and now we will learn how to record mortgage payments that include escrow interest and
principal each monthly payment includes interest expense that the bank keeps forever as a service
for lending you the money principle reduction which reduces the amount that you actually owe
at any given moment insurance and taxes usually the insurance is homeowner's insurance and
usually the taxes is what's called school tax or real estate taxes and those two together are
sometimes lumped into one category called escrow which you have the option of doing in your chart
of accounts if you choose you have to decide how you want to separate or mix them in your chart of
accounts but in our example we will keep all four of these items separate and track them separately
in the expense accounts in the chart of accounts for example on July 1 we paid a thousand dollars
monthly payment to the bank for the monthly mortgage that includes the following 200 of that
thousand dollar payment is interest that the bank will keep forever because they did us a service
by lending us the money a hundred dollars goes into insurance which could be lumped together in
an expense called escrow expense with the hundred and fifty dollars in taxes that are part of this
monthly payment and of course the remainder after insurance tax taxes and interest go together as
the amount that will decrease what you owe so let's go ahead and see how to record a monthly
payment of this amount that includes these items from the main menu click banking write a check now
the money's coming from the bank account the date is July 1 but it's July 1 of 2017 that's the day
they're paying the thousand dollars they're paying it to Chase Bank so your bank should
we'll be listed on the vendor list and the amount they're paying is a thousand now in the bottom
left of this window is how you break the thousand down two hundred dollars his interest expense that
the bank keeps forever just because they gave you a service of lending you the money when I
click to the next line QuickBooks always tries to balance the transaction by taking the total
and subtracting what was already put on the first line but the next line is not 800 how much is our
next one insurance is only $100 so we're going to change this to $100 and we're going to say a
hundred of this thousand is insurance expense then of course the taxes are in an account called tax
expense real estate school and the amount on the statement that says one hundred and fifty dollars
is the amount that goes to the taxes so we have of the one thousand dollars we're paying two hundred
goes to an interest a hundred goes to insurance a hundred fifty goes to taxes for real estate school
tax and sometimes these two can be lumped together in one expense account called escrow expense and
then the remaining amount actually goes to the long-term liability for that particular mortgage
and QuickBooks knows the remaining amount is the amount of principal reduction and that's
the way I suggest you do it I suggest you put in the other three or the other two first so
that QuickBooks can subtract the other three or the other two from the total up here that you're
paying in order to get you the amount of principal reduction for this particular payment now when we
click Save and close we can look at all four of these accounts in the trial balance so we click
here to open it and you can see Chase Bank has gone down by a thousand dollars because that's
the account we paid from what else changed well the mortgage the Chauncey street mortgage that
we're looking at here if we double-click we can see that the amount of the mortgage originally
was a hundred and seventy thousand but because we made a payment of five hundred and fifty remember
it was that five hundred and fifty dollars that actually decreased the balance from a hundred and
seventy thousand to one hundred and sixty nine thousand four fifty because only five hundred
fifty out of the thousand dollar payment reduced to the balance of the mortgage that we owed you
can also see that insurance expense showed up for the first time is a hundred dollars when we
double-click we see it came from the check that we just made and of course our tax expense which
is down here for real estate school showed up for the first time as one hundred and fifty dollars
because that's the amount of taxes that were that came from that check so you can see by recording
it in the way that I showed QuickBooks will distribute the numbers to your accounts correctly