 QuickBooks Online 2024. Make loan payments. Get ready because we're going to Bookkeeping Cloud 9 with QuickBooks Online 2024. Here we are in our Get Great Guitars 2024 QuickBooks Online sample company file. We set up in a prior presentation, opening up the major financial statement reports as we do every time. Reports on the left hand side in the favorites right click on that balance sheet open link in a new tab right click in the profit and loss to open link in a new tab one more time on the trial balance open link in a new tab. Let's tab to the right close up the hamburger and change the range up top. We're going from 010124 tab 013124 tab we will run it to refresh it and then tab to the right repeat the process hamburger needs to be closed opening up the rain we're going from 010124 tab 013124 tab refreshing again and then we'll tab to the right repeat the process one more time ultra vase first a word from our sponsor. 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If you would like a commercial free experience consider subscribing to our website at accountinginstruction.com or accountinginstruction.thinkific.com 010124 tab 013124 tab and run it to refresh it again let's go back to the balance sheet tab in a prior presentation we talked about the loan balance so let's go down to the loan down here in our liabilities we took out a loan here it is in the seventy two thousand now we're going to imagine that payments are happening on the loan and how are we going to deal with those payments so notice the loan can be deceptively complex to be dealing with because you would think it would be an easy thing to pay off the loan if we have an installment loan that is paid monthly similar to what we might have if we have a loan for a mortgage or something you just make the same payment it's the same amount why can't i just basically use the bank feeds to automate the transaction as the electronic transfers happen out of my checking account i should be able to see them coming through the bank feeds and simply record an expense type of form which would look like this possibly with the help and use of the bank feeds and the other side go into some other account like the loan balance account instead of an expense account because we're paying down the loan well you could do that but the problem is that the the loan bank well there's multiple problems with the loans that could be deceptively simple and subtle and what one is that there's going to be interest involved so now we have to deal with the interest how are we going to deal with the interest what is interest interest is basically the rent on the purchasing power of the money so when we pay down the loan we're not just going to be reducing the principal we also have to pay in essence the rent that just goes poof in the air just like the rent for the office building that we are in once we use the office building we pay the rent and poof it's gone and that's the way it is so that so you might say well that's still not an issue really because i can just still use these the same transaction and memorize the transaction as we make the payments because then i'll just include three accounts instead of two accounts i could still memorize that that's not too difficult but there's still a glitch in the system and that is that as we saw with our amortization table we built last time although the payment is the same the breakout of the interest and the principal will differ with each payment so you can't just automate the process very easily unless you try to record all the transactions kind of in advance and and let them record and then tell them to record periodically or something like that right you can't just you can't just memorize the bank fee transaction in other words so how do you deal with that well one way you could deal with that is you could say i'm going to separate the duties me on the bookkeeping side and then my cpa or tax preparer on the adjusting entry side so i could say look i'm just going to automate my books because i want to make things as fast and easy and automated as possible therefore i'm going to ignore the interest entirely and simply wait till it clears the bank and then record the reduction to cash and the other side going directly to the loan payable account and then at the end of the year i will ask my cpa or accountant to then adjust this for my client or for me given us the amortization schedule and then they record the interest periodically at the end of the month or a year possibly just the year if it's a small business they need this for taxes or external reporting so that it's correct for tax preparation that could actually work fairly well because then again that's the easiest thing to do you could fully automate the system but you have to have a cpa firm or accounting firm that knows how to make an amortization table and do adjusting entries to break out the interest and make the loan balance to what's on the amortization schedule now another issue that comes up which we'll talk more about in the adjusting entries process is that you might have multiple loans so remember if you have multiple loans then it's easiest to have a parent loan account and then make sub accounts per loan otherwise you have all your loans in one place which is fine for external reporting but it's a little bit more difficult to tie in that loan balance to each of the amortization tables so that's why i would recommend making a new loan for each each uh a new loan account for each type of loan and some businesses have a lot of loans like construction businesses for example often have a lot of loans because they're financing the equipment as part of their business so i would i would do that and then the other issue that comes up is