Set up the line of credit as its own liability account (Settings > Chart of Accounts > New, Account Type: Liabilities), then record each draw as money moving into your checking account from that liability, and each payment as money moving back out, split between reducing the balance and any interest charged. It's a liability account, not a credit card account, even though both involve borrowed money.
1. Set up the liability account first. From Settings, open the Chart of Accounts and click New. Set the Account Type to Liabilities, and choose Line of Credit as the Detail Type if your version of QuickBooks offers it; use Notes Payable if it doesn't.
2. Enter the opening balance if the line already has one. If you already owed money on it as of your QuickBooks start date, enter that balance as of that date so it doesn't distort this year's draws and payments.
3. Record a draw. When you pull money from the line, record a Bank Deposit into your checking account with the line-of-credit account as the source. This correctly increases both your cash and the liability at the same time.
4. Record a payment. Use Check or Expense, not Pay Down Credit Card, which is specifically for QuickBooks' Credit Card account type and isn't meant for a line of credit. Split the payment across two lines: part reducing the liability account (principal), and part going to an Interest Expense account if the payment includes interest.
5. Reconcile the account periodically. Match it against the lender's statement the same way you'd reconcile a bank or credit card account, so the balance in QuickBooks actually tracks what you owe.
The most common mistake isn't a missed step, it's picking the wrong account type at setup, treating a line of credit like a QuickBooks Credit Card account because both represent borrowed money you pay back over time. They're not interchangeable: the Credit Card account type and its Pay Down Credit Card feature assume a revolving card balance, not a liability with its own separate principal and interest structure.
The other recurring friction is splitting interest from principal correctly on every payment. For a line of credit drawn on and paid down frequently, doing that math by hand against a lender statement each time is tedious, and it's exactly the kind of small recurring task that gets rushed or skipped when things get busy.
When a line-of-credit payment hits the bank feed, it gets split between interest expense and the liability balance based on the lender's actual figures, instead of someone doing that math by hand against a statement every time.
Each draw gets tied back to the job, project, or purchase it paid for in another system, instead of a liability balance that climbs with no record connecting it to anything.
Tell us what's manual about it, the split, the reconciliation, something else entirely, and we'll tell you if it's worth fixing.
Tell us how your line of credit gets reconciled today, and we'll tell you whether that split can happen automatically from the statement instead of by hand. A line of credit is one account where this kind of manual math shows up; we go after the same pattern anywhere else it exists in the business.
Let's talk →Use Notes Payable instead under the Liabilities Account Type. The specific Detail Type labeling varies slightly by QuickBooks Online version, but the account still functions the same way as a liability either way.
The same way you'd reconcile a bank or credit card account: go to Settings > Reconcile, select the line-of-credit account, enter the statement ending balance and date from the lender, and match transactions until the difference is zero.
No, and this is the most common mix-up with this account type. A credit card payment in QuickBooks uses the Pay Down Credit Card feature tied to the Credit Card account type. A line of credit is a Liabilities account, and its payments go through Check or Expense, split manually between principal and interest instead.
Set it up the same way as Online: create a new account under Lists > Chart of Accounts, choose Other Current Liability or Long Term Liability depending on the term, name it, and enter the opening balance as of your start date. Draws and payments post the same way, through deposits and checks or expenses.