Vehicle Financing

Let me guide you on how you can record vehicle financing, Apparadise.

In QuickBooks Online (QBO), you can set up a liability account to record the loan. To set up a liability account, follow the steps provided below:

1. Go to the Gear Icon at the top.
2. Under Your Company, select Chart of Accounts.
3. On the right, click New.
4. Choose either Other Current Liabilities or Long-term Liabilities.
   
5. Pick a detail type (a description is listed for each option), then Next.
6. Name the account.
7. Leave the Unpaid Balance blank, then Hit Save.

Once done, create a Journal Entry to apply the loan to the proper assets accounts. Here's how:

1. Go to the + New.
2. Under the Other column, choose Journal Entry.
   
3. For the first line under the Account column, select your new liability account.
4. Enter the amount of the loan you’re applying to the asset under the Credits column.
5. For the second line, select the appropriate asset account under the Account column.
6. Under the Debits column, enter the amount of the loan you’re applying to the asset.
   

To give you more information about the basics of how to set up loans for assets, consider checking out this article for reference: How Do I Record The Loan For An Asset?

However, I still suggest reaching out to your accounting for other ways how you can record your vehicle. Furthermore, QuickBooks provided several reports that you can use to show you the aspects of your business. Go through this article for more details: Run Reports In QuickBooks Online.

Leave a comment below if you have any concerns when recording vehicle financing. I'm only one post away if you need help. 

Thanks for your reply, but I understand the concept of how to set up a vehicle purchase with simple interest. This loan, however, has a fixed finance charge that is payable over the life of the loan and becomes due if we choose to do an early payoff. If I use the basic monthly reduction of principal and interest expense, the balance sheet would not accurately reflect the remaining finance charge, it would only show the remaining principal balance. The question remains, how do I initially set up the finance charge and how do I expense it as interest expense on a monthly basis?

@APPARADISELANDSCAPE 

The finance charge (interest expense) does not belong on your financial statements because you have not incurred that expense yet.  The only portion of the loan that should be on your books is the principal balance.  You will enter the interest expense as you make each payment.

Fair enough, but wouldn't that make the balance sheet inaccurate? If we ever decided to pay off the loan early, the entire remaining balance of the finance charge would be due, not just one month worth of interest.

Appreciate your response.

@APPARADISELANDSCAPE 

The balance sheet will always balance in QB (except for rare occasions) because every entry will have two offsetting accounts.  When, and if, you pay off the loan early, you will assign the entire remaining interest expense to the final payment at that time.  If you enter the finance charge of $34K (debit), you need an offsetting credit, which you don't have yet because that credit will be the reduction in cash when you make the future payment(s).  Also, if you enter it now, you would be taking a tax deduction that you have not yet incurred and the IRS frowns on that;-).