breaking out the short term and long term portion of the loan so if we if we think about our amortization table that we have a five year loan so the amount in one year then you would think would be short term because it's due within a year that's the definition of a current liability and the stuff that's after a year would be long term but if i break that out every time i make a payment it's going to mess things up because then i have to make an adjustment for the short term and long term portion which will change every time i make a payment so again normally what the process would be would be i'm just going to do the the payment transactions in one account and rely on my CPA firmer tax preparer to break out the long term and short term portion if necessary at your end in order to do whatever i need to do such as tax preparation where it might not be necessary and external reporting uh type type of purposes and then have them fix it after that doing a reversing entry putting it back into one account because the one account system is the easiest system to use for the internal bookkeeping side of things so that's a standard periodic kind of adjusting entry although it's not a classic adjusting entry we'll talk more about that in the adjusting entries section right now what we want to do is make a payment according to our amortization schedule so we're going to use the method of making the amortization schedule and then creating a payment in accordance with the amortization schedule so that our loan balance will always match what's on the amortization table so we imagine last time this was our loan this is the amortization table we put together so five year loan which means there's 60 payments the rate was five percent the rate per month then is that which is just the five percent divided by 12 and then this is the payments that we're going to make every month we made amortization table then this is the first payment that we're going to make this is the second payment so here's the payment here's the amount of interest charged this will be the loan reduction and or principal reduction whatever you want to call it and this will be the loan or principal balance after that first payment so that's what we'll do first we'll record one at the beginning of the month and then one at the end of the month so that we can see two payments and see how they are different and recognize the issue that happens because of that when we try to automate this transaction so let's do this one first simple transaction we're going to go to the first tab i'm going to select the plus button and we'll just use a let's use a check form we could use an expense or check form i'll use a check form all right so we're going to say this is let's say the the loan is with chase so i'm going to put chase in here just as a bank and this is actually going to be a vendor so i'm going to say chase vendor because i have a customer but i want to make it a vendor and i'm going to say there it is i'm going to say save it and we're going to go from the bank account so we'll pay it out of the bank account that makes sense so we're going to say that this is going to happen as of the new month so i'll say the beginning of the month we're going to imagine that first payment went out in february the check number actually should be the 16th or 1016 because i want that to match what's on my bank uh statements and i think that's what's on the bank statement that should populate automatically once we're in sync but i think we made an adjustment to it in a prior presentation so it's a little off all right so this is the first transaction that has two accounts impacted down below the first thing that might come to mine is the loan payable account because that's what we're paying off loan payable so we're going to say loan payable amount but it's not going to go down by the full amount that we're paying so if i then look at what i'm going to pay it's it's one three five eight seventy three but the loan payable is only going to be going down by the one oh five eight seven three because interest has to be recorded so now we have two accounts impacted which we haven't seen too often so it's one oh five eight point seven three i think if i remembered that and then the other side is going to go to interest so the other side is going to be interest and notice i'm going to look for the account that they have do they have an interest account they have interest paid i don't really like that term because it it kind of indicates that you paid the interest meaning meaning you're like on a cash based system it's possible to have interest that hasn't been incurred that you have not yet paid so i'd rather just have it called interest expense but i'm not going to make another account called interest expense instead i'll possibly change this account if i made another account that could cause problems because then i have two accounts that have a similar name so i'm going to say i'm going to use that account and then possibly change the name of it because i don't like that name as much and then i'm going to say the other that the interest is three hundred dollars so three hundred to interest and that gives me a total of the one three five eight seven three so one three five eight seven three so what's this transaction going to do it's a checking it's a check it's going to decrease the checking account by the full amount one three five eight seven three but the other side goes to two accounts one of them being interest three hundred dollars because that's similar to paying the rent on an office building we're paying the rent on the use of the loan balance and the rest of it isn't going to rent on the use of the loan balance but actually giving back part of the office