record it in your books.

To record the repayment of loan, follow the steps provided below:

  1. Click on +New.
  2. Click on Receive Payment.
  3. Enter the required information related to the payment.
  4. Select Undeposited Funds under Deposit to.
  5. Click on Save.

Now you need to record the interest payment. The amount of interest for the month can be calculated with the following formulae:

Interest for current month = (Amount Due x Interest Rate ÷ 100) ÷ 12

To record this interest, follow the steps provided below:

  1. Click on +New.
  2. Click on Bank Deposits.
  3. Select the Payment.
  4. Go to the Add New Deposits section. Select the Loan Payable account from the Accounts dropdown menu.
  5. Enter the loan amount as a negative number.
  6. Select the Interest Income account on the second line and enter the amount as a positive number.

How to Record the Loan Payments?

Below are the steps we need to take in order to complete our Loan Payment that is given:

  • In order to access the banking menu, you need to go to the “Menu” tab on the home screen.
  • After that, hit on the Make Deposits options.
  • Link the payment to your PayPal account through the Payments to Deposit window.
  • In this step, you need to enter the customer/company name who is returning the loan.
  • Now you’ll need to choose the Asset Account that was created by following the aforementioned steps.
  • To help you accurately collect on the debt, enter the amount paid by the debtor along with the name.
  • To record the interest you will get from your loan repayment, it is important that you create an Interest Account.
  • Make sure to enter any other fees you’ve received, and assign them to the correct account.
  • In the last step, you need to click Save and Close.

What is the Procedure to Record a Loan to an Employee in QuickBooks Accounting Software?

If you need to record expenses, loans, or payroll into QuickBooks accounting software, you can use the “Advance Payment Method” feature. In this step-by-step guide, we’ll show you how:

  • In the first step, you can select the accounting option that best suits your needs.
  • Now go to the Chart of Accounts and choose New.
  • After you create your Account Type, please take a moment to select the other assets currently in that type.
  • Now here’s what you’ll do: Select the Cash Advances in the Detail Type and click save and close.

This is the easiest way to record the loan or advanced payment to an employee, or contractor of the company.

What is the Procedure to Record Repayments by the Debtor?

If you’re an international debt collector who uses QuickBooks accounting software, you’re required to adhere to the below-mentioned steps.

  • In the first step, you’ll need to visit the banking menu.
  • After you’ve clicked the “Make Deposits” option, then select the account to transfer funds to.
  • Now, you’ll see the Payments to Deposit window. Use this window to make sure your bank transactions are linked correctly in QuickBooks.
  • Now, mention the debtor’s name and choose the asset account created to track the loans.
  • In this step, you enter the amount which is repaid in full by the debtor.
  • Now, please enter the interest earned on the loan and link it with the respective account.
  • Let’s make the changes necessary for the loan. There is any other fee you need us to create new lines, or to enter additional fee related to the loan.
  • Once you’ve finished setting up your site, click the yellow Save and Close button.

In QuickBooks accounting software, there’s an option to create multiple lines within a transaction to record other information or charges related to the loan. These charges and interests linked with the accurate accounts help users create better financial statements. If you don’t link the fees and charges with the account that can create issues in maintaining your books of accounts.

It’s advisable to create an asset account when you’re ready to apply for a loan. Your interest receipt will be recorded in this account and you’ll even get credit for any interest received.

What is the Procedure to Record Loans as Advance Payment?

QuickBooks allows you to enter a loan as an advanced payment to the employee, which is useful if you’ve provided the loan to a contractor but aren’t charging any interest. You can make future deductions from payments to the contractor and they will get repayments in this manner.

Here are four steps for you to follow in order to make a quick loan to other company:

  • To get started, we ask you to choose an Accounting option from the left panel of the Home screen.
  • Now, you need to click on the new option in the Chart of Accounts menu.
  • Navigate to the account type you’re interested in and choose the Current Assests.
  • Post that, navigate to the Detail Type and choose the Employee Cash Advances.
  • After all the previous steps have been completed, save and close.

If you have to record a loan receivable in QuickBooks , you will find the feature helpful. You enter the information in your company’s accounting software as needed, and it is automatically updated on your account.

You’ve successfully recorded and adjusted the interest amount. That’s it for recording loan receivables in QuickBooks. To know more, get in touch with our experts at our LIVE CHAT.

Frequently Asked Questions

  1. Which Account should I create for recording loan receivables?

    That depends on the duration in which the loan will be repaid by the customer. If the loan will be paid within the current financial year, then create an Other Asset Account; otherwise, create a Non-asset account. To record the interest payment on the loan, you can use the interest income account.

  2. Can QuickBooks Automatically Calculate the Interest on the loan?

    No, you need to manually calculate the interest rate. However, you can type in the formulae with the numbers and QuickBooks will give you the final product.

  3. Once I create the recurring invoice, will I be able to delete or edit it in the future?

    1. Yes, you can delete and edit a recurring payment in QuickBooks. You can find the Manage Recurring Payments option under the Processing Tools menu.
    2. From there, you can edit the amount, change schedule, and even delete the invoice.

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