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Level 1

How to add car loan with down payment (expense) and record it as fixed asset?

how to add car loan with down payment (expense) and record it as fixed asset? example: car cost 5000, down payment 1000, loan amount: 4000, monthly instalment: 400 (inclusive of interest) and fixed asset depreciation at year end.

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Best answer September 27, 2019

Best Answers
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Level 15

How to add car loan with down payment (expense) and record it as fixed asset?

@ nazeef

in the chart of accounts create:
fixed asset car
sub fixed asset account car accumulated depreciation
loan liability account car

and if you do not have depreciation on any other assets, create an expense account called depreciation expense

open the register for the loan account you created and make a new entry as an increase in the amount of 4,000 and use the fixed asset car account in the account block

write a check on the bank you paid the down payment from and use the fixed asset car as the expense for the check, enter the amount 1,000

You make payments to the loan using the loan account as the expense for the payment, when you get next months statement in, it will show the amount of the previous payment that was interest, do a journal entry back dated

debit interest expense for the amount shown on the statement
credit loan liability account

annually you calculate and post accumulated depreciation using a journal entry
debit depreciation expense
credit car accumulated depreciation

View solution in original post

9 Comments 9
Highlighted
Level 15

How to add car loan with down payment (expense) and record it as fixed asset?

@ nazeef

in the chart of accounts create:
fixed asset car
sub fixed asset account car accumulated depreciation
loan liability account car

and if you do not have depreciation on any other assets, create an expense account called depreciation expense

open the register for the loan account you created and make a new entry as an increase in the amount of 4,000 and use the fixed asset car account in the account block

write a check on the bank you paid the down payment from and use the fixed asset car as the expense for the check, enter the amount 1,000

You make payments to the loan using the loan account as the expense for the payment, when you get next months statement in, it will show the amount of the previous payment that was interest, do a journal entry back dated

debit interest expense for the amount shown on the statement
credit loan liability account

annually you calculate and post accumulated depreciation using a journal entry
debit depreciation expense
credit car accumulated depreciation

View solution in original post

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Level 1

How to add car loan with down payment (expense) and record it as fixed asset?

purchasing the car is  one transaction resulting in having an asset worth 5,000.  (It is not an expense, but an investment & shows up on balance sheet not P&L)

having a loan is one transaction resulting in having a liability of 4,000.  Loan Balance also shows up on P&L.

when you make a loan payment, you need to show the principle paid to the liability account so the Balance Sheet improves

& the amount of interest paid should be posted as an expense which will show up on the P&L. 

At year end you can make a depreciation entry (our accountant gives us a list of adjusting journal entries for depreciation) I'm doubt if India's rules are identical to USA rules.  Our depreciation shows in P&L as expense & also in  Balance Sheet as a reduction in worth of car.

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Level 1

How to add car loan with down payment (expense) and record it as fixed asset?

Dr.   fixed asset   5000

Cr-   Shareholder / cash / bank  1000

Cr- Finance company 4000


at the time of paying to finance company

Dr- Finance Company 400

Cr-  Shareholder / cash / bank

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Level 15

How to add car loan with down payment (expense) and record it as fixed asset?

Don't rely on Debits-Credits. When you pay something from banking, that is a Check or Expense entry and typically Split into two lines: Principal (the loan) and Interest expense.
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Level 1

How to add car loan with down payment (expense) and record it as fixed asset?

no matter what I do, the down payment on a vehicle doesnt shpw up on my p&l?

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Level 1

How to add car loan with down payment (expense) and record it as fixed asset?

I really appreciate you taking the time to respond and add an answer.  But no matter how many times I try to search for an answer, your response keeps coming up as the "best answer". Only challenge is that you wrote your answer in a way that is very difficult for a newbie to QB to decipher.  I have spent hours trying to follow your notes and cannot seem to figure out why using your formula my payments are adding to my balance and not decreasing. Could you possibly create an answer that the average newbie can decipher? Thanks so much!!!

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Level 1

How to add car loan with down payment (expense) and record it as fixed asset?

Hi, I am curious if you ever received the response. I also found the response confusion.

Yana

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Level 1

How to add car loan with down payment (expense) and record it as fixed asset?

Good Day

Definitely confused since I’m not an accountant. I was able to find a video on YouTube. It was for the older desktop version so I was hesitating to review the video but I was able to navigate QB after watching the video a few times. Sorry I don’t have a link. But search for the video and keep a look for a video showing old QB desktop format.   Super easy set up once the chart of accounts was added correctly. 

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Level 3

How to add car loan with down payment (expense) and record it as fixed asset?

Hello Guys, 

 

This is a simple case. When we are purchasing an Asset in Installment Basis the entire Asset Value will be debited and shown in the books of accounts as an Asset. Like as for example in your case, when  car cost is 5000 you will Debit entire amount as on Asset, credit your bank account with down payment of 1000, and create a liability to Vendor for rest of 4000.

 

The Journal Entry will be as follows :

 

Car             - Dr. 5000

Bank          - Cr. 1000

Vendor      - Cr. 4000

 

Now when you will be paying monthly EMI of 400 which in inclusive of interest and capital payment, you need to break it up and show it under two different accounts. Interest will be debited to Profit and Loss Account. The below is the Journal Entry at the time of making payments:

 

Vendor - Dr.

Bank      - Cr. 

Interest - Cr. 

 

Hope this is clear.