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bookkeeperKelly
June 29, 2022
Question

loan payment REDUCES a liability - is there a way to code it where it also shows that payment as an EXPENSE TOO?

  • June 29, 2022
  • 1 reply
  • 0 views

loan payment REDUCES a liability - is there a way to code it where it also shows that payment as an EXPENSE TOO?

We want the loan to be reduced accurately, but also want our budget vs actuals to account for the EXPENSE of our mortgage loan payment.

1 reply

L
LeizylM
June 29, 2022

Hi there, bookkeeperKelly. 

 

If you make a loan repayment, your  liability account will also reduced. To affect the payment as an expense, you'll need to make sure that you select that expense account for your mortgage loan payment in the Category Details section of the check.

 

Here's how:

 

  1. Go to the + New icon and select Expense, Check, or Bill.
  2. In the Payee field, enter the business or person you bought the expense from.
  3. Fill out the Payment account fields.
  4. Fill out the Payment date and Payment method fields.(Optional) You can use the Ref no. field to enter an identifying number from the purchase receipt.
  5. Give the item a name, and from the Category ▼ dropdown, select the right expense category.
  6. Enter the full amount of the item in the Amount field.
  7. Select Save and close.

 

Also, I recommend seeking help from your accountant for the best possible advice on this process and to ensure your books are accurate.

 

In case you need help with other QuickBooks-related tasks, feel free to browse this link. It has our general topics with articles: View all help for QuickBooks Online.

 

Additionally, I'll share with you this article if in case you’ll want to get a loan to buy new assets in the future.

 

Drop a reply anytime if you have follow-up questions or concerns with loan transactions. I'm more than happy to answer them for you. Take care and have a great day ahead.

G
GBF0607
November 27, 2023

This does not make sense still.  If I am making the principal a long term liability and the other interest expense, how do you get the principal to show up as an expense so that the expenses are truly including the whole mortgage amount and not just the interest.  I understand that you can look at balance sheet and do the math, but when dealing with larger groups that need to see the expenses paid out they don't want to see it this way, and when I am projecting the budget, this becomes nearly impossible without adding it through an excel spreadsheet.  Help!

Rainflurry
Rainflurry
November 27, 2023

@GBF0607 

 

"how do you get the principal to show up as an expense so that the expenses are truly including the whole mortgage amount and not just the interest."

 

You can't.  The principal portion of a loan payment is never an expense - it is a reduction in the liability.  Both entries are debits from a double-entry accounting perspective so you can have one or the other, but not both.  If you record it as an expense, you will be reducing net income by the amount of the principal payment which is obviously incorrect - and illegal from a tax perspective.  

 

"but when dealing with larger groups that need to see the expenses paid out they don't want to see it this way, and when I am projecting the budget, this becomes nearly impossible without adding it through an excel spreadsheet. Help!"

 

IMO, if someone expects to see loan principal as an expense, then they need a little help understanding why the principal portion isn't an expense.  It's also an opportunity to educate them on the function of the three main financial statements - income statement (P&L), balance sheet and cash flow statement.  They all have their place and that is especially true when illustrating loan payments.  Your P&L shows the interest expense portion of the payment, your balance sheet shows the loan payable liability balance (reduction over time as you mentioned), and your cash flow statement shows the effect of the principal portion on your cash balance.  The only place you should see the effects of the principal portion of a loan payment are on the balance sheet (loan balance) and cash flow statement (reduction in cash).        

 

 

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