building in in that analogy right we're giving a room back we're giving part of the loan back the reduction of the principal that has not yet you know we have okay so that's the idea let's do it let's save it and close it and then check it out and so i'm going to go to the to the balance sheet now and we'll scroll up and run it and then of course if i go into the checking account by the way i wanted to get into the practice of me breaking this account out by uh i'm in month two so let's change the range i've been i'm still on the old range oh two twenty eight two four sorry about that let's go month by month and break it out month by month get your head in the game you were in february now you're living in the past man you're living in the past so if i go in here uh in february then there's our check so that's the full amount of the check all right and then go back up and then let's go to the profit and loss and change the range again go to oh two twenty eight two four i i stay in the present i'm mindful of the present time uh that's practicing my mindfulness to be in the i don't know what i'm talking about so interest paid there's the interest so the interest in february now so we have a loss of course on the uh income statement so that's the idea pretty simple transaction but it's difficult to save that transaction given the fact that the next balance that we have let's make it green will not be exactly the same even though the dollar amount is the same so the dollar amount is the same that the accounts impacted will be the same but the interest and the loan reduction will differ making it difficult to memorize the transaction so let's record this one now i'm going to record this at the end of the same month so that we have them both in the same month normally they would be in different months but we're going to imagine you know it's a month apart but they happen to both payments happen to be made in february just so we can see them in the same month uh side by side so let's do that i'm going to go to the first tab and i'm going to do this again a plus button and we'll make another expense form and it's going to go to chase again chase chase vendor and then i'm going to say this happens on 0 228 24 so we're jumping forward in time but we're doing so so we can make a direct comparison of these two items if i select the category drop down well actually wait a sec i don't want to make an expense form i'm going to make another check form i'm going to close that back out do you want to leave without saving yes it's we'll make it a check form because i was using checked same form but i want to use the check numbers you're confusing people i know i know i'm sorry editor cut cut that one out just kidding we'll 0 228 24 we'll survive so we're going 1017 and notice it memorized the last transaction great the accounts perfect but the amounts are different that's the problem so now i have to go in here and if it was a bank feed that i waited till it cleared the bank i have the similar issue i can't just memorize the transaction there's because these two amounts will keep on being different and so i won't be able to just automatically put the bank feeds on and automatically just do this i always have to go back to the amortization table and then say well the interest is well let's do the principal 106 314 so this is now has to be 106 3.14 and then the interest is now 295 59 so 295.59 and that still comes out to 1358 3073 same amount that we're paying but that breakout differs messing messing up the whole thing so you could try to memorize transactions or pre-record the transactions and record them you know at a future time according to the amortization table or something like that but it's like i said it's not as easy to just automate the transactions that would come through the bank feed as you would with like a telephone bill where you're just saying if it if i paid Verizon just put it to the telephone expense so what's this going to do it's going to do the same thing it's a check it's going to decrease the checking account by the same amount 1358 73 at the end of the month but the loan balance is now going to go down by 1063 14 and the interest instead of $300 the rent that we're paying on the purchasing power is less because the loan balance was less than originally was for the second month so let's go ahead and save and close it and check it out let's go to the balance sheet and see what's happening happening in the balance sheet in the current period now go into the checking account and we will of course check out the checking so same numbers here between these two checks looks the same there go back but when we go down to the loan down here the loan is a rebel and it does something different we're going to go into it it's acting all on all crazy on its own here it's got different stuff happening that's where the problem that's where the problem is now the loan balance if we're entering it this way according to the amortization table should tie out to the amortization table 69878 13 so 69878 13 so that's correct by the way if you wanted to use an amortization table that you look up just look up amortization table and you can calculate it with these quick little tables as well I still think it's better to do it internally because that but that maybe I just like doing that but if you wanted to use the amortization table for budgeting I think it's good to do it in excel I just think it's a good practice to look at too but a lot of people probably aren't into that and that's cool so let's go to the income statement and if I go into the income statement then we need to refresh and so down here now we've got the interest if I go into the interest for February then we now have the 300 and that