A line of credit is referred to as a revolving account that permits customers and organizations to borrow some amount of money. And this money is used to replay in identical monthly interest till the loan is paid off. Moreover, customers can redraw these amounts. The line of credit acts as a lifeline for small business organizations because it provides you instant funding that is required for payroll in daily expenses. In this article we are going to teach you how to set up a line of credit in QuickBooks.
How to Set up a Line of Credit in QuickBooks
A line of credit is track with two sets up accounts such as principal and interest account
Follow these below steps to set up a principal account in QuickBooks.
Step 1: Setting an account for the principle
- Go to settings and click on the chart of accounts to add the account
- Click on the new option
- Go to the dropdown menu in the account type section and select the current liabilities.
- Then, find the drop down menu with details type and choose the line of credit
- Now, you can enter the account name
- Select the save and then close the tab.
- Choose yes if you want to check the transaction date.
Step 2: Set up an expense account for the interest
Some steps are below to set up an expense account for the interest
- Go to setting and select the chart of accounts
- Then select (+) new.
- Select expenses on the drop down menu listed with account types.
- In the drop down menu select interest paid from the details type.
- Change the account name according to requirement
- Then, save it and close the tab.
How To Track It?
The payment of a line of credit can be monitored with the QuickBooks online. These records permit maintaining accurate financial based reports. If you want to transfer any funds into another account then, you can follow it. If you have used your credit fund there will be some sort of interest that will be charged which you need to record in the dedicated expense account. After making a payment, you can also track the line of credit with the cheques and the steps are follows as:-
If you receive payment through cheque, then you can record by writing a cheque.
- Click on the plus icon(+) to add the new cheque.
- Go to the cheque option which are located below the supplier option
- Enter the name in the payee field.
- Select the bank account associated with the credit card in the bank account.
- Go to the line of credit and fill the amount which you want to pay
- Choose the interest paid presently the category field
- Then save it.
- Now, verify the date and click on yes
- Select debit card or credit card
How does it Work?
Line of credit is almost same to the process of bank loans. Therefore it allows some amount of funds that can be used as per requirement. QuickBooks allows users to enter a credit card to record refunds or returns of vendors. There are different methods to record lines of credit but the easiest one is a journal entry. Now, you have to locate the company and to create some general entries. And after that fill the details such as the date of deposit etc. However, you can book the expenses in the future.
Hope that this blog covered major details related to set up of a line of credit in QuickBooks. If you face any difficulty setting up a line of credit in QuickBooks then read this blog and follow step by step procedure. If you are unable to setup then you can contact Quickbooks ProAdvisor.