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rsteenbu52
Level 2

Auto Loan

We have recenlty set up an auto loan.  The monthly payments  are debited directly from our checking account.  When we clear the entry, the payment is split between a long term liabilities account and vehicle interest. When I run a profit and loss for the month the interest shows as an expense but the principle payment does not.  What am I missing in the account set up?

 

Thank you.

Solved
Best answer June 22, 2021

Best Answers
Rustler
Level 15

Auto Loan

Nothing at all, when you buy something you are basically trading money for the asset, as a result it is not an expense, you still have it

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3 Comments 3
Rustler
Level 15

Auto Loan

Nothing at all, when you buy something you are basically trading money for the asset, as a result it is not an expense, you still have it

View solution in original post

rsteenbu52
Level 2

Auto Loan

So even though we are trading money for an asset, isnt the P&L overstaed because we are not showing the actual cash out?

john-pero
Community Champion

Auto Loan

No overstatement., you purchased an asset. Depreciation is the only expense and that may have to be over time, nominally 5-7 years unless eligible for Section 179 full writeoff.

 

You borrowed money to purchase the asset. Borrowed money is never income ( unless you default and loan is written off by lender) and repayment of principal is never an expense.

 

Think of it as two separate transactions,  the purchase, and the borrowing. 

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