How to Record Promissory Note in QuickBooks?

For managing proper financial records, it is imperative that a promissory note be recorded in QuickBooks.

A promissory note is a formal commitment to pay a specific sum of money after some time. If you want that your accounting system accurately reflects both the debt and the schedule of repayment then it is important that you maintain proper track of these promises.

Accurate tracking of promissory note can be done only if the details of the payee’s and payers are entered correctly and completely in the promissory note in QuickBooks.

About Promissory Note

Payee

The individual or entity to which the payment is intended is known as the payee. The promissory note’s agreed-upon sum is eligible to be paid to the payee. Cash, cheque, direct debit, wire transfer, credit card, or any other transfer method is used to pay the recipient.

Payer

The term “payer” refers to the individual or entity that will provide the agreed-upon sum of money to the payee. In addition to assuming responsibility for the obligation, the payer promises to pay the sum indicated on the promissory note.

Terms of Payment

The terms of payment of a promissory note outline the conditions under which the payer agrees to refund the payee. These terms outline the total amount owed, the due date, the payment plan, and any interest rates that may apply.

• Amount: The whole sum agreed upon for currency exchange between the payer and payee.
• Interest Rate: The interest rate is the portion of the principle that the borrower consents to pay over a predetermined length of time as interest.
• Payment Schedule: This details how frequently payments will be made (monthly, quarterly, etc.) and how much will be paid each time.
• Due Date: The Date which the entire amount is due and payable.

How to Record Promissory Note in QuickBooks?

• For Payee: When a loan becomes receivable, you become the creditor and the payer the debtor.
• For Payer: Repayment of the loan makes you the debtor and the payee the creditor.

Time Interval

• Less than 1 Year: Recorded as a short-term loan for current assets or current liabilities.
• More than 1 Year: Long-term loan recorded as a fixed asset or fixed liability.

Way of Recording Promissory Note in QuickBooks

In case of QuickBooks Desktop as a Debt Receivable

Method 1: Set up of the Necessary Accounts

Step 1: Navigate and click on the chart of accounts

• Click on the Lists menu displayed on your screen.
• From the drop down list of menu select the chart of accounts.

Step 2: Creating of New Account

• Navigate and select the Account menu, from the list of options of the account menu select the new button.
• Once the new account is selected then the type of accounts is to be selected, by clicking on Expense and then the Proceed button.
• Type the name of the account.
• Select “Save” and then “Close” button.

Method 2: Eliminate Outstanding Invoices

Step 1: Select Open Receive Payments

• Navigate and Select the customer’s menu on the left side of your screen.
• Now click on the receive payments tab.
• In received from the field you have to enter the name of the client.

Step 2: Mention the due amount and the discounts.

• In the due amount column enter $0.00.
• Now you have to select the Discounts and the Credits option.
• Input the desired write-off amount in the field of “Amount of Discount”.
• The account you added in the First step is to be selected under the Discount Account and then click done or OK Button.

Step 3: Keep the transaction.

• Click Save and close if you’re done with the above steps.

In case of QuickBooks Desktop as a Loan Receivable

Method 1: Creating of Loan Account

Step 1: Select the chart of accounts

• Select Lists from the menu from the top of the screen.
• Select the Option for the Chart of Accounts.

Step 2: Create an account now.

• Right click on the screen and then select New from the drop down menu.
• Now you have to select the type of loan account:
  • Additional Current Liability: For loans with shorter terms than a year
  • Long-term Liability: For loans with longer payback terms than a year.
• Tap the Continue button in order to continue.
• Now add Name and the account number.
• Click on close and exit button.

Step 3: Configure the Vendor

• Select Vendor Centre by clicking on the Vendors menu.
• Select and click on the New Vendor option.
• Indicate which bank or business you want to pay for the loan.
• Select “OK” by clicking on it.

Step 4: Create an account for expenses.

• Select the Chart of Accounts from the Lists menu by clicking on it.
• Select New with a right-click anywhere on your screen.
• Select Expense and then click on the Continue button.
• Enter the name of the account for making interest or fee payments.
• Select Save & Close button.

Method 2: Recording of the Loan Payments

Step 1: Click on the Make a Deposit window tab.

• Select the Banking option from the screen.
• Click on the Make Deposits tab.
• When the deposit window opens for making payments, select the Cancel button.

In case the Deposits Window Open Immediately, then:

• Select the account which is to be credited with the loan by clicking on the Deposit the loan into.
• Input a memo if desired and verify the date.
• Select Step 1’s Liability account that you created in the From Account column.
• Fill in the loan amount in the Amount section.
• Select Save & Close button.

