Revolving line of credit

[Helio]

I recently purchased your book (Farm Accounting Cookbook) and Quickbooks Pro 2008, with the hope of making my book keeping better than my haphazard system of hand written records. I mainly wanted to keep track of my checking account, upon which all my business transactions take place. I am brand new to Quickbooks.
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> The only catch is this, I have used a revolving operating loan as my checking account for many years.
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> When I write a check from this operating loan, it automatically adds to my principal balance if there is a principal, but if I have no principal balance, it automatically pulls out of my funds held savings account. >

> Same with deposits, deposits are made first to the principal balance on my loan, then if there is a remainder, it is automatically placed in the funds held savings account. If there is no principal balance, it goes straight in to the funds held saving account. This seemlessness really saves/makes me a lot of money in interest every year.
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> Do you have any suggestions on how best/easiest to handle this in terms of entering this on Quickbooks?

[FlagshipTech]

Hmmm...

I'm familiar with the idea of a revolving line of credit, but not with the details of Farm Credit's version of it.

My first thought was that you might set it up as a credit card account. That would let you have a positive or negative balance and still have something which QuickBooks supports for reconciling... but the whole idea is wrong because QuickBooks doesn't support writing checks on a credit card-type account.:(

So maybe setting it up as a checking account (Bank account type in QuickBooks) would be best. Then whenever the balance is positive, it's equivalent to having savings in Funds Held. Whenever the balance is negative, it means you have an operating loan balance equal to that amount.

Question though: Does this switch over between loan and savings in Funds Held occur at "zero" or at some other amount? In other words, are you required to keep a minimum checking balance of, say, $500? That would affect your view of what the farm checking account balance meant.

The only time you might want to move this checking account balance, is before preparing a balance sheet. In that case, you could transfer any principle (negative) balance to a Current Liability loan account, or any savings (positive) balance to a Current Asset savings account. But of course after preparing the balance sheet report, you may want to reverse these transactions to restore the balance in your checking account to what it was, to continue using the account as you were before.

But if farm credit is the main audience for your QuickBooks-generated balance sheet report, and they understand the meaning of positive/negative amounts in your checking account, you might get by with it just the way it is--without moving the balance around to other accounts.

One more thing: I don't know how you need to handle accrued interest on your loan principle. If you just enter it periodically based on a statement provided by Farm Credit, then you probably won't have any problems. If you need to compare it against your running account balances, and that may take some work (but its work in any case, even if you have separate loan and savings accounts).

Maybe someone else who's actually maintaining this kind of revolving account in QuickBooks will add a comment...

Mark Wilsdorf
Flagship Technologies, Inc.
QuickBooks™ Add-Ons and Solutions You Can Use
http://www.goflagship.com

NOTE: Parts of this message were dictated through speech-to-text software, which can sometimes interpret words or phrases incorrectly. If any part of this message is unclear or appears incorrect, please ask for clarification.

[Helio]

It goes to zero principle balance before going to the savings account.

That sounds like a good idea. Every month, to reconcile interest, I'll just add and/or subtract based upon whether I earned any interest or had any interest expense. I'm probably not going to worry about the balance sheet at this point, but maybe later.

Thank you for the prompt and courteous response!

[sewbusy]

We personally have the exact same situation.
I simply set the line of credit up as a checking account.
A lot of the time it shows a negative balance, but once in a while it does have a positive balance!
When there is an interest payment to us, I merely show it as a deposit to the checking account as interest income.
It gets a little tricky balancing with FC statements when $ is in Trust funds but after you have done it a few times it gets easier.
As far as the balance sheet goes, I don't normally take a lender the BS generated by QB anyway, I use the one it generates to construct a simplified version in Excel. Different lenders want things set up differently anyway.
I have done a lot with QB and Farm Credit so let me know if I can help in any way!

[Helio]

Sewbusy, I never got back to say I did what you suggested, and it worked fine. If I have any more questions, I'll let you know.