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Tracking interest and principal separately for a loan given to a customer

Some businesses have the option of financing a loan for a customer when selling a larger item. For tax purposes interest income and sales income need to be tracked separately.   In this article we are going to set up this process for a car dealership.  The item names and processes can be customized for the individual business need. Please read through the directions before following them to verify this is the correct resolution for your business.

Detailed Instructions

We are going to start by creating two separate items. The first item is going to be the Vehicle Item.

  1. Select the List drop down meun in QuickBooks and choose Item List.
  2. Click the Item button in the bottom left corner of the list and choose New Item.
  3. Select Inventory Part.
  4. For Item Name type the name of the vehicle model.
  5. Enter the Cost, and proper Cost of Goods Sold Account. (If you are unsure how to create a new account, search adding an account in your In Product Help to learn more).
  6. Enter a Sales Price and choose an Income Account.
  7. Click OK to save this item.

The second item we are going to create is an Interest Item.

  1. From the Item List select Other Charge.
  2. For Item Name type Vehicle Interest. (If you are not sure how to create a new account, you can search ‘adding an account’ inside of your in product help menu to learn more).
  3. For Account choose your ‘Customer Interest Income’ account.
  4. Click OK to save this item.

Now, we need to sell the customer these items.

Note: If you are not sure how to create a customer, search the in product help for ‘add a customer’. This will give you results on the different processes in place for creating customers.

  1. Open your Customer Center.
  2. Right-click your customer, you will have a menu open. Third from the bottom is an option to Use Register. A customer register opens.
  3. Select the Vehicle Item you want to sell in the Item field.
  4. Assure that your Quantity, Rate, Amount Charge, Description and Class are correct. If you have more than one Accounts Receivable, be sure to choose the one you want to use for vehicle loans in the Account field.
  5. Left-click on Record. This will take you down to the next empty line.
  6. In this Item field select the ‘Vehicle Interest’ item.
  7. Assure all the fields listed in Step 4.
  8. Left-click Record.

The loan is now recorded. At this point the customer owes you the entire amount of the loan. To receive payment on the loan:

  1. From the Customers menu at the top of your screen select Receive Payments.
  2. Select the customer that you entered the charges for, as well as the A/R account you assigned the transactions to.
  3. The vehicle and interest charges will show up as two separate lines. On the far right side there is a Payment column. In the top row, type in the desired amount to be applied against the vehicle, in the second row, the interest.
  4. Left-click Save &Close. You might receive a warning that the payment does not equal the total of the invoice. Select the option to leave the amount as an underpayment, and then click OK.

 

Your customer balance reports will now reflect the loan as well as the payments.

This method does not include calculations for Sales Tax. If you are in a state that requires a Sales Tax charge on items or interest you will need to contact your accountant for assistance with that set up.

 

 

If these steps do not resolve the issue, you can read discussions and post messages and questions relating to your issue on the Intuit QuickBooks Community site for free or you can contact a technical support agent for additional guidance. Fees may apply.

KB ID# HOW13122
10/22/2014 10:07:45 PM
PPRDQSSWS407 9102 Pro 2013 bad9c1