expense account

How Do I Add a New Loan To Loan Manager?

Chief Mechanic · September 12, 2010 ·

To add a new loan to Loan Manager, there are some preliminary steps to make before running Loan Manager:

Evaluate if this is a loan that Loan Manager can track. Loan Manager doesn’t track interest-only loans, so if your loan requires you to make regular payments of interest over time and the entire principal in a single payment at the end of the term, Loan Manager isn’t the right tool
Verify the liability account for the new loan exists in your QuickBooks chart of accounts and that it is active; if not, add it or change its status
Verify the payment account (normally a bank account) which will be used to make payments on the new loan exists in your QuickBooks chart of accounts and that it is active; if not, add it or change its status
Verify the expense account which will be used to record interest expense for the new loan exists in your QuickBooks chart of accounts and that it is active; if not, add it or change its status
Verify the expense account which will be used to record other fees (such as bank fees) for the new loan exists in your QuickBooks chart of accounts and that it is active; if not, add it or change its status
If your loan has escrow payments associated with it, verify that the asset account which will be used to record prepaid expenses (such as property taxes or insurance) for the new loan exists in your QuickBooks chart of accounts and that its active; if not, add it or change its status
Verify the vendor or other name to which payments will be made exists; if not, add the vendor or other name
Enter the journal entries in QuickBooks so the current balance of the liability account associated with your new loan equals the original amount of the loan
Have in front of you the following information about the new loan: the origination date, the term, the interest rate, whether your lender uses daily compounding (and if so, whether it’s on a 360 or 365 day basis), the payment amount, the sequential payment number, the due date of next payment, and the escrow amount (if any)

Since Loan Manager reads information from your QuickBooks chart of accounts when it first loads, if the accounts required to set up the loan do not exist when Loan Manager starts, you won’t be able to set up the loan properly – even if you open a window within QuickBooks to add the accounts while Loan Manager is running.

Here’s the main window of Loan Manager:

To add a new loan, click the Add a Loan… button. The Add Loan window, the first step in the process, appears. Since we’ve already followed the steps in our checklist, our accounts already exist and the balance of our liability account equals the Original Amount of the new loan. In this example, that amount is $200,000.00. Choose your liability account and Lender (a vendor or other name) from the pull down menus. Enter the Origination Date for the loan, the Original Amount (which in our example is $200,000.00), the Term and the type of number the entered Term represents (weeks, months, or years).

Once this information is correct, press the Next button to bring up the second screen in the process of adding a loan. On this screen, enter the Due Date of Next Payment, the Principal Amount, and the Next Payment Number. For a new loan, the Next Payment Number will normally be 1 provided that you’re setting up the loan before your first payment is due. Choose the Payment Period (one of weekly, bi-weekly, semi-monthly, monthly, bi-monthly, quarterly, semi-annually, or annually) from the pull down menu. Specify whether the loan has an escrow payment associated with it, and if so, enter the Escrow Payment Amount and the Escrow Payment Account. The Escrow Payment Account is normally an asset account because escrow payments are being made in advance of the expense being incurred. If you want QuickBooks to remind you before a payment is due, make sure the checkbox is checked.

Once this information is correct, press the Next button to bring up the third screen in the process. Enter the Interest Rate for your loan as a percent. Choose the Compounding Period for you loan, which will default to the Payment Period you entered on the previous screen. You’ll also have the option of setting the Compounding Period to Exact Days to specify that your lender is using either a 360 or 365 day year to calculate interest. If you choose this setting, you’ll have the additional option of specifying the Compute Period as either 365/365 or 365/360. This information would normally be found in your original loan documents. Choose your Payment Account, Interest Expense Account, and Fees/Charges Expense Account from the pull down menus. Normally, the Payment Account is a bank account, such as a checking account.

When this information is correct, press Finish. You’ll see a screen similar to the one below. In our example, we added a new loan with a principal of $200,000 at a 10% interest rate, a 60 month term with monthly payments, and a $2,000.00 monthly payment. Since this loan is not is not fully amortizing with those provisions, there is a balloon payment at the end of the term. Clicking on the Payment Schedule tab will display the payment information for the loan; the Contact Info tab will display the relevant information for the vendor or other name we specified as the Lender. This information is maintained in QuickBooks itself, not Loan Manager.

It’s important to understand that Loan Manager is primarily a tool to calculate payment schedules and to simplify the process of distributing interest and principal payments to the appropriate GL accounts. When you create a new loan in Loan Manager, the outstanding balance for that loan will start as $0 – until you record a transaction in the liability account in QuickBooks itself. Once the liability account is increased to reflect the loan’s principal, Loan Manager can assist you to record the regular payments. Likewise, when you remove a loan from Loan Manager, you are not making changes to the liability account balance. Since we completed our checklist steps before running Loan Manager, which included recording the loan balance in the liability account, the balance was displayed correctly once we added the loan. Had we not completed that step, the Balance column for our new loan would show the balance of our liability account, or $0.

For more information on using Loan Manager, see our related articles on deleting a loan and recording a debt re-financing.

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Are Licensed Recordings of Music an Asset of My Company?

