New Business Loans Require the Setup of 2 Accounts in QuickBooks Online

Small business owners need to understand when to “Split” transaction amounts in their QuickBooks Online bank feeds for money spent. Adding new “Liabilities” to your QuickBooks Online “Balance Sheet” involves the creation of two or more new accounts in your Chart of Accounts list. You will need a monthly loan statement to determine the Interest, Loan Fee and Principal Loan Amount due.

First, setup either a “Long Term Liability” (Loans over 12 months) or “Other Current Liability” (Loan under 12 months) account. Next, setup the “Loan Interest Expense” and/or “Loan Fee Expense” account.

Note that only the “Principal” payments should be posted to the “Liability” account. Each time a loan payment comes through your QuickBooks Online bank feed you will need to “split” the payment amounts between the “Liability” and the “Expense” accounts. The liability shows up on your Balance Sheet and the expense shows up on your Profit and Loss Report.

You can create a custom “Bank Rule” that will semi-automate this process for you where you would enter only the amounts to distribute between the accounts on a recurring basis. Note that any down payment made will go towards the Principal amount of the loan, and the original value of the loan is recorded before the down payment is applied.

10 Liability Accounts that Will Not have an Interest Expense Entry

1. Federal Income Tax Payable – Corporations or Limited Partnerships that track income tax liabilities on the “Accrual Basis”

2. Insurance Payable – To track monthly recurring insurance expenses such as Workers Compensation

3. Payroll Clearing – To track non-tax amounts that have been deducted from employee paychecks that are owed and forwarded to the appropriate vendor or creditor

4. Payroll Tax Payable – To track payroll tax amounts owed to agencies as a result of paying wages and withholding taxes from employee paychecks

5. Prepaid Expenses – To track items such as property taxes that are paid prior to the period in which you are paying them for

6. Rents in trust–Liability – Amounts in these accounts are held on behalf of others. It is a type of contra account as you would have a Rents in trust-Asset account that offsets this account. The balances of the two accounts need to match

7. Sales Tax Payable – This account is used to track sales tax collected from customers that has not yet been remitted to the State Agencies by your business

8. State/Local Income Tax Payable – Corporations or Limited Partnerships that track state and local income tax liabilities on the “Accrual Basis”

9. Trust Accounts-Liabilities – These accounts are typically used by Attorney’s to track money held by their business on behalf of others. This is a type of contra account as you would have a Trust Accounts-Asset account that offsets this account. The balances of the two accounts need to match.

10. Undistributed Tips – To track tips that have not yet been distributed