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BEAP
Level 1

How to account for raw land as a non-depreciable fixed asset with corresponding interest expense in QBO

Hey there Community!
We recently had our Texas based company purchase 4 acres of raw land in the USA & asked our accountant how he would like this to be accounted for in QBO. Our accountant has historically been less than helpful with his vague answers -OR- I'm simply super green with bookkeeping and am unable to comprehend what to me seems cryptic (both could be true! LOL!)

We are doing a "for sale by owner" deal where the company we purchased the land from is holding the short term "mortgage" and we're paying principal and interest each month as an ACH auto transfer from our business checking account until the land is paid off. We have an amortization schedule that we're following that has the specific amounts for splitting up the principal and interest each month.

Here is our accountant's response to our question on how to set up this transaction in QBO:


"You should set this up as a liability and corresponding fixed asset. The monthly payments should be split principle & interest, per your amort table.

 

There is nothing to expense here, other than interest expense. Land is not a depreciable asset."



Now... I got on with two different QBO support reps (One on Chat the other on the phone) and neither were really sure what to do, which is why I'm posting here.

 

In my mind, I feel like I should set up an expense fixed asset account in the Chart of Accounts along with an interest account. Each month we make a payment, I feel like I should select to SPLIT the single transaction and detail two rows:

 

Row 1: Account for the the principal under the expense account

Row 2: Account for the interest under the interest account

 

Does anyone out there have any experience with this & could maybe outline the "proper" way to handle this transaction?

I truly am working to learn bookkeeping, but there are so many ways to do things out there that I start to get confused on what would be the "best" way for our situation.

Thanks so much in advance!

4 Comments 4
Rustler
Level 15

How to account for raw land as a non-depreciable fixed asset with corresponding interest expense in QBO

I find your accountants response to be right on the money.

 

Create a fixed asset account named for the land
create a liability account for the loan

 

If you paid a down payment, enter that payment and use the land account as the expense (reason) for the payment

then a journal entry
debit the fixed asset land account and credit the liability account for the amount of the loan

 

Payments
line one, the loan liability account and the amount of the principal part of the payment
line two, an interest expense account and the amount of the interest part of the payment

 

IMO do not expect intuit reps to know anything about accounting

BEAP
Level 1

How to account for raw land as a non-depreciable fixed asset with corresponding interest expense in QBO

Hey there Rustler!

Thanks so much for the response! I do need to ask a clarifying question as I'm a visual learner. Below are what I think you mean for the various steps:

 

Create a fixed asset account named for the land:
(Do I need to enter the cost of the land in "Original Cost" and "As of" fields as well as leave the "Is sub-account" and "Track depreciation of this asset" unchecked? Or what should I do with those fields?)

Screen Shot 2022-03-21 at 7.57.10 PM.jpg

 

 

Create a liability account for the loan:

(If I understand correctly, for the date, I would put the day the loan originated. For the account balance, would I put the amount of the loan? Also, do I need to make this a sub-account of another account OR leave it unchecked?)

Screen Shot 2022-03-21 at 8.01.20 PM.jpg

 

If you paid a down payment, enter that payment and use the land account as the expense (reason) for the payment

then a journal entry
debit the fixed asset land account and credit the liability account for the amount of the loan

(We paid the down payment with a credit card that wasn't the business'... I don't know what exactly this means with the journal entries as I typically go to the "Bank" tab to just categorize payments & deposits that come through. If you have a picture of what this looks like I might be able to piece this part together).


Payments
line one, the loan liability account and the amount of the principal part of the payment
line two, an interest expense account and the amount of the interest part of the payment

(I comprehend how to do this part by splitting the transaction when the payment goes through the business checking account. Do I create an "Land Interest" category in the Expenses account like this: ?)

Interest.jpg

 

Thanks so much for your help, Rustler! I wish I knew someone who knows QBO that I could talk to about this stuff when I get stuck. I asked my accountant if I could pay him to walk me through it, and he said that he doesn't provide that service... ugh.

I appreciate you and your responses! 

Rustler
Level 15

How to account for raw land as a non-depreciable fixed asset with corresponding interest expense in QBO

Do NOT enter any opening balances when you create an account.
If I did not mention any other aspects of setting up an account, then ignore those that are offered.

yes the land interest is fine

 

You can use the bank flow, but the work flow is to enter transactions, download banking, and match. 

 

for the down payment
create a cash type bank account called owners
make an entry for the down payment, and use the fixed asset land account as the reason for the payment
then make a deposit in the same amount in the owner cash account and use the owner equity investment account as the source account for the deposit

ConnieG2
Level 1

How to account for raw land as a non-depreciable fixed asset with corresponding interest expense in QBO

Hello Rustler, I have a question regarding “raw land” purchased with insurance claim proceeds and how to enter this transaction into the basis of a new loan consolidation.

History is vacation townhome on lot A is categorized in QBO as fixed asset with Note Payable purchase 2016.

Hurricane comes along and townhome is total loss, get insurance proceeds over next 2 years and start grueling rebuilding process (during COVID) with everything at a standstill.  But we have to purchase the adjoining lot that our next door neighbor owned to be able to rebuild with new setbacks, fire codes, etc.  We pay for the new lot in full with insurance proceeds.  Our original note for the townhome is still being paid to bank with knowledge that the original lot A even without townhome is worth more than we owe.

Insurance funds are used as rebuilding begins until we have to go back to bank and take out a new loan which is  equal to the balance of the old loan plus what we are short on insurance funds to meet contractor rebuild cost.  Of course both lots had to be merged and recorded an are now collateral with the new building being built. As far as how to classify the 2nd lot purchase to get it into the basis of the equation.

Iam looking at it now like a calf looking at a locked gate.   Any help would be greatly appreciated.

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