Line of Credit in QuickBooks desktop (2024)

FAQs

How to setup a line of credit in QuickBooks Desktop? ›

Set up a liability account for the principle

When you pay for things with your line of credit, record the transaction as a bill or expense in this account. then select Chart of accounts (Take me there).

A line of credit, does not appear on the books of the organization until money is borrowed. When money is borrowed, the amount is recorded as a loan in the liability section of the Statement of Financial Position along with the interest owed on the outstanding balance.

A line of credit is a flexible loan from a financial institution that consists of a defined amount of money that you can access as needed. You can repay what you borrow from a line of credit immediately or over time in regular minimum payments. Interest is charged on a line of credit as soon as money is borrowed.

Using a line of credit to purchase equipment or inventory, for example, would all fall into the category of an ordinary and necessary business expense.

Revolving vs.

An LOC is often considered to be a type of revolving account, also known as an open-end credit account. This arrangement allows borrowers to spend the money, repay it, and spend it again in a virtually never-ending, revolving cycle.

A line of credit (also known as a bank operating loan) is a short-term, flexible loan that a business can use to borrow up to a pre-set amount of money. A line of credit is convenient for bridging gaps between the points when accounts payable are settled and accounts receivable are collected.

Most lenders will only provide a line of credit if the underlying asset securing the line is accounts receivable or inventory. The lender will offer a term loan if the company is financing other assets such as machinery or real estate. However, this is not a hard rule, and some lenders make exceptions.

How do you create a line of credit? ›

To land one, you'll need to present a credit score in the upper-good range — 700 or more — accompanied by a history of being punctual about paying debts. Similar to a personal loan or a credit card, an unsecured personal line of credit gets bank approval based on an applicant's ability to repay the debt.

If the line of credit has not yet been used, it is unnecessary to record entries on your general ledger. Open lines of credit do not need to be reflected on your financial statements as it is not considered an asset for accounting purposes.

The Nature of Borrowing: A line of credit is an amount of money that a business can borrow and use for its needs, but it must eventually repay this amount to the lender. Since it represents a future financial obligation, it is recorded as a liability on the company's balance sheet.

Here's how: Go to Settings ⚙ and select Chart of accounts (Take me there). Select New, then set up your account. In the Opening balance field, add the balance reflecting your bank or credit card account.