Setting Up A Mortgage In Quickbooks: A Step-By-Step Guide

Setting up a mortgage in QuickBooks can be a straightforward process if you break it down into parts. QuickBooks is an accounting program developed and sold by US software company Intuit. It allows users to stay on top of their outstanding mortgages and monitor principal, interest, and escrow balances. To set up a mortgage in QuickBooks, you need to create accounts to track your liabilities and expenses. This involves selecting Chart of Accounts from the Lists menu and choosing Long-Term Liability for the mortgage and Expense for interest payments. Additionally, you will need to record the initial mortgage loan through a journal entry and use a check to record loan repayments.

Creating a journal entry to record the initial mortgage loan

To create a journal entry to record the initial mortgage loan in QuickBooks, you must first set up a liability account to track the loan and its payments. Here is a step-by-step guide:

Step 1: Create a Liability Account

• Go to the "Lists" or "Accounting" tab, then select "Chart of Accounts".
• Click "New".
• From the "Account Type" drop-down menu, select "Long-Term Liabilities" or "Current Liabilities" (depending on the loan type).
• Select "Loan Payable" in the "Detail Type" field.
• Type a unique name for the account.
• Click "Save and Close".

Step 2: Create a Journal Entry to Record the Loan

• Go to the "Company" menu, then select "Make General Journal Entries".
• Enter the date and journal entry number.
• Select the first line and debit the loan asset account.
• Choose the second line and credit the liability account you just created.
• Click "Save and Close".

Step 3: Record the Loan Payments

• Navigate to the "Banking" menu, then select "Write Checks".
• Choose the bank account you want to use for loan payments.
• Verify the check number and date.
• In the "Pay to the Order of" field, select the name of the bank.
• On the first line, select the liability account, then enter the payment for the principal amount.
• On the second line, select the interest expense account and enter the payment for the loan interest.
• (Optional) Memorize the check if you want QuickBooks to automatically enter the payment at regular intervals.

By following these steps, you can create a journal entry to record your initial mortgage loan in QuickBooks and effectively manage your loan payments.

Tracking principal, interest and escrow balances

Tracking principal, interest, and escrow balances is essential to ensure accurate records for your mortgage in QuickBooks. Here are the steps to effectively track these components:

Firstly, understand the breakdown of your monthly mortgage payments. A portion of your payment will go towards the principal, which is applied to the long-term liability mortgage to reduce the loan amount. The interest component is the cost of borrowing the principal amount and is booked under an interest expense account. Additionally, a part of your monthly payment will be allocated to an escrow account, which is used to cover expenses such as taxes and insurance.

To set up escrow in QuickBooks, you can create three accounts: a Long-Term Liability account for the loan, an Other Current Asset account for escrow, and an Expense account for interest. This allows you to track escrow activity alongside your principal and interest payments. Ensure that you regularly review and reconcile your accounts to verify that the escrow amounts match your mortgage statements. This helps maintain accurate financial records and avoids discrepancies.

When recording your mortgage payments in QuickBooks, be sure to link them to the correct accounts, including Mortgage Interest, Mortgage Liability, and Mortgage Escrow. You can automate these payments in QuickBooks to save time and keep your records up to date. Additionally, always verify that the payment amounts recorded match your bank deposit slip to ensure accurate tracking of both principal and interest over time.

By following these steps, you can effectively track the principal, interest, and escrow balances associated with your mortgage in QuickBooks, ensuring clear financial records and a comprehensive understanding of your payments.

Splitting monthly transactions into principal, interest and escrow payments

When you pay your mortgage each month, your bank will send you a breakdown of principal and interest payments, along with payments to an escrow account. When the payment is made in QuickBooks each month, the transaction needs to be split into three lines.

Firstly, the principal payment is applied to the Long-Term Liability Mortgage to pay down the loan. Secondly, the interest payment is booked under an Interest Expense account. Finally, the Escrow payment is applied to an Other Current Asset account. An escrow payment for a mortgage is simply money given to another party to hold until certain payments, such as home insurance premiums and tax payments, are due. For example, if a home has $1,200 due in home insurance and $1,200 due in property taxes per year, the bank will hold $200 a month from the monthly mortgage payment in escrow until the total is $2,400, which is due at the end of the year.

To manually split the transaction in QuickBooks, go to the Banking tab, then select the transaction that you want to split. Click Split, then enter the principal amount and interest. Click Apply and accept.

You can also set up a rule that splits and adds the transaction to your register automatically. Go to the Banking tab on the left-hand side of the screen. Select the Rules portion of the page. Press New rule. Enter all the information needed and hit the Add a split hyperlink next to the "Category" box.

Creating a liability account for the mortgage

Creating a liability account for a mortgage in QuickBooks can be done in a few steps. Firstly, you need to open your QuickBooks file, then go to the Lists menu, and select Chart of Accounts. From the Account drop-down menu, click on New. From the Account Type drop-down menu, select Non-current liabilities or Other Current Liability for short-term loans and Long-Term Liability for long-term loans. Click Continue, enter the account name, and then Save & Close.

Once you have created the liability account, you can record the initial mortgage loan. It is recommended to consult an accountant to ensure all accounts and amounts are correctly recorded. You can then use a check to record the loan repayment. Go to the +New button and click Check. If you are sending an actual check, enter a check number. For direct withdrawal or EFT, input Debit or EFT in the Check no. field.

In the Category details section of the check, choose the liability account for the loan from the Category dropdown and type in the payment amount. On the second line, select the expense account for the interest, and enter the interest amount. Input any additional fees on separate lines, and select the appropriate accounts. Finally, Save and Close.

After setting up the liability account, you may need to set up a vendor account to begin making payments. You can enter the balance of the loan under "additional information" in the vendor account.

Creating an expense account for interest payments

Setting up a mortgage in QuickBooks involves breaking down the monthly payments into principal, interest, and escrow components. The interest payment is booked under an 'Interest Expense' account.

To create an expense account for interest payments, you can follow these steps:

Firstly, you will need to set up another expense account specifically for the interest. To do this, click on the Gear icon and select 'Chart of Accounts'. From here, you can choose 'Interest Paid' for the Detail Type, enter the name of the account, and click 'Save and Close'. This new account can now be used when creating a check or expense transaction for the interest payment.

When creating a check for the repayment, you will need two accounts: a liability account for the payment and an expense account to track the interest amount. The principal amount of the loan will show on your expense account once you record loan repayment. However, if you only want to show the interest payment, you can manually record the loan interest payments to the separate account you created.

You can then run a QuickReport of the expense account for interest paid and verify the information. It is important to record all interest expenses to provide visibility into operational costs and better manage your finances. You can also use the QuickBooks Loan Manager to automatically calculate interest owed and track accrued interest over time.

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