Learn how to set up and track a line of credit in QuickBooks Online.
You can track liabilities and expenses in QuickBooks, providing you with the business data you need to better manage your cash flow. It helps you decide when to spend, borrow, or transfer money.
Set up your liability and expense accounts
Set up a liability account for the principle
When you pay for things with your line of credit, record the transaction as a bill or expense in this account.
- Go to Settings
then select Chart of accounts (Take me there). - Select New.
- Enter a name in the Account name field.
- From the Account type ▼ dropdown, select Other Current Liabilities.
- From the Detail type ▼ dropdown, select Line of Credit.
- Select Save.
Set up an expense account for the interest
If you incur interest charges, record your paid interest in this account.
- Go to Settings , then select Chart of accounts (Take me there).
- Select New.
- Enter a name in the Account name field.
- From the Account type ▼ dropdown, select Expenses.
- From the Detail type ▼ dropdown, select Interest Paid.
- Select Save.
Track your line of credit
Once you’ve set up your two accounts, you can track the transactions in your line of credit. Make sure you record the bills and expenses, and if you want to put your credit funds into another account, you need to make a transfer.
Note: When you make a payment, you can track what you pay back to your bank or creditor. Either way, be sure to split the expense between principal and interest in the category details.
Pay with a paper check
If you’re going to send the bank or creditor a paper check, follow these steps:
- Select + New.
- Under Vendors, select Check.
- In the Payee field, select or enter the financial institution's name.
- In the Bank Account ▼ dropdown, select the financial institution.
- In the Category field, select Line of credit. Then, enter the amount of principal that you want to pay.
- In the Category field, select Interest paid. Then, enter the amount of interest you want to pay.
- Select Save and close.
Pay with a debit or credit card
If you’re paying the bank back with a debit or credit card, you can:
Tip: If you want your transactions to download automatically from your financial institution, you can connect your account to the bank feeds.
FAQs
When you pay for things with your line of credit, record the transaction as a bill or expense in this account.
- Go to Settings. ...
- Select New.
- Enter a name in the Account name field.
- From the Account type ▼ dropdown, select Other Current Liabilities.
- From the Detail type ▼ dropdown, select Line of Credit.
- Select Save.
A line of credit, does not appear on the books of the organization until money is borrowed. When money is borrowed, the amount is recorded as a loan in the liability section of the Statement of Financial Position along with the interest owed on the outstanding balance.
How do I handle credits in QuickBooks? ›
Apply the credit to an invoice you already created
- Select + New.
- Select Receive payment.
- Select the customer, then the credit and the invoice.
- Select another pending invoice and enter the overpayment amount in its Payment column.
- Select Save and new or Save and close.
Enter an opening balance
- Go to Settings ⚙ and select Chart of accounts (Take me there).
- Select New, then set up your account.
- In the Opening balance field, add the balance reflecting your bank or credit card account. ...
- Select the date you want to start tracking your finances in the As of field. ...
- Select Save.
Set up your liability and expense accounts
- Go to Settings ⚙, then select Chart of accounts.
- Select New.
- From the Save account under ▼ dropdown, select Other Current Liabilities.
- From the Tax form section ▼ dropdown, select Line of Credit.
- Enter a name in the Account name field.
- Select Save.
Deleting a credit memo in QuickBooks involves navigating to the customer's account, locating the specific credit memo, and then selecting the option to delete it. This action directly impacts the financial statements by adjusting the customer's credit balance and altering the company's accounts receivable.
What account type is a line of credit? ›
An LOC is often considered to be a type of revolving account, also known as an open-end credit account. This arrangement allows borrowers to spend the money, repay it, and spend it again in a virtually never-ending, revolving cycle.
Is a line of credit an accrued liability? ›
When using a line of credit, a line of credit account should exist in your chart. This account should be reflected as a liability. In the example, $5,000 is receipted into the bank account and is also setup as a liability. Now that you have drawn money from the line, the liability must be present on your Balance Sheet.
Is line of credit accounts receivable? ›
An accounts receivable (AR) line of credit is a loan that is secured against a business' outstanding invoices. Small and medium-sized businesses use AR lines of credit to access capital when they cannot get approved for a traditional bank line of credit.
How to handle overpayments in QuickBooks Online? ›
Choose Gear →Account and Settings and then click Advanced on the left side of the Account and Settings dialog box. In the Automation section, make sure that Automatically Apply Credits is turned on. This setting forces QBO to create credits if your customers overpay you. Then, you can choose how to use those credits.
Remove a credit from an invoice
- To display the transaction history, press Ctrl + H.
- Double-click the invoice and select Apply Credits.
- On the Previously Applied Credits window, clear the selection for credit.
- On the Apply Credits window, select Done.
- On the invoice, select Save and Close.
Customer refund if invoice has been paid
- Select + New and select Credit memo.
- In the Customer field, select the appropriate customer.
- Enter the Credit Memo Date, Amount, Tax, and Product/Service (This is the category, product, or service you're getting a credit for). ...
- Select Save and close.
Lines of credit appear under liabilities on the balance sheet. They are considered current liabilities because they must be paid within the current 12-month operating cycle.
How do I enter opening balances in QuickBooks Online? ›
- In the Chart of accounts click View register for the account.
- Click the Add drop-down and select deposit.
- Under DEPOSIT enter the opening balance amount.
- Under ACCOUNT select Owner's Contribution.
- Click Save.
A line of credit is typically offered by lenders such as banks or credit unions, and, if you qualify, you can draw on it up to a maximum amount for a set period of time. You'll pay interest only when you borrow on the line of credit. Once you pay back borrowed funds, that amount is again available for you to borrow.
What does lines of credit mean in QuickBooks? ›
¹ QuickBooks Line of Credit: Each invoice advance and each cash draw is a separate, closed-end term loan that has its own loan amount, interest rate, and payment terms. ² No fees: No origination fees applicable to new QuickBooks Line of Credit customers. Interest will apply.
How do I zero out credit in QuickBooks online? ›
Here's how you can remove a credit memo from an invoice if it is wrongly applied.
- To display the transaction history, press Ctrl + H.
- Double-click the invoice and select Apply Credits.
- On the Previously Applied Credits window, clear the selection for credit.
- On the Apply Credits window, select Done.
Money on hand when you need it. A QuickBooks Line of Credit can help you cover unexpected expenses or keep your business moving while you wait for a customer payment.
then select Chart of accounts (