Refinance a Loan
by Peggy
The business has refinanced a loan. I need to close out the old loan and open a new one with the new balance and new account number. Can you help? Thanks.
Jennifer replies:
I'll assume that you mean to ask about the specific bookkeeping entries in QuickBooks. There might be other ways, but here's how I would do it.
It is important that the old loan has been entered and reconciled. We will transfer the reconciled balance from the old loan to the new one. I won't go into detail about reconciling here. If you need more help, here's a url where I wrote some reconciliation instructions (copy and paste into your web browser):
http://www.jenniferthieme.com/reconcile-statements.html
After the old loan has been reconciled, make a note of the ending balance. Go to the Chart of Accounts and set up a new Long Term Liability account. Name it something that looks like this:
Bank of America 9876
"9876" represents the last four digits of the loan account number, and "Bank of America" represents the name of the financial institution that holds the loan.
Once this is set up, go to the Transfer Funds screen:
Banking > Transfer Funds
Enter the date of the new loan. In the "Transfer funds from" box, select the NEW loan account (yes, you read that correctly!). In the "Transfer funds to" box, enter the OLD loan account (Yes, you read that correctly too - see the astrisk below for explanation). In the Amount box, enter the ending (reconciled) balance of the old loan account. In the memo line, type something like this:
"Closes old loan, and opens new loan 9876" or something similar. Save the transaction.
*Why are the Transfer accounts switched? It's because of the terminology of QuickBooks. The Transfer Funds From box creates a credit for that account, and the Transfer Funds To box creates a debit for that account. We are not transfering funds, we are transfering debt. So we must credit the new account to raise it's balance, and debit the old account to lower it.
Now go back to the Chart of Accounts. The old loan should have a zero balance, and the new loan should have the correct starting balance. Make the old loan account inactive by right clicking, and selecting Make Account Inactive. You can then hide it by making the appropriate selection in the Chart of Accounts.
If you could post a comment below and let me know if this was helpful or not I'd appreciate it. Thanks.
