general journal entry

How Do I Record a Debt Refinancing Where I Use a New Loan To Pay Off Several Other Loans?

Chief Mechanic · September 12, 2010 ·

A common business situation is to use a new loan to repay one or more existing loans, possibly raising cash in the process. This is commonly referred to as a refinancing.

QuickBooks includes a Loan Manager which can be run from the Banking->Loan Manager menu selection. It’s important to understand that Loan Manager is primarily a tool to calculate payment schedules and to simplify the process of distributing interest and principal payments to the appropriate GL accounts. When you create a new loan in Loan Manager, the outstanding balance for that loan will start as $0 – until you record a transaction in the liability account in QuickBooks itself. Once the liability account is increased to reflect the loan’s principal, Loan Manager can assist you to record the regular payments. Likewise, when you remove a loan from Loan Manager, you are not making changes to the liability account balance.

Therefore, the simplest way to account for a refinancing is to use GL journal entries. To make these functions, access the Make General Journal Entries window from the Company->Make General Journal Entries menu selection.

QuickBooks Premier 2009 GL Make General Journal Entries

Let’s consider this example: a company is refinancing a building for $200,000, and is using the settlement proceeds to repay 3 other mortgage loans, pay the settlement expenses, and increase cash. Each of the 3 other mortgages has an outstanding balance of $50,000, and there are 2 settlement charges that total $4,000. That produces a net increase in cash of $46,000. Here are the conceptual debits and credits to record:

Enter a credit of $200,000 to the new mortgage liability account
Enter a debit of $46,000 to the cash or checking account in which the net proceeds were deposited
Enter debits to the expense accounts to reflect the settlement charges; in our example, there are 2 debits to expense accounts, 1 for $3,000 and 1 for $1,000
Enter debits of $50,000 to each of the 3 existing mortgage accounts that were paid off with the settlement proceeds
When you’ve entered all your debits and credits, click either Save & Close or Save & New to save your work

Here’s another look at those debits and credits:

General Ledger Distribution for a Mortgage Refinancing

The order that these debits and credits are entered on the Make General Journal Entries window does not matter provided that total debits equal total credits.

Once you’ve recorded this general journal entry, you can now run Loan Manager and delete the 3 loans that were fully repaid and set up the loan payments for the new loan. Note that Loan Manager reads your GL chart of accounts when it loads, so if you’ve added any accounts while Loan Manager was already running to record the journal entries discussed, you’ll need to close and re-start Loan Manager before recording the new loan. It’s a good idea to have a separate account for each loan to simplify reconciling that account in the future, so the new loan should get a new account. The GL accounts must be active to be recognized by Loan Manager, so don’t make the GL accounts for the 3 paid-up loans inactive until after you’ve deleted them from Loan Manager.

The Account Name in Loan Manager is the liability account for the new loan, which in our example is “New mortgage liability account.” When you select this account from the pull down menu in Loan Manager, it will automatically recognize the principal balance that was created with the GL journal entries you recorded. Continue to set up the new loan and delete the repaid loans.

Once completed, your financial statements are correct, and you’re ready to use Loan Manager to calculate and distribute your loan amortization.

For more information on using Loan Manager, see our related articles on adding a new loan and deleting an existing loan.

(+1 rating, 1 votes)

How Do I Record the Sale of a Fixed Asset On a Lease?

Chief Mechanic · September 12, 2010 ·

If you’ve already accounted for a leased asset as a fixed asset, you’ve accounted for that asset as a capital lease, sometimes called a finance lease, as opposed to an operating lease. We’ll assume that the capital lease determination is correct and proceed from that point.

Capital leases impact a firm’s balance sheet, and the gain or loss from the disposition of these items flows through to the income statement. However, the gross amount from the sale of fixed assets is not revenue or income and should not be recorded in accounts that record results from operations.

