Quickbook Strategies for Notes etc.

[David Hite]

Hey everyone!

I have purchased my first note, and it is about to be boarded. Once I start getting payments, I am wondering about everyone's strategy for how to track the note within my LLC's quickbooks company file.

  My CPA recommended creating a new equity account as the value of the discounted note price. Then as I get payments, I apply the principle portion decreasing the value of that equity account, and placing the interest income into "interest earned" under income.

  What strategies are people using to track these accurately and with minimal headache with book keeping?

Thank you!

Dave

[Chad U.]

Originally posted by @Bill B.:

@David Hite

I’ve only done three notes, so beware.  

Also, I’m using Quicken instead of Quickbooks.  I can’t imagine they are too different.  

I book the notes as assets, not equity.....but......while my thirty plus year old degree was in accounting, I’m not a CPA.  

There are a couple of things to consider.

Do you own the note outright, or do you have one or more investors?  If you have investors, I’d suggest starting a separate and distinct QB file for each note.  This allows you to back up and share the file for that particular note with your investors quite easily.  It you book all your notes into one QB file, you have to generate reports that pull out a specific note.  That can be far more time consuming....and mistakes can reveal information that can cause myriad problems.  

Related to that last point and true whether you use one or more QB files, I create a unique category for each note.

Because I have ZERO creativity, I use the address of the collateral securing the address as the category.  e.g. 123 Somewhere, Metroplis, XX.

The accounts then appear after the category.  That is true for all revenue and expense accounts.  If you keep all your assets (notes) in one QB file, you can run reports based on the category.  This allows you to isolate the single note to easily determine profit or loss.

Separate QB files may have to be consolidated for tax purposes, but that should be far less frequently than reporting to JV partners.

That’s my “solution”

I hope it helps.

We use a different software, but setup the same way. The UPB is the asset which is diminished monthly by the principle, and interest is classified as income. There's also an expense which is categorized under the same name (as Bill points out above, we just use the address). We can then run reports from the GL account which gives the value asset (UPB), total interest, total prinicple paid and associated expenses.

For any JV investors, we classify that as a Liability and treat similar to a loan. Any payments that are split, the principle portion paid out to the investor draws down the Liability.

Hope that helps.