Step 2: Record the amount of loan.

• Navigate and Select the Banking option and then select Write Checks option.
• Select the bank account that you wish to use to repay the debt.
• Check “n” and confirm the date.
• Now you have to select the name of the bank in the Pay to the Order field.

In Expense Tab

• The liability account that you have created in First Step should be selected on the first line. After that, input the principal amount.
• Choose the interest expenses account in the second line. Next, input the interest payment for the loan.

Step 3: Keep the transaction.

• Click the Save and close button if you are done with all the above steps successfully.

In case of QuickBooks Online Debt Receivable

Method 1: Creating of the Loan account

Step 1: Checking of Aging Accounts Receivable

• Select the Reports tab.
• Find the report which is named as Accounts Receivable Ageing Detail and then open it.
• Determine which accounts receivable are still pending and can be written off.

Step 2: Open an Expense Account for Bad Debts.

• Select the Chart of Accounts by clicking on Settings.
• Select the New tab to establish a fresh account.
• Select Expenses from the dropdown menu of the Account Type.
• Select Bad Debts from the dropdown menu of the Detail Type.
• Click the Save and Close button.

Step 3: Create a Bad Debt Entry

• To access Products & Services, click on the Gear symbol and then select Settings.
• First select Non-inventory and then New.
• Fill in “Bad Debts” under the Name column.
• Select Bad Debts from the dropdown menu for the Income Account.
• Click Save and Close.

Method 2: Recording of the Loan Payments

Step 1: Integrate the Credit Note with the Invoice.

• Press add new button.
• Select Receive Payment under the Customers tab.
• Select the correct customer from the dropdown menu.
• Select the Invoice from the list of outstanding transactions.
• Select the credit note by selecting it from the Credits area.
• Click the Save and Close button.

Step 2: Run the report of Bad debts

• Select the Chart of Accounts by clicking on Settings.
• Select Run Report from the Action column of the bad debts account.
• Add a Message for Debtor Customers by Selecting Customers under the Sales tab.
• Select the name of the client.
• Click on the Edit button, located at the upper right of your screen.
• After the name of the customer, select the “Bad Debt” or “No Credit” in the Display Name column.
• Press the Save button in order to save changes which you had made.

In case of QuickBooks Online Loan Receivable

Method 1: Set up a Liability Account

Step 1: Open the Chart of Accounts.

• Navigate to the Gear symbol on the screen.
• Select the Chart of Accounts.

Step 2: Creating of a new account

• Select on the New option.
• From the dropdown menu, select the Current Assets.
• Navigate and click on the account tab. From the Account Type drop down list, select Other Current Liabilities or Long Term Liabilities.
• Select Long Term Liabilities or Other Current Liabilities from the Detail Type drop-down box.

Step 3: Give the name to the account.

• Type in the account name. [You can also add any relevant information, such as a description.]

Method 2: Record the Amount

Step 1: Leave the area titled “Unpaid Balance” blank.

• The Unpaid Balance field should remain empty.

Step 2: Save the transaction.

• Click the Save and close button if you successfully completed all the above steps.

Conclusion

Businesses can keep an eye on loans and their repayment plans by accurately recording the promissory note. This process ensures that all loan transactions are easily accessible and openly recorded within QuickBooks, which facilitates the management and reporting of finances and contributes to the preservation of clear financial records.

And the above article provides you the details of all but still in case you are facing an issue then contact us. Our experts will provide you with the right direction for working on this.

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Frequently Asked Questions

Ques: Which entry should be made to document a promissory note?

Ans: The promissory note journal entry is made by crediting the notes payable account and debiting the account that is valued, which is usually the cash account.

Ques: Do promissory notes count as Expenses?

Ans: Interest is usually included in a promissory note, which the borrower pays, covering interest costs for the lender. Businesses have a second liability account called interest due under the accrual method of accounting.

Ques: Do Promissory notes have to be paid in full?

Ans: Notes payable consist of principle and interest, as opposed to accounts payable. Formal loans are those in which you are responsible for managing both the principal and interest payments. Promissory notes, which resemble loans, are a popular type of notes payable.

Ques: What kind of assets are promissory notes?

Ans: A promissory note is entered into the ledger as a debt. The promissory note may appear as one of the following on a balance sheet, depending on the terms of repayment: brief obligation if the note is paid in full within a year. long-term obligation should the note’s whole balance be repaid over a period longer than a year.

Ques: What kind of document is a promissory note?

Ans: A written promissory note bearing the signature of the promise maker is required. Banks frequently employ certificates of deposit as a form of promissory note. Promissory notes are governed by contract law and are classed as a form of commercial paper.