A line of credit is referred to as a revolving account that permits customers and organizations to borrow some amount of money. 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 with 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. Now onward learn, How to Set up a Line of Credit in QuickBooks through this blog.
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How to Set up a Line of Credit in QuickBooks
A line of credit is tracked with two sets of accounts such as principal and interest account.
Follow these 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 the requirement
- Then, save it and close the tab.
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How To Track It?
The payment of a line of credit can be monitored with 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, you can record it by writing a cheque.
- Click on the plus icon(+) to add the new cheque.
- Go to the cheque option which is 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 in the amount which you want to pay
- Choose the interest paid presently in the category field
- Then save it.
- Now, verify the date and click on yes
- Select debit card or credit card
A Line of Credit in QuickBooks
If we talk about a line of credit, it refers to a kind of loan that is related to your line of credit which is taken by entrepreneurs in order to cover significant expenses such as payroll and withdraw or borrow a particular sum of money for unexpected urgent requirements. This kind of loan or credit is provided by creditors like banks or credit unions. If you fulfill their criteria, you are eligible for withdrawing or borrowing a specific amount for a particular time.
A line of credit in Quickbooks denotes a particular revolving account that helps or permits clients to obtain some funds for financial requirements. The fund obtained is utilized to repay the monthly interest by the time the loan is clear. Moreover, businessmen are able to redraw these specific funds. On setting up the line of credit in QuickBooks, one gets a number of benefits like easy cash flow, increased savings, and controlled expenses. A line of credit works as a lifeline for an organization due to the availability of instant funds.
How does it Work?
Line of credit is almost the same as 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 create some general entries. And after that fill in 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 the setup 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 set up then you can contact Quickbooks ProAdvisor.