Let’s imagine a company with a computer that had an original cost of $1000 and has accumulated depreciation of $500. The company is selling the computer for $200 and will use the $200 to reduce the lease liability. In effect, the firm has a computer that has a net carrying cost of $500 ($1000 cost less $500 accumulated depreciation) that is being sold for $200, or a loss of $300. Conceptually, here are the journal entries that should be made:

Step 1: Record the Asset Sale

General Journal Entries for Sale of Leased Asset Step 1

Step 1A: Record the Asset Sale and Use Make Deposits Window to Record the Cash Receipt

General Journal Entries for Sale of Leased Asset Step 1a

Step 2: Record Using the Sale Proceeds to Repay the Lessor

General Journal Entries for Sale of Leased Asset Step 2

Step 1 removes the computer (the fixed asset) from the balance sheet and reverses the accumulated depreciation against that asset. It also records the cash receipt and the resulting loss. If you elect to enter the cash receipt in the Make Deposits window (Banking->Make Deposits), you would select your computer asset account as the From Account. In that case, since QuickBooks would automatically debit cash for $200 and credit your asset account by $200 (of the $1000 total), you’d make the alternate journal entries in Step 1A to complete recording the asset sale. Note that the “Loss on sale of assets” account is an Other expense account. To create an account of this type, use the Other Account Types selection and choose Other expense from the pull down menu.

The journal entries in Step 2 do not need to be directly entered. Those are the journal entries that QuickBooks will create when a check is written to the lease liability account.

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What Are Sources and Targets?

Chief Mechanic · September 11, 2010 ·

Sources and targets are important concepts to understand reporting in QuickBooks and use of the Advanced Find function.

Sources and targets are terms assigned by Intuit to describe transactions.

In most instances, the source of a transaction is the summary or total of the transaction. For example, the source of a check includes the amount of the check, the payee, and the bank account from which the check was written. The target of a transaction is the distribution of the source into 1 or more other accounts. For example, a check might be used to pay expenses in 2 different General Ledger accounts, which appear on the Expenses tab below the check payee information. The targets of this check include the information on these 2 lines.

A transaction can have 1 source and 1 or more targets. In most instances, the source is equal to the sum of the targets. Forms or windows in QuickBooks determine what information will be the source and what will be the target. Your only control over what is the source or target is what you enter (subject to validation) in the appropriate area of the form. In the check example below, the top part of the check form is always the source, and the bottom part always contains the target information. However, don’t extend too far the thought that the “sources are on top of the form and targets on the bottom.” That only applies to A/R & A/P transactions.

General Journal Entries are one important exception to the discussion of sources and targets. The first line of a general Journal Entry is the source, and all other lines are targets. Depending on how one enters a general journal entry, the source may not be equal to the sum of the targets. Since you have direct control over the order of lines in a general journal entry, you do control what the source and targets are for general journal entries.

Payments, statement charges, and transfers don’t follow the model that the source is on the top of the form and targets on the bottom.

Here are the source and targets for QuickBooks transaction types:

Invoice: A/R is the source; income accounts associated with the line items are the targets
Bill: A/P is the source; expense accounts on the line items are the targets
Deposit: The Deposit To account is the source; the accounts on the line items are the targets
Payment: The Deposit To account is the source; A/R is the target

To learn the source and targets for any transaction, click the Journal button or use the keyboard shortcut Ctrl + Y. The source is the first line listed. The targets are the lines listed after the source.

QuickBooks Enterprise Solutions 10 Check

QuickBooks Enterprise Solutions 10 Check Transaction Journal

In this example, the source is the first line of the report that shows the payee and check amount. There is 1 target, the second line that contains the distribution information. We’ve added Source Name as an additional column to the standard Transaction Journal report to better illustrate sources and targets. Note that the Name field for the target is the Customer:Job name, but the Source Name is the check payee. Reports that show target information won’t show the check payee in the Name field.

That leads to confusion among QuickBooks users that aren’t familiar with sources, targets, and the type of information that appears on a report. A report that shows check information in an expense account is reporting target information. The report is not indicating that a check was written to the information shown in the Name field.

According to Intuit:

sources and targets are database concepts and have nothing to do with debits or credits
a source can be a debit or credit, just as a target can be a debit or credit
most reports display a mixture of source and target data
the Inventory Valuation Summary and Inventory Valuation Detail reports are examples of exceptions in that they display only target data

This Intuit knowledge base article offers additional information on sources and targets. When reading it, don’t forget the general journal entry exception to statements about sources and targets. Some of the statements in Intuit’s own materials don’t repeat that exception, and they’re only true with that exception noted.

