How to Record a Line of Credit in Your Books

A line of credit (LOC) is a flexible borrowing facility — you draw on it when you need cash and repay it as cash comes in. Unlike a fixed loan, the balance goes up and down. This creates a slightly different bookkeeping setup.

What You'll Need

Access to QuickBooks Online
Your LOC set up as an account in QBO (your Mesa CPA bookkeeper will configure this)
Your bank statements showing draws, repayments, and interest charges

How a Line of Credit Works in QBO

The LOC is set up as a credit card or line of credit account in QBO, depending on how your bank presents it. Your Mesa CPA bookkeeper will determine the right account type.

Once connected to your bank feed, draws and repayments flow in automatically. Your bookkeeper categorizes them:

Transaction	How it's recorded
Draw (you borrow from the LOC)	Deposit into your bank account, offset by increase in LOC liability
Repayment (you pay down the LOC)	Payment from your bank account, reduces LOC liability
Interest charge	Expense recorded to "Interest Expense"
Bank fees on the LOC	Expense recorded to "Bank Charges"

Normal Procedure

Recording a Draw

When you transfer money from your LOC into your chequing account:

Go to + New > Transfer.
Transfer Funds From: Select the Line of Credit account.
Transfer Funds To: Select your chequing account.
Enter the amount and date.
Save.

This records the cash arriving in your chequing account and increases the LOC balance (liability).

Recording a Repayment

When you transfer money from chequing to pay down the LOC:

Go to + New > Transfer.
Transfer Funds From: Select your chequing account.
Transfer Funds To: Select the Line of Credit account.
Enter the amount and date.
Save.

Recording Interest Charges

Interest charges often come through the bank feed as separate transactions on the LOC account:

Find the interest charge in the bank feed for the LOC account.
Categorize it as Interest Expense.
Save.

Abnormal Procedures

You've been recording LOC draws as income.

This is a common mistake. If LOC draws have been categorized as revenue, your income is overstated and the liability isn't on your books. Your Mesa CPA bookkeeper will need to reclassify the transactions and add the LOC liability account. The sooner this is caught, the less history there is to correct.

You have a combined chequing/LOC account.

Some banks offer an account where the chequing and LOC are combined — you can overdraft the chequing and it automatically draws from the LOC. In QBO, these may need to be tracked as two separate accounts or handled with a specific setup. Ask your Mesa CPA bookkeeper.

Your LOC balance in QBO doesn't match your bank statement.

The most common cause is a missed draw, missed repayment, or interest charge that wasn't recorded. Reconcile the LOC account the same way you reconcile a bank account — compare QBO's register to your bank statement line by line.

FAQ

Is a line of credit the same as a credit card?

Similar, but not the same. Both are revolving credit — you borrow and repay flexibly. A LOC typically has a lower interest rate, no rewards program, and is used for larger cash draws rather than individual purchases. In QBO, both can be set up as credit-type accounts.

Is LOC interest tax deductible?

Yes, for the business-use portion. If the LOC is used exclusively for business, all interest is deductible. If it's been used for personal purposes as well, only the business portion is deductible. Keep records of what each draw was used for.

Does a LOC show up on my Balance Sheet?

Yes — the outstanding balance is a current liability. It goes up when you draw and down when you repay.

What happens if I max out my LOC?

The credit limit is set by your bank. If you reach it, you can't draw further until you make repayments. There's no direct accounting consequence — the liability simply reflects the amount outstanding. If you're consistently near your limit, it may signal a cash flow issue worth discussing with your Mesa CPA advisor.