Chief Mechanic · September 11, 2010 ·

Maybe. Under US GAAP, the accounting for recorded music is governed by Financial Accounting Standards No. 50, Financial Reporting in the Record and Music Industry.

FAS No. 50 says in part that:

The portion of the cost of a record master borne by the record company shall be reported as an asset if the past performance and current popularity of the artist provides a sound basis for estimating that the cost will be recovered from future sales. Otherwise, that cost shall be charged to expense. The amount recognized as an asset shall be amortized over the estimated life of the recorded performance using a method that reasonably relates the amount to the net revenue expected to be realized.

If you believe that the performance provides a “sound basis” for an estimate that the cost will be recovered from future sales, you can treat the cost as an asset. Otherwise, you’ll need to expense it. The real question is not whether you have the right to use the recorded music on future projects; it’s whether there is a reasonable expectation that you can produce future revenue by doing so. If you purchased a sound clip for a very specific project and aren’t in the business of regularly making commercials for similar projects, there’s probably not a reasonable basis to estimate that you can produce future revenue from the clip. If you purchased a clip of car sounds and are in the business of making automobile commercials, you probably do have a “sound basis” to estimate that you can use the clip to produce future sales.

In QuickBooks, if you treat the cost of this recorded music as an asset, it would be a non-current asset. You would not use a tool such as the Fixed Asset Manager to account for it. The non-current asset account you enter when you write a check or enter a vendor bill to pay for the recorded music would be debited (i. e., increased). Later, you’ll need to amortize the cost of the recorded music over the useful life consistent with FAS No. 50. QuickBooks uses the term other current asset in place of non-current asset. See our article on general ledger account types used by QuickBooks for more information.

If you opt to treat the cost as a non-current asset, be conservative in estimating the useful life of the music. If you over-estimate the useful life, you’re inflating your assets and net income until you’re finished amortizing the asset.

If you determine that there isn’t a basis to estimate that the cost of the recorded music will be recovered from future sales, you’ll need to treat the cost as an expense. In that event, the expense account you enter when you write a check of enter a vendor bill to pay for the music would be debited.

Of course, if you have any doubt about applying an accounting standard like FAS No. 50 to your business, it’s a good idea to consult a CPA.

For more information, read the entire text of FAS No. 50 at FASB’s web site.

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What General Ledger Account Types Does QuickBooks Support?

Chief Mechanic · September 7, 2010 ·

QuickBooks supports 16 total general ledger account types in its Chart of Accounts. Each account is assigned a single account type, which can be changed, subject to certain restrictions.

5 Income/Expense Account Types for the Profit & Loss (P & L) Statement

Income
Expense
Cost of Goods Sold
Other Income
Other Expense

11 Asset/Liability/Equity Account Types for the Balance Sheet

Fixed Asset
Bank
Loan
Credit Card
Equity
Accounts Receivable
Other Current Asset
Other Asset
Accounts Payable
Other Current Liability
Long Term Liability

QuickBooks Premier 2009 GL Account Types

The Chart of Accounts can be accessed by one of several menu selections, Company->Chart of Accounts and Lists->Chart of Accounts, or by clicking Ctrl + A.

If account numbers are used, the numbers should follow certain broad account types. See our article on assigning general ledger account numbers based on the account type.

(-1 rating, 1 votes)

Should I Use Account Numbers In My General Ledger?

Chief Mechanic · September 7, 2010 ·

We think you should use account numbers in your general ledger, but we think it’s more important that you’re consistent in either using them correctly or not using them at all.

To use account numbers, you need to enable that preference by visiting the Edit->Preferences menu and clicking on the Company Preferences tab of the Accounting submenu, which is shown below.

QuickBooks Premier 2009 Preferences Use Account Numbers

Once the account number preference is enabled, you’ll be able to manually assign account numbers to your general ledger accounts. QuickBooks won’t automatically assign them for you or insure that your numbers follow a consistent structure. It will insert the account number before the account name, and you’ll then be able to quickly locate accounts by typing the first few characters of an account name or the first few digits of the account number.

When assigning account numbers, use numbers that:

have a consistent length
have multiple unused integers between numbers to accommodate changes to your general ledger
follow a consistent structure

New businesses or companies installing QuickBooks for the first time are more likely to make changes to their general ledgers, so it’s especially important for these firms to have the flexibility to add or change account numbers.

In older versions of QuickBooks, account numbers were a way to re-arrange the order of accounts rather than having an account list in alphabetical order based on the account description. Since you can now drag accounts in your chart of accounts list to rearrange the order, account numbers no longer serve that purpose. Account numbers are primarily a tool to organize account numbers outside of QuickBooks, such as in Excel, and to improve the readabilty of your account list.

Intuit recommends the following ranges for assigning account numbers:

10000 to 19999 Assets
20000 to 29999 Liabilities
30000 to 39999 Equity or Capital
40000 to 49999 Income or Revenue
50000 to 59999 Cost of Goods Sold, Job Costs, or Project Costs
60000 to 69999 Expenses or Overhead Costs
70000 to 79999 Other Income
80000 to 89999 Other Expenses

QuickBooks organizes accounts on reports based on the account type, not the account number. Whether you follow this structure or another one of your own choosing is up to you. Just keep in mind that account numbers are another tool to help organize information. If you use account numbers but don’t use them in a way that results in a better organized chart of accounts, you’re actually worse off.

