What Is Amortization In QuickBooks & How To Use It?
What Is Amortization In QuickBooks?
If you run a business, most of your company’s assets lose value over time, be it tangible or intangible. However, you can quantify those loses in QuickBooks, which has a significant impact on your business accounting operations. The process of quantifying the gradual losses in the values of your intangible assets such as trademarks, licenses, or various others.
The term amortization is also used in the context of a loan (e.g. Mortage). Amortization refers to distributing the payments in different installments, including both principal and interest dollars until the amount is paid in full.
How To Use Amortization In QuickBooks?
Now that you know what is amortization in QuickBooks, you need to understand how it is used in the application. It is important to recognize the importance of amortization in QuickBooks as it can help you in reducing taxable income for the business in question by showing the decrease in the asset’s book value.
On the other hand, QuickBooks has a feature known as loan manager, which creates an amortization schedule for the life of the loan. You can track how the payments are decomposed into the principle interest and escrow. Furthermore, you can set up regular and additional payments or compare and contrast loan options with what-if scenarios. To use the loan manager feature for amortization, you need to create an account for the loan. Also, you need to set up individual accounts for interest expense and escrow, if applicable, in addition to setting up the lender as a vendor. Follow the below-given steps:
Step 1: Create The Accounts
Below are the steps on how to set up an amortization expense account in QuickBooks:
Go to the List and select Chart of Accounts.
Next, click on Account and then further click New. Set up three accounts for an intangible asset: asset account, accumulated account, and amortization expense.
After that, choose Fixed Asset and hit Continue.
Type a suitable name for the account and enter a description for the account for better understanding.
Next, you need to accept Unassigned for the tax-line mapping. Click Save & New.
Give your account a name such as “Accumulated Amortization.” Furthermore, write down a short description of the account in the Description field for future reference.
Now, you need to click on Unassigned option for the tax-line mapping and then hit the Save & New button.
Proceeding further, change the account type to Expense. Give a name for the account and add further description to your amortization expense account.
Again, select Unassigned for the tax-line mapping.
Click Save and Close to finish the task.
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