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! 😊

Do you need the QBO video for setting up your Loan – click here


Desktop Users click here for a tutorial video to enter your loan payments


**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:

1. Open QuickBooks: 

   Launch QuickBooks and log in to your company file.

2. Navigate to Expense or Write Checks: 

   Click on “Banking” in the top menu bar and select “Write Checks” from the drop-down menu.

3. 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.

4. 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.

5. 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.

6. Allocate Interest Amount: 

   In the next line item under “Expenses,” allocate the interest portion of the payment by entering it as a positive amount.

7. Save and Record Payment: 

   Once all the necessary details are entered accurately, click on “Save & Close” to record the loan payment.

 

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Share with us in the comments below – Are you ready to start breaking down your loan payments? 💁🏻‍♀️

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