QuickBooks: What Is a Line of Credit?

by Avery Martin

A line of credit in QuickBooks pertains specifically to credit extended to your business through a bank or loan provider. A few special circumstances exist when entering lines of credit in QuickBooks. When you use a line of credit you increase the total liability for your business; because of this, you must create a separate account for the line of credit to accurately track your finances.

Liability Account

Creating a line of credit as its own liability account allows you greater control over the interest, deposits, charges and repayment options. Line of credit accounts work well as overdraft protection in case you accidentally overdraw your main business accounts. You can also use the line of credit as a standard payment account once you create it and pay vendors and customers with your line of credit rather than your bank accounts.

Creating Accounts

To record transactions to the liability account, you must first create the account. You can complete this process by selecting the option in your Chart of Accounts. The Chart of Accounts contains a list of all your currently held assets, liability, inventory and equity accounts. Click the "Lists" menu, select "Chart of Accounts" and choose "New" to create the account. Choose the option to set up the account as a Line of Credit, provide the required information and click "Finish."

Recording Transactions

The line of credit account exists to help you manage all of the financial information pertaining to the account. Once you set up the account, you no longer need to access the line of credit account, unless you want to run reports or search for specific transactions. You can use the Transfer Funds window to record all transactions from your line of credit account to the bank account. Use your checking account to pay bills and other charges and use the line of credit as a one-time transfer to your bank account to cover any charges.

Payments

You make payments to the line of credit by sending a check from your bank to the provider. This process gets completed within QuickBooks, whether you actually use QuickBooks to send the payment or not. If you don't use the Banking menu to pay the line of credit account, then your reports won't show accurate information. Select the "Banking" menu and choose the "Write Checks" option to create a check. Input the name of the company that issued the line of credit in the "Pay to the Order Of" field and select your line of credit account in the Account column. Once you enter the total amount of the payment, you can click "Save & Close" to record the payment. This creates a record in your bank register, as well as the line of credit account.

Disclaimer

Information in this article applies to QuickBooks 2013. It may vary slightly or significantly with other versions or products.

About the Author

Avery Martin holds a Bachelor of Music in opera performance and a Bachelor of Arts in East Asian studies. As a professional writer, she has written for Education.com, Samsung and IBM. Martin contributed English translations for a collection of Japanese poems by Misuzu Kaneko. She has worked as an educator in Japan, and she runs a private voice studio out of her home. She writes about education, music and travel.