I watched your video about how to enter a purchase of a fixed asset on loan (link below), but how do you record the payments on the loan?
Recording a monthly loan payment is very simple. You will set up a liability on the books for the principal (borrowed money). Make a payment, use that account for principal and split for any interest and any other charges as expenses in the P&L.
Let’s take an example. You bought an equipment worth $10,000 for your business. Bank or finance company loaned you 100% so there was no down payment involved.
Write a Journal Entry (create + sign > other > journal entry) to setup fixed assets and loan liability on the books:
Debit > Equipment (as fixed assets) — $10,800
Credit > Loan from ABC Finance Company (as long term liabilities type if it’s longer than 12-month term) — $10,800
Write a monthly Journal Entry to depreciate equipment (over 36 months for example)
Debit > Depreciation Expense (expense on P&L) – $300
Credit > Accumulated Depreciation (as contra account to fixed assets) – $300
Make a monthly loan payment (write a check example > create + sign > vendors > check). Example: making $350 monthly payment includes $300 principal and $50 interest
Choose a payee = ABC Finance Company
Select a bank
Use Account under “Account details” section
Loan from ABC Finance Company for principal = $300
Interest Expense = $50
Get a statement from “ABC Finance Company” on a regular basis. Reconcile loan account. Whatever liability loan balance in QuickBooks does reconcile with the statement.
Note: Create new accounts as needed. In the case of down payment, use fixed assets account.
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