Loan Payable Tips and Tricks - Accounting Software Secrets
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Loan Payable Tips and Tricks

Loan Payable Tips and Tricks

Loan Payable Tips & Tricks

Loan related transactions are always more challenging for clients, and as a result, errors are quite common. Often the loan was not recorded to begin with so the payments are simply expensed as they are paid. Or, the entire payment is assigned to the liability if the loan has been recorded.

Discovering the existence of the loan may be discovered because of increase in an expense account such as Automobile expense or Office expense. Usually the consistent payment in a consistent amount is another clue.

Some accountants choose to handle this issue themselves each time they do the work, others choose to provide the loan amortization schedule to the client (or have the client obtain it from the lender or from loan statements) and train them to correctly split the transactions going forward.

How should you adjust the balances so they correctly reflect the principal and interest portions?

Journal Entry – While this author is not an advocate of using journal entries excessively with QuickBooks, this is an example of when journal entries work quite well. To create a journal entry, go to Company > Make Journal Entries. New with QuickBooks Premier 2004: Accountant Edition was the ability to mark a journal entry as an adjusting entry which is used to create an Adjusted Trial Balance report. With QuickBooks Premier 2005: Accountant Edition this was expanded to include a “Working Trial Balance” report also.

Correct Previous Errors – Correcting the previous errors will provide a clean historical record. Correcting coding errors with subsequent journal entries will result in a more complicated audit trail. Plus the client is more likely to continue to make the same mistakes if they go back and look at a previous transaction. The benefit of finding the incorrectly recorded transaction and fixing it is that with the automatic recall preference turned on (Edit > Preferences > General > My Preferences > Automatically recall last transaction for this name), the change in account and coding will automatically appear when the next payment is entered. By default this preference is turned off so to use the feature will require turning it on.

How can you accurately reflect the correct principal and interest portions going forward?

Loan Manager– The Loan Manager is available in Pro and higher products for version 2004 and higher. In addition to calculating amortization schedules to calculate principal and interest portions of the payment, it is possible to also have the software automatically record the payments. This tool can also be used for “What If” scenarios for changing payment amounts, interest rates, evaluate two loans, etc.


More information on this topic

Miscellaneous Transactions