01/23/2024
Let’s talk about accounting for loans!
Have you received a loan from Quickbooks, Paypal, Amex, or a LOC and wondered what to do with it? Or did you purchase a piece of equipment for your business and finance it?
Here’s what you do-
When you receive funds from a loan, the cash goes into your bank account. How did you categorize it? It should be categorized to a liability account on the balance sheet, not an income account. Each loan should have it’s own account.
When you purchase a piece of equipment for your business, the transaction does not hit your bank account. Instead, you receive the piece of equipment and then a contract with the financing information. It is important to make sure this type of loan is recorded via journal entry. The amount should be booked as an DR: Fixed Asset to be depreciated, and a CR: as a liability to be tracked.
Why is this important?... You want to be able to deduct it! Deductions on loans and equipment come by depreciation expense and interest expense. The rest pays down the liability on the balance sheet.
Please consult your CPA or tax advisor if you have any questions!
