do you have an installment loan that you are personally responsible for
this video will show you how to set up quickbooks online to manage your
mortgage car payments or any other kind of installment loan
if you have any questions about this topic you can leave them in the comments section below and i'll
do my best to help you and of course if you feel the video helped you i hope you will click like
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may well ask what are installment loans well first it's any long-term loan that you make
equal monthly payments to pay off usually it's for a house like a mortgage or a car loan or any other
long-term loan that the individual is responsible for only a part of each monthly payment
reduces the balance of the loan the rest of the payment is kept by the lender as interest
that they earned from you although the monthly payment is the same each month
the amount of interest and principal reduction for each payment will change from month to month
and the last property or attribute about an installment loan that makes it an installment
loan the lender is responsible for providing a schedule or chart that tells the borrower
how much of each payment is interest and how much of each payment reduces the principal balance
now this video is only setting up for the loan
each installment loan must have an account in the chart of accounts to represent the balance
of what is owed on the loan the account must be a long long-term liability type of account
you must have also have an account in your chart of accounts to record the interest expense
that you pay along with payments to reduce the balance first we need to fix our mortgage account
our mortgage account we put on as an expense and that's not correct it was the wrong account
type in the prior video when we set up the chart of accounts let's go and fix it we can click
accounting chart of accounts and then scroll down to the expense section
because we have it improperly recorded as an expense you see mortgage is not an expense
it's a long term liability so on the same row we click the pull down arrow and we click edit
now it's not an expense we have to instead choose long-term liability
okay long-term liability now there are several detail types but you can just click
other long-term liability and that's fine but keep the name mortgage so that you know
this represents the balance of what we owe to the lender save and close yes okay now we also want
to make sure that we have an account in the chart of accounts for interest expense and that was one
of the accounts that quickbooks online already set up for us if you scroll carefully you'll
see that there is an account called interest paid and that was already provided for us as one of our
expense accounts that was already in the chart of accounts when we joined quickbooks online
so what happens when you take an installment loan well first the money goes from the institution
that you're borrowing from to you and it stays in your bank account until the day that you pay for
the house or the car or the nice little shack that you want to buy to retire but you should be aware
that before you pay for the asset that you borrowed the money for the money is in your bank
account for example let's imagine on april 17 2021 you borrowed an eighty thousand dollar mortgage
from m t bank all the money was deposited into the into your m t bank account on april 17.
you will pay for the house later so that's a very simple transaction to record
we know that you can go to the m t register and go across the row and click view register
and you would record this like any other transaction in the register
so all you have to do is click add deposit now the date of this deposit
because this is money that you borrowed from the bank and put into your m t bank account
that was april 17th of 2021 and you don't have to put the bank but you do have to put the account
and in this case the account is the mortgage it's the long-term liability that represents
the balance that you owe and we are in the m t register so this is therefore a deposit to
the m t register push tab and that's all you have to do to record it slide to the right and then
click save now let's take a look at the results when we click reports and we click custom reports
trial balance you can see there's a big fat 80 000 mortgage and you can see 80 000 has been
added to the m t bank account now you should know that even if you do not pay for the house
and the money stays in your bank account you still must make monthly mortgage payments
your bank will give you a schedule of payments that will show the amount of
interest and principal for each payment and that's called an amortization table and we
will talk more about that and actually making the monthly payments in the next video that follows
you