How to Use Long-Term Liability Accounts in QuickBooks

by Madison Garcia; Updated September 26, 2017
Paperwork on desk in office

Long-term liabilities are financial obligations that a company expects to pay after the end of the fiscal year. Loans are the most common long-term liability accounts for a business. Because the interest on most loans compounds, relative proportions of interest and principal in a loan payment change every period. QuickBook's Loan Manager saves you from having to calculate these numbers each month by automating the journal entries.

Create the Account

To take advantage of Loan Manager, create a specific account in QuickBooks for every loan the company enters into. The easiest way to create a new long-term liability account in QuickBooks is by booking a journal entry. Select the loan origination date as the journal entry date. Debit cash for the amount of the loan -- for example, $50,000. Credit the same amount to a new account. When prompted to create a new account, give the account a descriptive name and account number, and tag it as a long-term liability account.

Add the Liability to Loan Manager

Although you've created the account, it's not yet tied to Loan Manager. To initiate this feature, select the Banking menu, click on Loan Manager and Add a Loan. Choose the account that you just created through your journal entry. For Lender, indicate the name of the vendor you'll be making payments to. Check that the Origination Date and Original Amount are both accurate. Indicate the length of the loan in the Term field. You can choose weeks, months or years.

Enter Payment Information

You'll be able to save payment information in the next screen on the Loan Manager. Fill out the payment amount, payment period and due date of the next payment. You can add an escrow payment amount if necessary.

Click through one more screens, and enter a numerical value for the loan interest rate and a compounding period. For example, if the loan has an 8 percent interest rate, enter 8. For Payment Account, choose the bank account from which you'll be issuing loan payments. Select an Interest Expense account to accurately separate principal payments from interest expense. Click Finish and the Loan Manager will generate a payment schedule and an amortization table.

Make Periodic Payments

Once you've completed the Loan Manager wizard, most of your work is done. Remember to always use the Loan Manager for subsequent loan payments, or Quickbooks may double count payments.

If you chose the Payment Reminder option, QuickBooks will alert you before your payment is due. Enter the Loan Manager and click Set up Payment. The system will navigate you to a prepopulated check to print for your lender and automatically book the corresponding journal entry.

About the Author

Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.

Photo Credits

  • Comstock Images/Stockbyte/Getty Images
bibliography-icon icon for annotation tool Cite this Article