QuickBooks Loan Manager

Current vs. Non-current Debt

2011.0718

My webstats include search terms used by the visitor when entering my site. This month, one entry in particular caught my eye. The visitor was wanting to know if QuickBooks Loan Manager separates the current and non-current portion of a long-term debt.

The short answer to this question is "No." QuickBooks Loan Manager prompts you for a principal account when setting up a loan in the system. QuickBooks Help indicates that you should choose a long-term liability account for a note with a term of more than twelve months, and an other current liability account for a note with a term of twelve months or less.

The problem with this approach is that the current portion of long-term debt is not shown separately on the financial statements. This information is important to lenders who have to evaluate if you have enough cash flow to service current obligations such as accounts payable, payroll, and note payments coming due in the next twelve months.

Here is a way to rectify this problem:

1. Make all long-term notes (notes with a term of more than twelve months) a subaccount of an account called "Notes Payable - Non-current" in the long-term liability type group.
2. Make all current notes (notes with a term of twelve months or less) a subaccount of an account called "Notes Payable - Current" in the other current liability type group. If you previously set notes up as long-term liabilities but they are now twelve months or less from payoff, don't worry -- just leave them there.
3. Create an account called "Current Portion of LT Debt" in the other current liability type group as a subaccount of "Notes Payable - Current"
4. Create an account called "Offset Cur Portion of LT Debt" (account names are limited to 31 characters in QuickBooks as of this writing) in the long-term liability type group as a subaccount of "Notes Payable - Non-current." This will be a contra-liability account (it normally carries the opposite balance of the financial statement group to which it belongs).
5. Review the amortization schedules for each note belonging to the long-term liability account group. Make sure the balance in each note account currently agrees with the balance according to the corresponding amortization schedule as revised for previous loan activity (such as payments).
6. Make sure the Loan Manager is set up to use the appropriate long-term liability account for each loan set up in the long-term liability account group.
7. Review the amortization schedules for each note belonging to the long-term liability account group. Include an entry for twelve months (or the remaining portion if shorter) of each note's principal, debiting the Offset Cur Portion of LT Debt account and crediting the Current Portion of LT Debt account.
8. Use Loan Manager to help you book principal and interest payments each month. The principal for each payment of each note will be booked to the corresponding long-term liability account you specified when setting up the loan in Loan Manager.
9. You can adjust the amounts reflecting the current portion of long-term debt by reversing the previous entry and adding a new one as outlined above. This can be done each month; as each note is paid off; or at the end of each fiscal year (during year-end closing). Unless note activity results in a previous entry materially mis-stating the current portion of long-term debt, the easiest choice is to make any adjustments during year-end closing.