Setting Up A Loan Receivable

I have a client who's core business is an assisted living facility for elderly people. My client made a loan to another facility in December 2006. The client upgraded to QB Pro and input all of the company's 2007 data in the file. I was contracted to perform write up services in Feb 2008. The issues are as follows:The client did not inform me of this loan until all bank statements were reconciled.I set up the borrower in the customer center with a beginning balance for the loan amount.I created 2 accounts in the general ledger (1) loans receivable & (2) interest income.The payments received from the borrower were deposited into the clients operating account and posted to "program services fees".I created a journal entry to reclass the incorrect entry and reclassified the payments received to the loan receivable and interest income accounts.Since the 2007 file was started as a brand new file and the loan was made in 2006; the operating account does not show this transaction. *The journal entry that I made posted the payments to the loans receivable which now shows a credit balance (because there was no entry debiting the loans receivable account for the loan amount and the customers account (in the customer center) is not being reduced by the payments.Questions:1. Was it incorrect for me to set the borrower up in the customer center as a customer?2. Can I link the "loans receivable" and customer together so that the payments received hit both of these accounts simultaneously (given I set up the customer properly)?3. Should I make an entry dated 12/31/2006 to debit loan receivable but what would be the credit side of that entry (retained earnings)?4. The most important question is, how do I fix this mess???? Please Help!

1. Setting up a customer is fine.

2. Do you really want an A/R "type" account? This is used for posting Invoices and Payments for a customer. But this is not a trade A/R. It is a note.

You should have a current asset account called Note Receivable-Smith and simply post the payments received to this account, When I say "payments" I do not mean the QuickBooks "payment" type transaction that reduces an invoice, but rather a payment that was posted on a deposit and mis-posted to service fees. If there is only a year, you can edit each deposit slip, add the customer name and change the account from Fees to N/R & interest income. This would create an audit trail and then delete the adjusting entry that you made. Or post all payments to N/R, and do one AJE to adjust for interest income, if you do not want to post it monthly. Have you found or created an amortization schedule for this?

3. I never use the "opening balance" feature. It does make a journal entry to increase the account, but it plugs the other side of the entry to "Open Balance Equity." Look on the chart and you will see it. The problem is, either you did not get adjusting entries for last year's tax return or the preparer was unaware of the loan. You need to determine where the loan check was posted in the beginning and maybe the last return will need to be amended. Or leave the opening balance in the Open Balance Equity account for the tax accountant to adjust. If you are doing the writeup, see if the Balance Sheet for 12/31/06 matches the Schedule L of the tax return, if this is a corporation.