Question

QBO Recording draws against the client's construction loan?

Forum|Forum|5 years ago
January 8, 2021
3 replies
48 views

For a construction business, how do I handle bank draws against the client's construction loan? Do I simply invoice the client and submit invoice to the bank and not even worry about the loan being recorded in qb? Or do I setup the loan as a credit card (as others have suggested) and just charge items to that account? Your advice is appreciated.

QuickBooks Online

MJoy_D

QuickBooks Team

I can help you track this loan, @smith772.

Yes, you can set up the construction loan account as a credit card type account and enter the money that you get from the bank as the balance. Then, any expenses for the construction shall be taken out of from that credit card account.

Here's how to create an account:

Go to the Gear icon and choose Chart of Accounts.
Click on New.
Set the Account Type, Detail Type, Name, and Bank balance.
Select Save and close.

Here's how to record and manage your expenses in QuickBooks Online: Enter and manage expenses in QuickBooks Online. You can also record them directly to your register if there's a lot of them. See this manually add transactions to account registers in QuickBooks Online article for detailed guidance.

Let me know if you still have questions in tracking your loan and entering other transactions. I'm always glad to help in any way I can. Have a great rest of the day!

S

smith772Author

Thanks for your response. You said to set it up at a credit card account, but your screen shot shows it as an Asset account. Which should it be?

Also, is this the correct workflow? Invoices come in from the subcontractors, we invoice the client for the items and submit to the bank for the draw. We receive the draw money into qbo as a payment from the specific loan account we setup. We then pay the subcontractor invoices from the loan account.

Or do we setup the loan account with the entire loan amount and then just draw down with each subcontractor invoice?

Thanks for your help.

Rubielyn_J

Level 8

I appreciate your time getting back in here, @smith772.

You can set up a liability account to record a loan and its payments. This account tracks what you owe.

Here's how:

Go to the Settings ⚙ menu and then select Chart of Accounts.
Click New to create a new account.
From the Account Type ▼ dropdown, choose Long Term Liabilities.
From the Detail Type ▼ dropdown, select Notes Payable.
Provide the account name.
In the When do you want to start tracking your finances ▼ dropdown, choose when you want to start tracking the transactions.
Enter the full loan amount as a negative amount.
Once done, click Save and close.

Follow these steps if you put all the loan money right into the bank:

Click the + New button.
Choose Journal entry.
On the first line, select the liability account you just created from the Account dropdown. Enter the loan amount in the Credits column.
On the second line, choose your bank account from the Account dropdown. Enter the same loan amount in the Debits column.
Once done, click Save and close.

For more info, feel free to check out this article: Set up a loan in QuickBooks Online.

I've included a couple of resources about working with loans that may come in handy moving forward:

Know that you're always welcome to post your reply here. I'll be around to assist you. Keep safe and healthy.

V

varoncpa

I have a client who obtained a $34m construction loan. We recorded the total loan as a liability and the reserve fund as an asset. When paying the construction costs, the client will charge a construction in process asset and reduce the reserve fund as costs are incurred. Is this an appropriate method?

L

Lina_R

Although this question is several years old, I have to jump in because all the other recommendations complicate things.

You do NOT need to setup a liability or credit card for the loan and it isn’t your company’s loan, it’s your client’s liability/loan to track. Simply bill the client. You shouldn’t be paying costs until you receive client (bank) funding anyway.

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