Entering a car lease in Quick books

Anonymous · ‎April 09, 2019

First, I feel it is very frustrating that nowhere on the internet explains how to enter a car lease in Quick book ...and I mean a step by step instruction. I am in Ontario Canada.

I have a car lease from Honda. The lease is for 3.5 years at which time I can walk away from the lease or buy it out. After an exhausting search...I think this is an operating lease. Is it?

Could someone please let me know what I need to enter in the chart of accounts.

I do not pay expense directly out of my business account. I pay them from my personal account and make a General Ledger adjustment at the end of each month.

I am guessing that I could create an Expense account (need instruction what I do when I hit continue). and the create a Vehicle lease account as a sub account(again what do I put when I click continue)

Then I can just write a cheques payable to the Honda company and put that towards the Vehicle lease with the HST.

Please help as there is no help anywhere online and I'm not reinventing the wheel here.

Thank you

Mike

john-pero · ‎April 09, 2019

@Anonymous wrote:

First, I feel it is very frustrating that nowhere on the internet explains how to enter a car lease in Quick book ...and I mean a step by step instruction. I am in Ontario Canada.

I have a car lease from Honda. The lease is for 3.5 years at which time I can walk away from the lease or buy it out. After an exhausting search...I think this is an operating lease. Is it?

Could someone please let me know what I need to enter in the chart of accounts.

I do not pay expense directly out of my business account. I pay them from my personal account and make a General Ledger adjustment at the end of each month.

I am guessing that I could create an Expense account (need instruction what I do when I hit continue). and the create a Vehicle lease account as a sub account(again what do I put when I click continue)

Then I can just write a cheques payable to the Honda company and put that towards the Vehicle lease with the HST.

Please help as there is no help anywhere online and I'm not reinventing the wheel here.

Thank you

Mike

According to my interpretation, since you have a predesignated purchase option this is a capital lease not operating. This means both the vehicle as an asset and the lease as a liability must be on your balance sheet according to rules enacted 1/1/19 https://quickbooks.intuit.com/ca/resources/taxes/how-operating-differs-from-capital-lease/

http://www.mondaq.com/canada/x/734892/leasing/IFRS+16+Changes+that+Impact+Borrower

s+and+Lenders+are+Coming+to+Canada+Are+you+Ready

The advice in the Intuit article "It’s a good idea to consult your accountant about how IFRS 16 impacts your business and personal financial pictures" is good advice - you need to spend a few Loonies to get it right (I do not think QB knows how)

Payment from personal funds is simply equity contribution to the business.

Anonymous · ‎April 09, 2019

You have already learned that the first question in lease accounting is the Operating vs Capital question. If the ownership papers show the name of the leasing co, and you actually think that walking away from the vehicle at the end of the lease is a viable option - then it is probably an Operating lease. Lets assume so.

After that you already know what to do - create an item and/or an account for the vehicle lease expense. Then record the payments as disbursements to this account (or item) making sure you use the right tax code. Your code will probably be HST.

To create an account - do so from the Chart of accounts > the functions are at the bottom.

To create an Item - do so from the Item List > functions at the bottom. The item should point to auto expenses or a separate lease account.

Anonymous · ‎April 09, 2019

First, I would like to thank you for taking the time to reply.

So it is a capital lease because I have the optiin to buy out?

Anonymous · ‎April 09, 2019

The buy-out option alone does no determine the classification of the lease. Both types of lease will probably have buyout options. The difference is in a Capital Lease your crazy not to take the buyout because its usually below market as the prior payments will have already paid for most of the vehicle. While in a Op lease the buy-out will be about at-market (or higher).

Anonymous · ‎April 09, 2019

Thank you for your reply.

I could walk away at the end of the lease. What would I do if at the end of the lease I then decided to buy it out as that is an option? Also, on our tax code there is the CCA to fill out. Can that be done on any lease..capital or operating?

Anonymous · ‎April 09, 2019

So many issues ..

If it is an operating lease right now (im assuming so) then the future purchase option is a future matter - dont worry about it now. If you do buy it out, it will just be a regular used car purchase - although perhaps with a predetermined price.

CCA (Capital Cost Allowance) is a tax issue for assets you actually own. If you have a vehicle operating lease then you do not own the vehicle - there will be no CCA.

Anonymous · ‎April 09, 2019

I missed an important point earlier ..
You are paying the lease personally and then reimbursing yourself. This could be a problem.
If the lease is made out to you, and you are an employee of the business, then everything we talked about is out the window and we start over with all new issues...
Employers reimbursing employees for their personal owned vehicle costs is a COMPLETELY different matter. All different tax rules and accounting treatments.

Anonymous · ‎April 09, 2019

Mike..thank you for taking the time to assist me.

I actually asked an accountant for advise and she said she was too busy and it's too complex..lol

Operating expense sounds easier to setup.

Anonymous · ‎April 09, 2019

I'm a sole proprietor. Real estate agent. I have been in business 12 years and that's how the accountant set up my company.

I make a GL entry every month to debit business and credit personal or visa versa..cant remember which to bring personal back to 0.

Since I am the business I would hope that isnt an issue.

Anonymous · ‎April 09, 2019

For years personal use auto have been a favorite target of abuse and enforcement by both business and CRA - there are book-loads of rules and they change frequently. Your accountant is right: Too Complex. Be wary of free advice - even from me. It all seems good when no ones checking ...

Rifai · ‎July 04, 2020

Hi,

first of all you have to know that what you are doing in your QuickBooks is something, and what your tax accountant would do when he or she files your tax return as something else.

we can start chatting about capital versus operating leases for many hours and never end, it is a long complex subject.

There are ASPE rules, IFRS rules, and Taxation rules.

You are a sole proprietor. so you do not do reporting under ASPE, and not under international rules ASPE. Also, your tax accountant is supposed to Capitalize the lease for you in your return.

making the story short. For Compilation Engagement (Notice to reader) purposes, you can show it as an operating lease. As the NTR ( if you issue it in the first place) doesnt not report under any ASPE or IFRS.

I would say just keep posting your transactions normally and your tax accountant do any needed work in the tax return ( in the software).

for the personal payment and adjustments, make sure you are doing it right.

And make sure you take into consideration the personal use of the vehicle. Have a mileage book, and make YEARLY adjustments.

Snehal Thakkar · ‎April 05, 2022

At the outset I thanks for valuable and detailed answers.

Can it make difference if there is a written agreement with the employer c corp (One member - own) and the employee- owner in his personal capacity that,

-The Car acquired on Lease in personal name is leased in personal name due to difficulties in acquiring the same in Business name.

-All lease payments will be made from Business bank account and not from personal account.

-The option to own out at the end of the lease is with the Business and not Individual owner.

Trish_T · ‎April 05, 2022

Hi Snehal Thakkar,

Thanks for reaching back out here. QuickBooks Online has the features you need to record and track the transactions towards the lease of your vehicle. I'll be happy to point you in the right direction so you can accomplish your QuickBooks goals!

Based on the information you've provided, it's important that you speak with your accountant for their expertise and the best course of action, to ensure the transactions have a positive outcome on your books. If you don't have an accountant, we can help you locate a ProAdvisor in your local area.

Please feel free to ask other questions. We'd be glad to assist!

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Entering a car lease in Quick books