Issues involving confusion about sources and targets are fairly common. To address these issues, Intuit also offers explanations of the source and target data sets, the report set, where reports get their data, and how conflicting report filters produce unexpected results.

(+3 rating, 3 votes)

What Are the Feature Differences Between QuickBooks Pro and Premier?

Chief Mechanic · September 11, 2010 ·

While the basic data file format is the same for both QuickBooks Pro and Premier, there are a number of features included with Premier that are missing from the less-expensive Pro. The introduction of QuickBooks 2011 further changed the list of differences between Pro and Premier.

For new features introduced with the 2011 version, QuickBooks Pro does not:

allow more than 3 users in a multi-user configuration
track balance sheet by class
allow multiple company files from the same version to be open at the same time

QuickBooks Pro versions prior to 2011 allowed up to 5 users to access a company file in a multi-user configuration. This has been reduced to 3 users for 2011.

The Balance Sheet By Class report is available in QuickBooks Premier 2011 and Enterprise Solutions 11.0. The ability to open multiple company files from the same version is only available in the industry-specific QuickBooks Premier Accountant 2011 or QuickBooks Enterprise Solutions 11.0.

In general QuickBooks Pro does not:

record sales orders, which provides for product availability (backorder) tracking
support inventory assemblies
support unit of measure
support price levels by item
support billing rate levels
provide the ability to view unbilled time and expenses on 1 screen
support converting items on an estimate or sales order to a purchase order
provide a list of already recorded general journal entries while recording a new journal entry
identify general journal entries as adjusting
support creating a forecast
support creating a business plan
provide access to previous bank reconciliation reports
include industry-specific reports

All of these features are included in QuickBooks Premier.

Many of these features apply primarily to inventory-based businesses, organizations that want to easily track purchases with Customers:Jobs, or easily track time and reimbursable expenses with Customers:Jobs. For example, the screenshot below of QuickBooks Pro 2012 illustrates that QuickBooks Pro does not have the ability to set the Create invoices from a list of time and expenses preference, which is the first step in setting up easy invoicing for time and reimbursable expenses.

QuickBooks Pro 2012 Time & Expenses Preferences

However, several important general accounting features are missing from Pro and may make the extra cost of Premier a worthwhile investment. One of these features is a list of already recorded general journal entries, shown below.

QuickBooks Enterprise Solutions 10 Make General Journal Entry

Another feature is the ability to view previous reconciliation reports. For the sample company file below, no reconciliations have been completed. But if they had been completed, each prior reconciliation (such as a monthly bank reconciliation) would be available. In Pro, only the most recent reconciliation report is available.

QuickBooks Enterprise Solutions 10 Previous Bank Reconciliation

(+2 rating, 2 votes)

How Do I Enter or Change the Opening Balance of a General Ledger Account?

Chief Mechanic · September 11, 2010 ·

When you’re setting up your QuickBooks general ledger, it’s a good idea to enter an opening balance for GL accounts. However, be careful not to enter opening balances for financial activity that occurred after your QuickBooks start date. To enter an opening balance, simply click the Enter Opening Balance button, which appears on both the Add New Account and Edit Account windows. Screen shots of both of these windows appear below.

Once you click the Enter Opening Balance button, you’ll see the Enter Opening Balance window:

QuickBooks Premier 2009 GL Enter Opening Balance

If you’ve already created the account, clicking the Enter Opening Balance button will open the account register, where you’ll be able to change an opening balance you previously entered.

The QuickBooks 2009 Add New Account window:

The QuickBooks 2009 Edit Account window:

The opening balance you enter should be the balance before your QuickBooks start date, which is the date you started using QuickBooks to track financial transactions. For bank and credit card accounts, you should enter an opening balance, which should be the ending balance on the last statement before you started using QuickBooks. As a general rule, if an account’s balance is the result of financial activity after your QuickBooks start date, you should use a transaction to change the account balance.

Some prefer to record an account’s opening balance by recording a general journal entry. One side of the general journal entry would set the account’s balance (either debit or credit), and the offsetting entry would be made to an equity account, such as the QuickBooks default Opening Balance Equity.

(+2 rating, 2 votes)

general journal entry

Accounting

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Intuit