Recording a loan in QuickBooks takes two moves that people often collapse into one. The money that arrives is not income, and the payment that leaves is not entirely an expense. Here is how to record a loan in QuickBooks so your balance sheet shows what you owe and your profit and loss shows only what the loan actually costs you.
Last verified: September 2026.
Why a loan is neither income nor an expense
When a lender sends you $50,000, you now hold $50,000 more cash and you also owe $50,000. Your business is not any richer, so nothing should touch your income. When you repay, most of each payment reduces what you owe, and only the interest is a real cost of doing business. Getting this split wrong is the most common loan mistake, and it distorts both your profit and your tax picture.
Step 1: Create the loan account
- Go to the Chart of accounts and select New.
- Choose Long Term Liabilities as the account type for a loan that lasts more than a year, or Other Current Liabilities if it is due within twelve months.
- Pick the detail type that fits, such as Notes Payable for a long-term loan.
- Name it clearly, for example “Bank Loan – Main Street Bank,” so you can tell several loans apart.
Also make sure you have an interest expense account, usually named Interest Paid, under Expenses. If your accounts are still a work in progress, see our guide to setting up a chart of accounts correctly first.
Step 2: How to record a loan in QuickBooks as a deposit
Create a Deposit in the bank account that received the funds. On the line for the source, use your new loan account, not an income account, and enter the full amount. The result is that your bank balance goes up and your loan liability goes up by the same amount, with no effect on income.
If the deposit came through your bank feed, categorize that line to the loan account rather than adding it as income. This is a good example of where careful categorizing of transactions protects your numbers.
If the lender paid a seller directly, as with many equipment loans, no cash ever reached your bank account. Record the equipment as an asset and the loan as a liability using a journal entry, and ask your accountant to confirm the accounts.
Step 3: Record each loan payment with a split
Every payment has a principal part and an interest part. Your lender’s statement or amortization schedule shows the split for each month.
- Create an Expense or a Check from the bank account that pays the loan.
- On the first line, choose the loan account and enter the principal amount.
- On the second line, choose Interest Paid and enter the interest amount.
- Confirm the two lines add up to the total payment that left your bank.
If the payment arrives through the bank feed, use the Split option when categorizing so you can assign the two parts. Because the interest portion shrinks over time, a recurring template needs its amounts updated as the loan ages.
What each part of a loan does to your books
| Event | Accounts affected | Effect on profit |
|---|---|---|
| Loan money received | Bank goes up, loan liability goes up | None |
| Principal portion of a payment | Bank goes down, loan liability goes down | None |
| Interest portion of a payment | Bank goes down, interest expense goes up | Reduces profit |
| Loan fees at closing | Bank goes down, fees expense goes up | Reduces profit |
Common mistakes when recording loans
- Recording the loan proceeds as income. This overstates profit, and it can overstate what you owe in tax.
- Expensing the full payment. Profit looks lower than it really is, and the loan balance never goes down, so your balance sheet keeps showing the full debt.
- Never checking the balance against the lender. Compare your loan account to the lender’s statement each month. A difference usually means an interest amount was entered wrong.
- Mixing owner loans with bank loans. If you lend money to your own business, use a separate account so it is not confused with third-party debt.
Lines of credit, equipment loans, and owner loans
A line of credit works differently because the balance moves up and down as you borrow and repay. Track it in a liability account and record each draw as a deposit and each repayment with its interest split, the same way as a term loan. Equipment loans add the asset side, and depreciation is handled separately by your accountant. A loan from an owner uses its own liability account, and repayments are usually tracked without an interest split unless the two sides agreed to charge interest.
How to check that everything is right
After you record a few payments, open the Balance Sheet and confirm the loan balance matches your lender’s principal balance. Then run a Profit and Loss and confirm the loan shows up only as interest. Our guide to running a P&L report that makes sense explains how to read that report. Finally, make sure your bank account still reconciles, using the steps in our bank reconciliation guide.
Frequently asked questions
Do I need to record a loan if it went straight to a vendor?
Yes. Even if the cash never touched your bank account, you still owe the money. Record the asset or expense and the loan liability with a journal entry so your balance sheet reflects the debt.
What if my lender takes principal and interest as one payment?
Use the lender’s amortization schedule or monthly statement to find the split. If you do not have it, ask the lender for one, because guessing the split creates errors that add up over time.
Where do loan origination fees go?
Small fees are usually recorded as an expense, such as bank or loan fees. Larger fees can sometimes be spread over the life of the loan, which is a decision to make with your accountant.
Can I use a recurring transaction for loan payments?
Yes, but the principal and interest amounts change every month on most loans. Update the split regularly, or record each payment when the statement arrives instead.
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