Line of Credit

Q:

Subject: Line Of Credit vers Proprietors Investment

 

Kerry

Money to pay the business bills that is obtained from an equity line of credit, should they be entered in to the books as proprietors investment ? Or as a line of credit ? Which is the most beneficial? Is there any difference?

 

A:

There is only one way to properly do this.  Running line of credit activity through the owner's equity account makes no sense whatsoever.

Each loan, whether it's a regular type or a line of credit, should have its own liability account set up in your QB.  The payments you make need to be split between the principal portion, which is posted to that loan's liability account, and the interest portion, which is posted to the Interest Expense account.  Use guesstimates of the breakdown when you make the payments and then correct them when you receive the bank's details on how they were applied.

On a periodic basis, the loan balance should be reconciled to the statement from the bank by using the Reconcile feature that is built into QB.

The same thing applies to credit cards.  Each one should be set up with its own account in QB and each charge and payment should be posted into it.  Each monthly statement from the credit card company needs to be reconciled with your QB to make sure everything is properly picked up.

I have discussed this in the QuickBooks tips I have posted on my website.

Good luck.  I hope this helps.

Kerry

 

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More QB 2008 News

What's New in QuickBooks 2008 – From Intuit

Accountant's Copy Rules for QuickBooks 2008 – PDF documents that can be downloaded from CPA911. Includes the following info on the most annoying feature of the QuickBooks 2007, the inability of clients to reconcile accounts while an accountant’s copy is in existence.

Bank Reconciliation QuickBooks permits clients to reconcile accounts (bank and credit card) while an Accountant's Copy exists, but when the reconciliation process starts, you see this message.

The reconciliation is undone when you import the accountant's changes whether or not the accountant reconciles the accounts in the Accountant's Copy. For clients who do not ask accountants to perform reconciliation tasks, this can be annoying (especially if the accountant doesn't return the Accountant's Copy in a timely fashion). We expect QuickBooks to change this paradigm during an update to QuickBooks 2008.