5 Biggest Bookkeeping Mistakes Fixed: Part One
Separate Interest and Principal on Loan Payments
If you have a loan, you probably know that part of your monthly payment goes towards the principal of the loan and part goes to pay interest. You need to tell QuickBooks about this break down too. If you don’t split out your loan payments each month, you can easily end up with tens of thousands of dollars being moved to interest expense when you have your tax return prepared. It’s no fun to see your books go from owing $300,000 and having net income of $20,000 to owing $350,000 and a net loss of $30,000 because you did not record interest all year long. If you experience this pain, here’s how to avoid it next year.
Often banks will send a loan payment breakdown to you each month, or you can usually log in online and get the breakdown there. When you record a loan payment, make sure you have a line for principal and a line for interest expense. Don’t use a Transfer to record a loan payment because that won’t let you split the payment between principal and interest. Instead, use either a Check (if paid with a paper check) or Expense (if paid electronically, online, or with an ACH, etc.) type transaction.