 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 range 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 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 72,000 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 loan bank well there's multiple problems with the loans that could be deceptively simple and subtle and 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 and 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 the the same transaction and memorize the transaction as we make the payments because then I'll just include three accounts instead of two accounts and 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 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 you 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 year 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 a five percent divided by 12 and then this is the payments that we're going to make every month we made our 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