(+4 rating, 4 votes)

What Should I Do If My Accrual Basis Balance Sheet Is Out Of Balance?

Chief Mechanic · September 5, 2010 ·

A balance sheet in QuickBooks can be produced on either a cash or accrual basis. A balance sheet that’s in balance is one where total assets are equal to the sum of total liabilities plus total equity. Sometimes, if your company file (.qbw) has become damaged, this fundamental accounting relationship can be broken because of data damage to individual transactions.

Intuit has several troubleshooting steps to attempt to resolve problems with a balance sheet that’s out of balance. These steps depend on which reporting basis balance sheet is out of balance. In this article, we’ll summarize the steps to address an accrual basis balance sheet that’s out of balance. See our related article on resolving problems with a cash basis balance sheet. There are also other ways to use reports to assist rebuilding a damaged company file.

The most likely cause of an out-of-balance accrual basis balance sheet is an income or expense account with an account balance but without transactions that add up to that balance. To fix this problem, Intuit recommends a multi-step process that involves:

calculating the amount by which the balance sheet is out of balance
identifying the problem account
testing your account identification
recording a check for $.01 to that account
running the Rebuild Data utility
deleting the check for $.01 previously recorded and testing the outcome

Step 1 – Calculate the Amount Your Balance Sheet is Out of Balance

Produce a standard balance sheet (Reports->Company & Financial->Balance Sheet Standard) and calculate the amount your balance sheet is out of balance. Be sure to click the Modify Report… button and set the Dates to All and the Report Basis to Accrual.

QuickBooks Premier 2009 Modify Report Balance Sheet All Dates Accrual Basis

Step 2 – Identify the Problem Account

First, export your chart of accounts. From the File->Utilities->Export->Lists to IIF Files… menu selection, choose Chart of Accounts in the Export window and click Ok.

QB_Premier 2009 Export Chart of Accounts

This export procedure will produce a delimited IIF file. Open this file in Microsoft Excel. Intuit recommends deleting the first 2 lines of this file, but we’ve kept them in the file in the screenshot below so you can see how the file will appear when you first open it in Excel. Note that Name is in Column B and OBAMOUNT is in Column F. Find the out-of-balance amount you calculated in the previous step in Column F, OBAMOUNT. There are 2 ways to do this: a) use Excel’s Find capability or b) sort all rows below the first 3 rows in the original Excel file (below the first 1 row if you choose to delete the first 2) and scroll through the sorted list of numbers to locate the out-of-balance amount you previously calculated.

Write down the account name from Column B that matches the OBAMOUNT you locate.

Step 3 – Test To See If the Account You Identified Is the Problem Account

Return to QuickBooks and open your chart of accounts (Company->Chart of Accounts or the keyboard shortcut Ctrl + a). Locate the account you identified in the previous step and double click on it to produce a QuickReport. Be sure to set the Dates setting to All dates. If there are no transactions in this account, then the identification process in Step 2 was successful. You’ve located an account with a balance in the chart of accounts but without transactions that add up to that balance.

Step 4 – Record a Check For $.01 To The Problem Account

Record a check to the problem account for $.01 from the Banking->Write Checks menu selection or the keyboard shortcut Ctrl + w. On the Expenses tab of the Write Checks window, enter the problem account previously identified.

Step 5 – Run the Rebuild Data Utility

From the Files->Utilities->Rebuild Data menu selection, run the Rebuild Data utility. This utility will attempt to match the transactions in an account with the account’s balance, thereby resolving the out-of-balance problem on the balance sheet.

Step 6 – Delete the Check Previously Recorded and Test the Results

Delete the check you recorded in Step 4. Open your chart of accounts (Company->Chart of Accounts or the keyboard shortcut Ctrl + a) and locate the problem account.

If the account you identified was a balance sheet account (accounts payable, accounts receivable, bank, credit card, equity, fixed asset, loan, long-term liability, other asset, other current asset, or other current liability), double click on the account to QuickZoom into that account’s register. Locate the check for $.01 and delete it by clicking the Edit->Delete menu selection or using the keyboard shortcut Ctrl + d.

If the account you identified was an income statement account (income, expense, other income, other expense, or cost of goods sold), double click on the account to produce a QuickReport. Be sure to change the Dates setting to All. Locate the check for $.01 and double click on that entry on the QuickReport. Delete the check by clicking the Edit->Delete menu selection or using the keyboard shortcut Ctrl + d.

Repeat the steps in Step 1 to produce a standard balance sheet and verify that the balance sheet is in balance. Be sure to confirm your Dates setting is set to All and your Report Basis is set to Accrual.

Sometimes, if you have several problem accounts, repeating this entire series of steps can restore balance to your balance sheet. For more serious data problems, send us an email.

To follow Intuit’s discussion of these steps, consult this Intuit knowledge base article.

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expense account

Accounting

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