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.
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.
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.
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.