Loan Proceeds Not Deposited To Bank

by Andrea
(Manitoba)

How do I record an asset paid for in installments and financed by a lender?



New to Quickbooks and double entry accounting. I understand most of the program, but have a question re journal entries.

We commissioned a boat to be built for our business. The initial down-payment and all subsequent payments were paid directly from our financier to the builder. I assume I am to make journal entries for the amounts disbursed. How exactly do I enter these ... on the first line of the JE would I show a credit to the financier account (less GST), under memo that it is a down-payment, under name ???. On the second line would I show a debit to the fixed asset account, same memo, under name the boat builder?.

What about the GST? How do I enter that? I have a GST/HST account, a Receiver General account, but the GST was paid by the financier and becomes part of our long-term liability.

Any help would be appreciated.



image of fancy scroll lines



Hi Andrea,

Click here to find the journal entry you need. The part of the article I am directing you to deals with both loan proceeds deposited to your bank account AND loan proceeds paid directly to the vendor.

You will deal with GST paid when you record the asset, in this case your boat by debiting GST payable.

To get the most
out of QuickBooks, it is best to use the appropriate module whenever possible ... see The Bookkeeper's QuickBooks® Tip in my adjusting entries article.



As you are new to QuickBooks and double entry accounting, I would record the invoice in the account payable module ("Enter Bills") ... that gets your GST recorded properly.

Then I would use "Pay Bills" every time the financier made a payment ... running it through the cash account ... so you can see the cash coming into the business.

Then I would use "Make Deposit" (which debits cash account) and credits your bank loan account.

When everything is done, your asset should show up under long term assets, GST payable should have a debit entry, your cash entries should total zero, and your bank loan should reflect the amount you borrowed.



Some of the links I've referred you to now require a FREE Insider's Pass which you can obtain here.

If you find debits and credits confusing, you might want to keep my cheat sheet open while doing your books.




P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.


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Dec 16, 2010
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starstarstarstarstar 		Still not sure if I get this ...
by: Andrea

Thanks for your advice. Not having to do journal entries would be great. However, I am still not clear on a couple of points.

If I record the invoice as an account payable, is the invoice from the boat builder or the financier? I don?t really understand how to use the pay bills option when the money is not in my bank account. Should I have the financier set up as a "bank account"? But then that doesn?t look right on the balance sheet.

Similarly, if I use ?Make Deposit? I don?t understand exactly who to make the deposit to or from.

I should explain a little more about our loan. The disbursements occurred over a 10 month period. Payments on the loan will not commence until 12 months after the initial disbursement, however interest was accruing during that time and became part of the total long term liability.

I currently have the financier set up as a
1. vendor (where interest and administrative fees are recorded) and
2. Long-term liability account.

I have the boat builder set up as a vendor where charges directly related to boat construction are recorded. This account is linked to a Boat and Motor asset account.

I have made the following journal entries:
1. invoices from the boat builder (less GST); where on the first line I debit the Boat & Motor Asset account and under the Name column have the boat builder; on the second line, the Financier Long-Term Liability account is credited and under the Name column I have the Financier?s vendor account
2. GST from above; where I credit the Financier Long?term Liability account and have placed Receiver General account in the Name column (?); and on the second line, GST/HST Payable account is debited and Receiver General shows up in the Name column and I have checked GST (ITC) as the tax item

I am however, not exactly sure who to place in the Name column.

3. Interest charged on loan ? I created an interest account as a sub-account of the financier?s long term liability account to keep it separate from the principal (Once we start making loan payments should interest become an expense account instead?)

A general question, does it matter how items are recorded on the balance sheet; i.e. is there a standard practice to record debits on the first line and credits on the second, or viseversa, or its it irrelevant.

Am I on the right track?
Dec 16, 2010
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starstarstarstarstar 		Line of Credit Financing to Purchase Asset
by: Bookkeeping Essentals

If you go with a journal entry, I don't think you'll be able to track your asset in fixed assets but here is your entry:

Dr Boat OC $10,000
Dr GST Payable $500
Cr Boat Loan $10,500
Dr Boat OC $600 (capitalized interest)
Cr Boat Loan $600

It would be a good idea if you are going to use QuickBooks to become familiar with the Accounts Payable module.

When entering the invoice from the boat builder, the vendor would be the boat builder. Your GST gets recorded correctly when you enter the invoice in "Enter Bills".

Generally, I like to have a "bank" type account called "Cash". To record the receipt of funds / bills paid by the financier, I would use this cash account.

So when paying the boat builder invoice in "Paid Bills", select the account "Cash".

Then I would "make a deposit" directly in the deposit form to the "Cash" account to record the money received indirectly from the financier (received from field).

This in effect clears the "Cash" account to zero, shows your loan has increased and your boat builder invoice paid ... ie. cleared your accounts payable.

I like this method because I can track the cash receipt. Also, because I have used QuickBooks forms, all my QuickBooks reports end up reporting correctly. It's a form of internal controls.
Dec 17, 2010
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starstarstarstarstar 		Got it!!
by: Andrea

Thank you so much for the clear, step by step instruction. I created a cash account under banking section for $$ related to the financier. Using this is so much easier than making journal entries.

I do understand how to use the accounts payable module, but had a mental block here.

It's quite simple now that I think about it. Thanks again and best wishes for the holiday season!
May 10, 2015
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starstarstarstarstar 		Record Loan
by: Kelly, Irvine CA

I use QB 2015.

I started a sole proprietorship in Jan 2015 with a $25 thousand bank loan. I already started a new company file in QB. But how do I record the loan? There is no cash so what equity account is affected?
May 10, 2015
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starstarstarstarstar 		Kelly
by: Lake

Sorry Kelly, I'm not sure I can help you as your question moves into tax law. Coming from Canada, I don't know the rules / requirements to transition from a sole proprietorship to an S corporation … if any.

This blog may help in your transition but I'm not sure ….

http://scottletourneau.com/the-transition-from-a-sole-proprietorship-to-a-corporation-or-limited-liability-company/

If you look at step 9, it suggests you speak with your accountant on how to transition your assets and liabilities to your corporation.

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