Opening a Mortgage Account.

Question:

What is the proper way to enter a mortgage (initially) and make payments so that it reflects on the Balance Sheet?

Thanks, Bill

Answer:

Well, a mortgage is in most instances a long term liability. So if this is the case, create a new account (Company - Chart of Accounts - Ctrl + N). Enter the account number if you use them. Make the account type Long-Term Liability. Give the account an apporpriate name such as "Citibank - Building Mortgage".

The easiest way to record the opening amount is by journal entry (Company - Make Journal Entry). DEBIT either your "Buildings" fixed asset account if you purchased a new building or the old note payable if you refinanced (if you refinanced you may need an accountant to help you apply the loan proceed correctly per your HUD statement). You will CREDIT the account you created above.

Now when you write the check for the payment each month, make the check out for the total amount of the payment. When you classify it, put the part that went against principal (according to your statement)into the note payable account (created above) and the rest of the payment should be interest (check the statement to be sure there is no escrow).

NOTE: if you have QuickBooks 2005, it has a Note Payable Manager that if the information is entered correctly will keep track of interest vs. principal amounts.