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