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How to Record a Loan Receivable in QuickBooks

· 5 min read
Debits

Introduction​

When your business lends money to a customer, vendor, or another entity, it's crucial to track that loan correctly in QuickBooks. This type of transaction is known as a loan receivable, which represents the amount of money owed to your business. Properly recording loan receivables ensures that you can monitor repayments, recognize interest income, and maintain accurate financial records. This guide will walk you through the steps to record a loan receivable in QuickBooks.

Step 1: Set Up a Loan Receivable Account​

1.1: Create a New Asset Account​

  1. Log in to QuickBooks: Begin by logging into your QuickBooks account.
  2. Navigate to Chart of Accounts: From the left-hand menu, click on Accounting > Chart of Accounts.
  3. Create a New Account: Click the New button in the upper-right corner to set up a new account.
  4. Select Account Type: Choose Other Current Assets or Non-current Assets, depending on the loan's duration.
    • Use Other Current Assets if the loan is expected to be repaid within a year.
    • Use Non-current Assets if the loan will be repaid over a longer period.
  5. Choose a Detail Type: Select Loans to Others as the detail type.
  6. Name the Account: Give the account a descriptive name, such as "Loan Receivable - [Borrower's Name]."
  7. Save the Account: Click Save and Close to create the new account.

Step 2: Record the Loan Disbursement​

2.1: Record the Loan as a Journal Entry​

  1. Go to + New: Click on the + New button and select Journal Entry under the "Other" section.
  2. Debit the Loan Receivable Account:
    • In the first line, select the loan receivable account you just created.
    • Enter the loan amount in the Debit column to reflect the money lent out.
  3. Credit the Bank Account:
    • In the second line, choose the bank account from which the funds were disbursed.
    • Enter the same amount in the Credit column to show the reduction in your bank balance.
  4. Add a Memo: Optionally, add a memo describing the loan details, such as "Loan to [Borrower's Name] on [Date]."
  5. Save the Journal Entry: Click Save and Close to record the transaction.

Step 3: Record Loan Payments​

3.1: Record Each Payment Received​

  1. Go to + New > Receive Payment: Click + New and select Receive Payment from the "Customers" section.
  2. Select the Customer or Borrower: Choose the borrower from the Customer drop-down menu.
  3. Apply Payment to the Loan:
    • In the Deposit to field, choose the bank account where the payment will be deposited.
    • In the Amount received field, enter the amount paid by the borrower.
    • Make sure the loan receivable account is selected in the Account field to reduce the outstanding balance.
  4. Save the Payment: Once all details are entered, click Save and close to record the payment.

3.2: Monitor the Remaining Balance​

  1. Check the Loan Account: Navigate to Accounting > Chart of Accounts and click View register next to the loan receivable account.
  2. Review Transactions: Monitor the account to ensure that all payments are recorded and that the balance reflects the outstanding loan amount.

Step 4: Record Interest Income (if applicable)​

4.1: Set Up an Interest Income Account​

  1. Create a New Income Account: Go to Accounting > Chart of Accounts and click New.
  2. Select Income Type: Choose Income as the account type, and select Interest Earned or a similar category as the detail type.
  3. Name the Account: Give the account a name like "Interest Income - Loans."
  4. Save the Account: Click Save and Close to set up the new account.

4.2: Record Interest Payments​

  1. Record Interest as Income: When the borrower makes an interest payment, go to + New > Receive Payment.
  2. Allocate the Interest Payment:
    • Enter the interest amount as a separate line item.
    • Select the Interest Income account you created earlier.
  3. Save the Transaction: Click Save and close to record the interest payment.

Step 5: Monitor and Report on Loan Receivables​

5.1: Generate Reports​

  1. Run an Account QuickReport: Go to Reports > Account QuickReport and select the loan receivable account to view all related transactions.
  2. Review Outstanding Balances: Use the report to track the remaining balance and ensure all payments and interest are recorded accurately.

5.2: Track Interest Income​

  1. Run a Profit and Loss Report: Go to Reports > Profit and Loss to view your total interest income over a specific period.
  2. Customize the Report: Filter the report to focus on the interest income account if needed.

Best Practices for Managing Loan Receivables​

  1. Maintain Clear Documentation: Keep detailed records of all loan agreements, payment schedules, and communications with the borrower.
  2. Regularly Reconcile the Loan Account: Reconcile the loan receivable account regularly to ensure all payments and interest are accurately recorded.
  3. Set Reminders for Payments: Use QuickBooks to set reminders for when payments are due, helping you stay on top of the repayment schedule.
  4. Consult with an Accountant: For complex loans or interest calculations, consider consulting with an accountant to ensure accuracy.

Conclusion​

Recording loan receivables in QuickBooks is essential for tracking money lent by your business and ensuring proper repayment. By following these steps, you can set up a loan receivable account, record disbursements, monitor payments, and track interest income. Regular monitoring and reconciliation of your loan receivable accounts will help you manage your finances effectively and maintain accurate financial records.