record purchase of a truck

Posted on 2011-05-12
Last Modified: 2012-05-11
QuickBooks Premier: 2011: Professional Services
Hi Guys

I purchase a truck and i need help posting it in quickbooks

I got a truck with the following deal 30 payments of $1,000. No downpayment

The current market value of the truck is $20,000

So i am not sure how to record it.

Option 1.

Truck asset   30,000

Truck Loan                           30,000

Option 2

Truck Asset         20,000

deferred Interest 10,000

Truck loan                                 30,000


Please explain

Question by:titorober23
    LVL 89

    Assisted Solution

    by:John Hurst
    First, record the Truck acquisition:

    Debit Truck Asset: $20,000 Credit Truck Loan: $20,000

    This puts it on the books.

    Now your payments are spread over time, so you book the interest paid in the period you paid it. I do not see a need to record deferred interest unless you really wish to.

    So now: record monthly payments:

    Credit Cash: $1,000 Debit Truck Loan: $666.67 Debit Interest Expense: $333.33

    At the end, the Truck Loan will be zero and total interest expense (all periods) will be $10,000.

    Don't forget that the Truck is capital and also needs to be amortized.

    ... Thinkpads_User

    Author Comment

    the seller, has not disclosed, how much is the interest, this is like a special deal
    lease to own
    $100 for 30 months, but i do knwo that the market value or fair value is around $20,000
    so the liability i am adquiring is for $30,000 not for $20,000 but in the other hand, i do not want to over inflate my equity by adding and over priced asset, so i am not sure hopw to handle this.
    also  i want to be able how much do i owe them any givien moment and if i record this for $20,000 that's misleading against my debt with them.

    please comment
    LVL 89

    Assisted Solution

    by:John Hurst
    You need to find out from the seller two things: (1) the total amount of interest you will pay, and (2) if (and how much) any penalty will occur for buying out early. I think a seller is obliged to disclose these things.

    From (1) you can determine the sales price of the truck (and it will not be over-inflated if the amount of interest is correct). Once you know that, you can debit Truck Assets for the actual amount and credit Truck Loan for the same. My entries above are good entries, you need only adjust the values.

    (2) will give you a clue how to handle the interest payments. If you can get out for no penalty or 3 months interest, then you do not have a liability for the total amount of interest. Accordingly you can book currently as I showed above.

    If the seller can hold you to 30 months (even if the truck is written off for some reason) then you can consider recording the total liability and to interest expense. You need your accountant to assist you here because the revenue agency will take a dim view of you recording interest expense in advance. I think the way I laid it out above is probably best.

    If you want a truer picture of monthly interest, you can take the interest rate * first cost of the truck divided by 12 to give you the first months interest. Then remove the payment and calculate the next month's interest and so on. Use a spreadsheet to do this. Then the monthly entries above can use the interest / principal split you generated in the spreadsheet.

    >>>  record this for $20,000 that's misleading against my debt with them.  <-- only if $20,000 is not the first cost of the truck. They need to tell you this (My point 1 above).

    ... Thinkpads_User

    Author Comment

    truck loan is an expense account or a liability account?

    please explain
    LVL 89

    Accepted Solution

    A loan (any loan you owe out - auto, machinery, land, etc) is a liability.

    Liabilities are things you owe: loans, accounts payable, tax liabilities, loans from shareowner loans (money the company owes you).

    Assets are things you own: cash, accounts receivable, fixed assets (autos, machinery, etc.), loans to shareowner (money you the company).

    Assets - Liabilities = Equity (which is the company net worth).

    The interest on the truck loan is an expense. This expense gets incurred as you make the monthly payments and you do not book this in advance into liability account. This is normal accounting.

    ... Thinkpads_User
    LVL 89

    Expert Comment

    by:John Hurst
    Thank you, and good luck with your business accounting. ... Thinkpads_User

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