How to Record a Loan Payment in QuickBooks

Posted by on Jul 26, 2011 in Other Accounts | 0 comments

 

Previously I set up a liability account for a Trailer Loan in which the total cost was entered. I have set the payment up as a pre-authorized type, and since the bank charges both principal and interest on this loan, I am going to show you how to record a payment to recognize both components.

This is done using the Write Cheques feature.

Making sure I am on the Home page, I will click on the Write Cheques icon which will open the window as displayed on the left. I will then proceed to enter in the following information in these fields.

  1. Starting from the Bank Account field I will make sure that I am using the correct bank account, which for me is the Master Chequing Account.
  2. The next tab takes me to the No. field where I will type in PAP (Pre-Authorized Payment).
  3. Date is the PAP date.
  4. Pay to the Order of – the lending institution that I am making payments to (The Provincial Bank).
  5. Amount – full payment amount of 500.00.
  6. Memo – principal and interest payment.
  7. To be printed – Make sure this is left UNCHECKED.
  8. Expenses tab.
  9. Account – first line is the Interest & Bank Charges:Loan Interest.
  10. Amount – 225.00.
  11. Memo field on that line – Trailer Loan interest. This is to identify this interest in case I have more than one payment with interest.
  12. Account – second line – Trailer Loan (liability).
  13. Amount – 225.00 – This reduces the amount of your debt.

Even though the interest portion will change during the fiscal year, I would leave the constant amount in as the entry. Why? Because at the end of the fiscal year I would ask for a statement of payment on the account from the lender, and make a year-end adjustment to reconcile to their records.

Before I Save & Close I will go to the Menu Bar, click on Edit and Memorize the Cheque since I will be using this entry again. I will set this up as an Automatic Entry, Monthly with the Next Date being January 21, 2009. In the Number Remaining field I will insert 10.

Save & Close.

The screen shot on the right displays the journal entry that QuickBooks records for the loan payment on the Trailer.

At the end of the fiscal year I will create a new Write Cheque with a new amount for the principal and interest and Memorize it – to use for another fiscal year. I will repeat these steps until the loan is paid off.

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