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How to Record a Loan Receivable in QuickBooks

· 6 min read
Debits

Introduction​

When your business lends money to an individual or another business, it's essential to record that transaction correctly in QuickBooks. This type of transaction is known as a loan receivable, as your business expects to receive payments back over time. Properly tracking a loan receivable in QuickBooks ensures that you can monitor repayments, recognize interest income, and keep accurate financial records. This guide provides a step-by-step process to record a loan receivable in QuickBooks.

Step 1: Set Up a Loan Receivable Account​

1.1: Create an Asset Account for the Loan​

  1. Log in to QuickBooks: Open QuickBooks and log in to your account.
  2. Go to the Chart of Accounts: Navigate to Accounting > Chart of Accounts.
  3. Create a New Account: Click New in the upper-right corner to add a new account.
  4. Select Account Type: From the account type options, choose Other Current Assets or Non-Current Assets depending on the loan duration.
    • If the loan is expected to be repaid within a year, choose Other Current Assets.
    • If the loan will be repaid over more than a year, select Non-Current Assets.
  5. Detail Type: Select Loan to Others from the detail type options.
  6. Name the Account: Give the account a descriptive name like "Loan Receivable - [Borrower's Name]."
  7. Save the Account: Click Save and Close to add the account to your Chart of Accounts.

Step 2: Record the Loan Disbursement​

2.1: Record the Loan as a Transaction​

  1. Go to the + New Menu: In QuickBooks, click + New and select Journal Entry from the list.
  2. Debit the Loan Receivable Account:
    • In the first line, choose the loan receivable account you just created.
    • Enter the loan amount in the Debit column to record the amount lent.
  3. Credit the Bank Account:
    • On the second line, select the bank account from which the loan was disbursed.
    • Enter the loan amount in the Credit column to reflect the money leaving the bank account.
  4. Memo: Optionally, add a memo that explains the loan, such as "Loan to [Borrower's Name] on [Date]."
  5. Save and Close: Once the entry is complete, click Save and close to record the loan disbursement.

Step 3: Record Loan Payments​

3.1: Set Up the Payment Schedule​

  1. Determine Repayment Terms: Review the loan agreement to understand the repayment schedule, including payment frequency (monthly, quarterly, etc.) and whether any interest is due.

3.2: Record a Payment​

  1. Go to the + New Menu: Click + New, then select Receive Payment from the list.
  2. Select the Customer or Borrower: In the "Customer" field, enter the name of the individual or business repaying the loan.
  3. Choose the Loan Receivable Account:
    • In the Deposit to field, choose the bank account where the payment will be deposited.
    • In the Account field, select the loan receivable account you created earlier.
  4. Enter Payment Details:
    • Input the amount received from the borrower.
    • If applicable, enter any interest paid as a separate line item and select an Interest Income account.
  5. Save the Payment: Once the details are entered, click Save and close to record the payment.

3.3: Apply Payments to the Loan Balance​

  1. Go to Customer Payments: Track payments using the Customer Payments or Transaction List by Customer report to ensure that the payments are correctly applied to the loan receivable account.
  2. Monitor Remaining Balance: After each payment, verify that the loan receivable account reflects the reduced balance.

Step 4: Record Interest (if applicable)​

4.1: Set Up an Interest Income Account​

  1. Go to Chart of Accounts: Navigate to Accounting > Chart of Accounts.
  2. Create a New Account: Click New and select Income as the account type.
  3. Detail Type: Choose Interest Income from the detail type options.
  4. Name the Account: Name the account something like "Interest Income - Loans."
  5. Save the Account: Click Save and Close.

4.2: Record Interest Payments​

  1. Go to + New > Receive Payment: When receiving a payment that includes interest, go to the Receive Payment screen.
  2. Enter the Payment Breakdown:
    • Record the principal portion of the payment against the loan receivable account.
    • Record the interest portion of the payment against the new Interest Income account.
  3. Save the Payment: Once all details are entered, click Save and close.

Step 5: Monitor and Report on Loan Receivables​

5.1: Generate Reports​

  1. Run a Loan Receivable Report:
    • Go to Reports > Transaction Detail by Account.
    • Filter the report by selecting the loan receivable account you created.
    • This report will show all transactions related to the loan, including disbursements and payments.
  2. Track Outstanding Balances:
    • Run an Account QuickReport for the loan receivable account to see how much is still outstanding.

5.2: Review Interest Income​

  1. Interest Income Report:
    • Go to Reports > Profit and Loss to track the interest income earned from the loan over a specified period.
    • You can also customize this report to focus solely on your interest income account.

Best Practices for Managing Loan Receivables​

  1. Maintain Clear Records: Always ensure that you have a signed loan agreement and maintain detailed records of all payments and adjustments in QuickBooks.
  2. Set Reminders for Loan Payments: Use QuickBooks' reminders or calendar features to track when payments are due so that you can follow up with borrowers if needed.
  3. Reconcile Regularly: Reconcile your loan receivable accounts and interest income accounts regularly to ensure that they match your bank statements and loan agreements.
  4. Consult an Accountant: For complex loans or interest calculations, it's always a good idea to consult with an accountant to ensure that everything is recorded correctly in QuickBooks.

Conclusion​

Recording a loan receivable in QuickBooks is essential for tracking the money lent by your business and ensuring proper repayment tracking. By following the steps outlined in this guide, you can easily set up a loan receivable account, record loan disbursements, and track payments. Additionally, recording any interest income ensures that your financial records remain accurate. Regular monitoring and reconciliation of the loan receivable account will help you stay on top of repayments and keep your books in order.