Jane Dotson
To enter mortgage insurance into QuickBooks, you must first create a liability account for your mortgage. Then, create an escrow account to track payments for taxes and insurance. When making a mortgage payment, the transaction must be split into three lines: the principal payment, the interest payment, and the escrow payment. The principal payment is applied to the Long-Term Liability Mortgage, the interest payment is booked under an Interest Expense account, and the escrow payment is applied to an Other Current Asset account.
| Characteristics | Values |
|---|---|
| Procedure to enter mortgage payments | Create a journal entry for the initial mortgage loan, then use a check to record the loan repayment. |
| Recording mortgage insurance | If insurance is part of the payment, it is posted to an insurance pre-paid asset account. |
| Escrow payments | Create a liability account for each escrow portion. |
| Tracking payments | Assign the payment to the correct expense account, such as "Mortgage Interest" or "Principal Payment". |
| Reviewing payments | Regularly check automated payments to ensure accuracy and reflect any changes in the mortgage payment amount. |
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What You'll Learn
Creating a liability account
To create a liability account in QuickBooks, follow these steps:
Firstly, select the Chart of Accounts from the QuickBooks Lists section. Then, right-click anywhere and select New. From the drop-down menu, click on Other Account Types, then select Long Term Liability and hit Continue.
From the Name menu, enter the name of the loan. Click on the Enter Opening Balance option and enter the full loan amount in the Opening Balance section. In the 'as of' field, enter the loan origination date.
Click Save & New. From the Type drop-down menu, select Other Current Asset. Now, enter the account's name, the Opening Balance amount, and the date. Hit Save & New again.
Finally, from the Type drop-down list, select Expense. Enter the name of the account and click OK.
It is recommended that you consult an accountant or accounting professional to ensure that you are creating the correct type of liability account for your business.
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Tracking escrow payments
Setting up an escrow account as a bank account
To set up an escrow account as a bank account, follow these steps:
- Go to the QuickBooks Lists section and select the Chart of Accounts.
- Right-click anywhere and select New.
- Click on Other Account Types from the drop-down menu, then select Long Term Liability and click Continue.
- Enter the name of the loan in the Name menu.
- Click on Enter Opening Balance and enter the full loan amount in the Opening Balance section.
- Enter the loan origination date in the As Of field.
- Click Save & New.
- From the Type drop-down menu, select Other Current Asset.
- Enter the account's name, the opening balance amount, and the date.
- Click Save & New.
- From the Type drop-down list, select Expense.
- Enter the name of the account (e.g., Escrow) and click OK.
Setting up an escrow account as an other current asset
To set up an escrow account as an other current asset, follow these steps:
- Go to Accounting and select Chart of Accounts.
- Choose New.
- From the Account Type drop-down menu, pick Bank, and then Trust Account from the Detail Type.
- Enter other account information as needed.
- Click Save and Close.
Once your escrow account has been created, you can record funds received from the loan and enter payments. Ensure that you regularly check your accounts to ensure that the amounts paid for escrow are correctly recorded and match your mortgage statements. This will help you avoid discrepancies and maintain accurate financial records.
If your mortgage includes escrow for property taxes or insurance, record these separately in QuickBooks. You can create a liability account for each escrow portion. When recording mortgage payments, allocate a portion of the payment to interest and another to the principal.
Additionally, regularly review your mortgage payment reports to ensure everything is being tracked correctly. QuickBooks provides detailed reports that can help you monitor your mortgage balances. Creating mortgage payment schedules and balance sheets can also help you track payments and manage your financial obligations efficiently.
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Reviewing and reconciling accounts
When it comes to reviewing and reconciling accounts in QuickBooks, there are several steps you can take to ensure accuracy and efficiency. Here are some detailed instructions to help you with this process:
Creating Accounts
Firstly, it's important to set up your mortgage account correctly. Create a liability account for your mortgage in QuickBooks, which includes an escrow account to track payments for taxes and insurance. If you have multiple mortgages, create separate accounts for each one. This ensures accurate tracking of each mortgage payment.
Recording Payments
When recording mortgage payments, you can enter them as "Write Check" or "Expense" in QuickBooks Desktop, or use \"Write Checks\" or "Pay Bills" in QuickBooks Online, depending on the version you're using. Split the payment into the principal amount, interest, and escrow amounts. Ensure that you allocate a portion of the payment to interest and another to the principal.
Tracking Escrow Payments
Escrow payments should be recorded separately. You can create a liability account or an asset account for escrow, depending on your preferences and business type. Regularly review your accounts to ensure that escrow payments are correctly recorded and match your mortgage statements. This helps avoid discrepancies and keeps your financial records accurate.
