Entering a Loan You've Made to Someone Else in QuickBooks Online

I recently loaned some cash from my business to another person. While not specifically an Airbnb thing, it was an opportunity to grow my cash reserve a little, so I thought I'd give it a try. I wrote an agreement, we signed it, and I issued a check.

The next day, when doing my daily reconciliation in QuickBooks Online, I had to do a surprising amount of Googling to figure out how the heck to enter this transaction correctly. It seemed like all the examples I could fine assumed you were RECEIVING loan proceeds, and not that you were the actual LENDER.

Anyway, I finally figured it out, and thought I'd do a quick blog post on the subject, in hopes it helps someone else down the line:

1. Go to Chart of Accounts, and make a new Account, choosing Account Type 'Other Current Assets'.
2. In the Account popup window, choose a Detail Type of 'Loans to Others'
3. Name the account something descriptive. I chose 'Loans Disbursed'.

I chose the generic 'Loans Disbursed' account name so I could potentially use it to track other loans in the future, and not have to use additional accounts if I do more loans.

Now that we have the right Account set up, it's time to log the transaction.

In this case, I disbursed the funds via check, so I entered as follows:

1. Select New, and then Check
2. For Payee, enter the loan recipient
3. For Bank Account, choose the account you're withdrawing the funds from
4. For Category, choose the new 'Loans Disbursed' account we just created
5. Enter the Payment Date, Amount, Description, etc. as needed
6. Save and Close

Now is a good time to check the Account you withdrew funds from, and also your Balance Sheet and Profit & Loss reports. 

1. On the Account you withdrew from, you should see the loan disbursement as a Transfer, and your balance should have decreased by the loan amount.
2. On your Balance Sheet, you should see the 'Loans Disbursed' account listed as an Asset.
3. On your P&L, you should NOT see the loan listed as an Expense.

Now, when the recipient starts paying you back, here's how to log the payments:

1. Select New, and then Bank Deposit
2. For Account (at the top of the screen), choose the account you're depositing the funds to
3. Under 'Add funds to this deposit':
1. For the Principal portion of the payment, enter a line item as follows:
1. For Received From, enter the person or company who received the loan proceeds
2. For Account, choose 'Loans Disbursed'
3. Enter the remaining info (Amount, Description, Payment Method, etc.)
2. For the Interest portion of the payment, enter another line item:
1. Enter the info as above, except choose 'Interest Earned' for Account
4. Save and Close

Now check to make sure the transaction is logged correctly:

1. In the Account you deposited the funds to, the balance should have increased by the total payment amount (principal + interest).
2. On your Balance Sheet, the 'Loans Disbursed' account balance should have decreased by the amount of the principal portion of the payment
3. On your P&L, your Income should have increased by the amount of the interest portion of the payment

That's it!

(The only part I'm not 100% sure about is using 'Interest Earned' as the category for the interest you're earning from a loan you initiated. You certainly won't get a 1099-INT for this amount, so you may need to consider the interest to be regular income at tax time. This is something I plan to ask my accountant about early next year.)

Did this help? Do you have other ideas for improving this method?