Record a Loan Receivable in QuickBooks

Record a Loan Receivable in QuickBooks

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.

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

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

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.

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.

FAQs

Q. 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.

Q. 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.

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

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