Advanced Tips
To further enhance the precision and efficiency of your mortgage payment recording, consider using specialised mortgage payment tracking software. This will provide real-time updates on payment status and facilitate timely reconciliation. Additionally, utilising QuickBooks' reconciliation features will help confirm that all payments are matched accurately, improving your bookkeeping efficiency.
Regular Updates
Finally, remember to regularly update your account balances and reconcile your accounts to maintain accurate records. This is crucial for effective financial management and regulatory compliance.
By following these steps, you can effectively review and reconcile your accounts in QuickBooks, ensuring accurate tracking of your mortgage payments and associated expenses.
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Splitting transactions
When it comes to splitting transactions in QuickBooks, there are a few different methods you can use, depending on your specific needs. Here are some detailed instructions on how to split transactions in various scenarios:
If you're looking to split transactions for job costing, you can use tags to classify your transactions. However, keep in mind that you can't put more than one tag on a transaction, which may be limiting for generating job cost reports. Alternatively, you can utilise the Class feature to track hours by business segment, which can make it easier to classify your job costing tasks.
If you need to split transactions between payroll and different projects, you can turn on class tracking for payroll. In the Assign class section, you can choose whether to track one class for the entire transaction or for each row in the transaction. Then, set up your class list in Settings and create the classes or subclasses you need.
If you have a residential mortgage that includes a home office, you may need to split expenses between business and personal categories. While QuickBooks Self-Employed (QBSE) doesn't automatically split mortgage payments into principal, interest, and escrow components, you can manually categorise the payments. You can categorise the mortgage interest as a deductible expense and itemise deductions at the end of the year.
Splitting Credit Card Transactions:
To split credit card transactions, go to "+ New". Under "Money Out" or "Other", depending on your view, select "Pay down credit card". Choose the credit card you used, enter the payment amount and date, and select the bank account you used to make the payment. If you paid with a check or electronically, enter the relevant information. You can also add notes or attachments if needed. Finally, click "Save and Close".
If you have a loan with an amortization schedule, you can manually split transactions between principal and interest. Go to the Banking tab, select the transaction you want to split, click "Split", and then enter the principal amount and interest. Click "Apply" and accept the changes. You can also set up a rule to automatically split and add these transactions to your register each month.
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Journal entries
Creating a Journal Entry for the Initial Mortgage Loan:
Firstly, it is essential to create a journal entry to record the initial mortgage loan. Go to the "Lists" section and select "Chart of Accounts." Double-click on the escrow account to open its register. Enter the amount in the "Decrease" section and choose the expense account. Click "Save & Close."
Recording Mortgage Payments:
To record mortgage payments, create a journal entry by selecting "Plus (+)" > "Journal Entry." Adjust the dates, enter the amounts, and save. Then, apply the entry by navigating to "Expense" > "Vendors." Locate the bill, make the payment, and link it to the journal entry.
Journal Entry for a Year-to-Date Mortgage:
For a year-to-date mortgage on a rental property, the journal entry would typically include debiting the asset (rental home) and crediting the escrow amount, interest amount, and balance-liability account. Ensure that you enter the total amount owed at the beginning of the year and make adjustments for escrow and interest.
Tracking Escrow Payments:
Escrow payments are essential to manage alongside mortgage payments. Enter escrow payments for taxes and insurance as payments to the appropriate accounts. Regularly review and reconcile these accounts to ensure accurate record-keeping.
Splitting Monthly Payments:
When making monthly mortgage payments in QuickBooks, split the transaction into three lines. Apply the principal payment to the Long-Term Liability Mortgage (reducing the loan), book the interest payment under an "Interest Expense" account, and apply the escrow payment to an "Other Current Asset" account.
It is always advisable to consult an accountant when recording significant financial transactions, such as mortgages, to ensure accuracy and compliance with accounting principles.
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Frequently asked questions
To enter mortgage insurance into QuickBooks, you must first create a liability account for your mortgage and include an escrow account to track insurance payments. Then, enter these payments as payments to the appropriate accounts. If your insurance is part of a larger payment, you will need to split the transaction into three lines: one for the principal payment, one for the interest payment, and one for the escrow payment.
To split the transaction, you must go to the "+New" button and click "Check". Enter a check number if sending an actual check, otherwise, input "Debit" or "EFT" in the "Check no." field. In the "Category details" section, choose the liability account for the loan from the "Category dropdown" and type in the payment amount. On the next line, select the expense account for the interest and enter the interest amount. Finally, enter any extra fees on additional lines and pick the appropriate accounts.
If you have insurance as part of your mortgage payment, these payments should be posted to an insurance pre-paid asset account.
To create an insurance pre-paid asset account, first click on the "Accounting" tab in the left navigation bar. Make sure the "Chart of Accounts" is selected at the top of the page, then choose the "New" button in the top right corner. Enter the Type, Detail, Name, and any other necessary information for the assets account.