the 295 59 so we have different amounts of rent the rent per month is going down even though we're making the same dollar amount of total payment because the loan balance is actually less even though we're paying off the same dollar amount so you can see that the tradeoff here what what why do we structure the loans this way because we want to have the payments here and here be the same right we want all the payments to be the same because that makes it easiest for like just cash flow budgeting but the the cost of us keeping the dollar amount the same is the fact that the interest in principle will differ because of the reduction kind of in the loan balances so there's kind of some pros and cons of that so remember if you if the easiest way to do this if you work with two people would be to like I say just report the whole thing to a reduction of the loan and then let your accountant adjust it according to the amortization table at the end of the year where they can just break it out at your end right because the idea would be if I just if I just recorded the full amount reducing the loan my balance sheet and and it would be off and I would have nothing on the profit and loss for interest and then they could do a journal entry which would basically record all the interest which would just be the sum of this and and record interest expense on the other side to the loan balance resulting in the proper interest expense that we can then put on the tax return or on financials and then the ending balance should tie out to what it should be at the end of the year right that would be some pretty easy adjustment to make if you know if you have an accountant that can do that if they don't do that like if you try to use that method and you don't have a tax preparer that knows how to do that or they just forget to do it or whatever you don't tell them to do it then you're not going to get the interest expense which should be a deduction for taxes at least in the United States which can be significant so if you're going to plan that way you got to make sure that you're talking with people that know what they're doing and you've got some communication happening to make sure that what needs to be done is being done okay so in any case that's going to be it let's go to the trial balance and see where we stand over here and so we could I need to change the range again 0 to 28 to 4 and let's run it now note again you could try to do this on a month by month basis but like we said before it's not always the perfect thing to do because notice down here on the income statement and both months even you know in February it's recording the entire income statement for the year why is it doing that because because QuickBooks doesn't know it doesn't have the capacity to close out the income statement month by month it only closes out the income statement basically year by year so that's why it's not it's not as good to do that so the result is that the balance sheet up here you can see is reporting properly as of the end of February compared to the end of January but the income statement isn't being closed out properly so you're basically seeing this is kind of like the year-to-date income statement instead of the income statement for just February okay so that's the idea but you can see these are the ending numbers uh where we stand here so we have the check if we if we go through this we've got the the the balancing on top of the income statement cash is an asset calcimals an asset inventory is an asset investments an asset payments to deposit asset prepaid insurance asset accumulated depreciation contra asset tied directly to the furniture and equipment and then the liability so all the assets are basically debits liabilities and equity are what the company has that they're going to uh or what the crew has claimed to what the company has liabilities visa liability uh for the state taxes the government the loan payable we owe that to the bank then the payroll taxes that we have withheld and our payroll taxes we owe that to the government and then the equity section is all of this down here now so we have the equity of the investment that we put in the owner's equity and then the entire income statement this part of the income statement representing the full two months year-to-date for 2024 if I was to add that up on the debit and credit side it should have a net uh credit for the whole period right so we'd have the billable uh expense boom we're going to say start here 200 plus four six eight seven seven plus six seven eight oh minus three seven two four two minus five nine five point five nine minus two eight one three point five six plus the three three nine point three three minus six nine eight three point three three minus the seven hundred minus the four ten minus the six twenty gives us the six eight three one eighty five if I go to my profit and loss did I calculate that right so we're going to say that's not what was for the month that's for the year right six eight three one eighty five boom so then so if I go to the next year then QuickBooks will properly close this stuff out to equity this whole income statement will roll into the owner's equity let's check that out going from 0 1 0 1 2 5 2 let's just say 0 1 0 1 2 5 we'll just use the same and so now now everything rolls into uh the owner's equity as you can see here so that that that's how it's working so trial bounces a little bit tricky great report to use works best when you're using it from a year by year basis the year to date numbers uh as opposed to a month by month at least with regards to like the income statement because of the way the closing process works automatically within QuickBooks but on a yearly basis rather than a monthly basis