Updated: Feb 21
One error we have seen in the past, is clients putting their loans in the bill pay section. What we mean by this is... they will put a bill in there for the entire amount of the loan. Let's say it's a $20,000 loan. They will create a bill for that amount. Then each time they make a payment, put it towards that bill.
Loans should be tracked as a Liability in Your Chart of Accounts. A liability is something that is owed and under law, needs to be paid like a loan. It is paid over a period of time. All your liabilities should be listed on your Balance Sheet. The Balance Sheet lists out liabilities, assets and equity so it can be compared. Some liabilities are current like payroll and some are long-term like loans.
Liability: Business Loan
Asset: Office Equipment (It can be sold for money) (unless money is still owed, then it's a liability for amount owed)
Equity: Difference between assets and liabilities
We hope this helps you understand better how to do your books.