Taking the time to break down Principal vs Interest for your loan properly inside QuickBooks is important
because (verify with your tax professional) interest expense may be a wonderful business write-off for you! 😊
**Tips for Understanding Principal vs. Interest
Before diving into inputting loan payments, it’s essential to have a clear understanding of principal and interest components:
- Principal: The principal portion of a loan payment is the amount that goes towards reducing the outstanding balance of the loan.
- Interest: The interest component represents the cost of borrowing money and is calculated based on the outstanding balance of the loan.
Steps to Enter Loan Payments:
- Open QuickBooks: Launch QuickBooks and log in to your company file.
- Navigate to Expense or Write Checks: Click on “Banking” in the top menu bar and select “Write Checks” from the drop-down menu.
- Select Payee and Bank Account: Choose the payee (lender) from the “Pay to the Order Of” field and select the appropriate bank account from which the payment will be made.
- Enter Loan Payment Details: In the “Expenses” tab, enter the payment amount in the “Amount” field and select the appropriate loan account from the “Account” drop-down menu.
- Allocate Principal Amount: In the “Expenses” tab, allocate the payment amount to the principal account by entering it in a separate line item with a negative (-) sign.
- Allocate Interest Amount: In the next line item under “Expenses,” allocate the interest portion of the payment by entering it as a positive amount.
- Save and Record Payment: Once all the necessary details are entered accurately, click on “Save & Close” to record the loan payment.
Need to learn more areas of QuickBooks? Join us on our next workshop to learn how to design QuickBooks for your specific business… CandusKampfer.com/training
Share with us in the comments below – Are you ready to start breaking down your loan payments? 💁🏻♀️