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mudartic
Level 1

Equipment Finanace Agreement (EFA) financing fees

Hey folks, I can't figure out how to set up an EFA in Quickbooks online.  Let's say we buy a piece of equipment for $100,000 and the financing fees are $10,000 which are added to the balance up front (because it's an EFA), so the opening balance is $110,000.  The $100,000 gets credited to the asset but the fees haven't been paid yet, but unlike traditional interest they've already been assessed so they're a liability.  Splitting the principal and interest liabilities and crediting them with the monthly payment doesn't work because the interest paid needs to show up on the P&L as an expense.  What am I missing here?

Solved
Best answer July 28, 2020

Best Answers
Rustler
Level 15

Equipment Finanace Agreement (EFA) financing fees

Create the fixed asset and associated accumulated depreciation accounts, create an asset account called pre-paid interest expense, and the liability account for the loan

 

Book the purchase
fixed asset 100K debit
pre-paid interest expense 10K debit
loan liability 110K

 

When you make a payment, the lines on the check would look like
line one: liability account, full amount paid
line two: interest expense, the portion that is interest
line three: pre-paid interest expense, the same interest amount but as a negative number

View solution in original post

1 Comment
Rustler
Level 15

Equipment Finanace Agreement (EFA) financing fees

Create the fixed asset and associated accumulated depreciation accounts, create an asset account called pre-paid interest expense, and the liability account for the loan

 

Book the purchase
fixed asset 100K debit
pre-paid interest expense 10K debit
loan liability 110K

 

When you make a payment, the lines on the check would look like
line one: liability account, full amount paid
line two: interest expense, the portion that is interest
line three: pre-paid interest expense, the same interest amount but as a negative number

View solution in original post

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