How to Set Up and Track a Business Line of Credit in QuickBooks Online

In QuickBooks Online, a line of credit is usually set up as a liability account in the Chart of Accounts. This account tracks the amount your business owes on the line of credit. Intuit’s guidance for loans and lines of credit also points to using a liability account to track what the business owes.

A draw from a line of credit is usually recorded as money deposited into your bank account, with the category assigned to the line of credit liability account. This increases both your bank balance and the amount owed on the line of credit.

A traditional loan usually gives you one lump sum with a set repayment schedule. A line of credit lets you draw money when needed, pay it back, and potentially borrow again up to the available limit.

In QuickBooks Online, a loan is usually categorized as a liability, not income. You can set up a liability account to track what the business owes, then record loan payments with principal going against the loan balance and interest going to an interest expense account.

A line of credit is usually considered a current liability if you expect to repay the balance within one year. In QuickBooks Online, many businesses set it up as an Other Current Liability account so draws, payments, interest, and fees can be tracked separately from regular loans.

To record a payment on a line of credit, enter the payment from your checking account and categorize the principal portion to the line of credit liability account. Any interest or fees included in the payment should be split out and categorized separately as an expense.

Yes. When you draw funds from a line of credit and deposit them into your checking account, you can record it as a transfer or deposit in QuickBooks Online. The checking account increases, and the line of credit liability account also increases because the business now owes that amount back.

Interest should usually be recorded to an interest expense account. This keeps the cost of borrowing separate from the principal balance owed.

The Balance Sheet is the main report to monitor the outstanding balance of a line of credit. You can also review the Transaction Detail by Account report for the line of credit account to see draws, payments, fees, and interest activity over time.

A line of credit is usually recorded as a liability account because it represents money the business owes. Depending on how soon it will be repaid, it may be set up as an Other Current Liability or Long-Term Liability.

No, a line of credit draw is not income. It is borrowed money, so it should usually increase a liability account instead of being recorded as sales or business income.

Only the interest portion of a line of credit payment is usually an expense. The principal portion reduces the loan or line of credit liability balance and should not be counted as a business expense.

You can reconcile a line of credit by comparing the balance in QuickBooks to the lender’s statement. This helps confirm that draws, payments, interest, and fees were recorded correctly.

Yes, multiple draws can be tracked through the same line of credit liability account. Each draw increases the balance owed, and each principal payment reduces that balance.

Common mistakes include recording draws as income, recording the full payment as an expense, or not separating principal and interest. These errors can make your financial reports and tax records inaccurate.

A correct setup helps your balance sheet show what the business actually owes. It also helps keep income, expenses, interest, and debt payments accurate for better bookkeeping and financial reporting.