How to Record a Loan or Line of Credit in QuickBooks

To record a loan in QuickBooks, set up a liability account for the balance you owe, deposit the loan proceeds into that account, then split every payment between principal and interest so the balance goes down correctly. A line of credit works the same way but uses a current liability account you draw on and pay back repeatedly. This guide covers setting up the accounts, recording the funds, entering payments with the right principal and interest split, handling a revolving line of credit, and reconciling the loan to your bank statement in QuickBooks Online and Desktop.

A loan only reconciles when the deposit of the funds and every payment are both in your books. If the loan proceeds or the monthly payments are missing from your register, convert your PDF bank statement to QuickBooks with the tool at the top of this page so the funding deposit and each payment that cleared your bank are recorded before you set up the split.

How do I set up a loan account in QuickBooks?

Set up a loan by creating a liability account in your chart of accounts for the amount you owe. In QuickBooks Online, go to Chart of accounts, New, and choose a Long-term liabilities account type for a loan longer than a year, or Other current liabilities for one due within a year. In Desktop, add the account from Lists, Chart of Accounts with the matching liability type. Name it after the lender so it is easy to find, and leave the opening balance at zero, because you record the actual funds in the next step.

How do I record the loan money I received?

Record loan proceeds as a deposit into your bank account with the other side going to the loan liability account. When the lender funds the loan, the money hits your checking account, so you enter a bank deposit and select the loan liability account as the source. This increases your cash and increases what you owe by the same amount, which is correct. Do not record the funding as income; a loan is money you have to repay, not revenue, so it never touches your profit and loss.

How do I record a loan payment with principal and interest?

Record each loan payment as a split: the principal portion reduces the loan liability and the interest portion posts to an interest expense account. Look at the lender's amortization schedule or statement to see how much of the payment is principal and how much is interest, because the mix changes every month. In QuickBooks, enter the payment as a check or expense with two lines, one to the loan liability and one to interest expense, adding to the total that left your bank. Only the interest is a deductible expense; the principal simply pays down the balance.

How is a line of credit different from a loan?

A line of credit is revolving, so you draw on it and repay it many times, while a term loan is a single lump sum you pay down on a fixed schedule. Set up a line of credit as an Other current liability account. When you draw funds, record a deposit to your bank with the offset to the line of credit account; when you repay, split the payment between the line of credit principal and interest expense. Because the balance moves up and down, reconciling the line of credit account to the lender's statement each month is what keeps it accurate.

How do I record interest and fees on a line of credit?

Record line of credit interest as interest expense and any draw or maintenance fees as a bank or finance charge expense in the month they hit. Revolving lines often charge interest only on the drawn balance plus periodic fees, and these usually post straight to your bank as separate charges. Enter each as an expense from the bank account so it reconciles, coding interest to interest expense and fees to a bank charges or finance charge account. Keeping fees separate from interest gives you a cleaner picture of what the credit actually costs.

How do I reconcile a loan to my bank statement?

Reconcile a loan by matching the funding deposit and every payment in QuickBooks to the same transactions on your bank statement, then comparing the loan balance to the lender's statement. Each payment that left your bank should match a split payment in QuickBooks, and the funding deposit should match the day the money arrived. After a few months, the balance in your loan liability account should equal the payoff balance the lender shows; if it drifts, your principal and interest split is usually off. Converting the bank PDF makes this straightforward because every real payment is in the file to match against.

Why lenders care how your loan is recorded

Clean loan records matter beyond bookkeeping, because when you apply for more credit the lender reads your financial statements and bank activity to judge whether you can service the debt. A loan booked as income, or payments with no principal and interest split, distorts both your profit and your liabilities and can weaken an application. The same statements you convert here are exactly what underwriters read when they assess a borrower, so keeping the liability, interest, and payments accurate helps your books tell a true story. For the account setup side, see the guide on setting up your chart of accounts in QuickBooks.

Start from a complete bank record

Every step above assumes the loan deposit and each payment are in QuickBooks. When a payment is missing, on an account with no bank feed, or you are recording a loan from prior months, converting the PDF statements gets every real transaction in with its date and amount. From there you set up the liability, book the proceeds, and split each payment. For catch-up work across several months, the batch PDF to QuickBooks converter brings a whole year of statements in at once so the loan history is complete before you reconcile.