Journal Entry for a car purchase (loan) with no downpayment but a trade in.

NHBookkeeping1 · ‎March 07, 2023

Hi all!

I could use some help with a journal entry. My client traded a car in to purchase a new one:

Purchase Price is $43351.13 (includes fees)

Loan Amount is $48617.72

Traded in Car, received $21,000 for it, but

owed on a loan $26,266.59

I've got it as:

Fixed Asset DR 43351.13

New Loan: 48617.72

Fixed Asset CR $21000 (trade in)

and Old Loan DR $26266.59

I'm wondering about recording the loss invalue for the tradein...they received $5266.59 less than what they owed. Should this be recorded, or do I give the documentation to the CPA and let them handle it?

Thanks!

Rainflurry · ‎March 08, 2023

@NHBookkeeping1

Without knowing what the total accumulated depreciation is, the gain/loss is based solely on the difference between the purchase price ($31K) and the trade-in value ($21K) which results in a $10K loss. The JE below is the best you can do to remove the old vehicle and loan and book the new vehicle and loan. When you or the CPA gets the exact depreciation amounts, it can be adjusted:

	Debit	Credit
New Vehicle	43,351.13
Old Loan (to close)	26,266.59
Loss	10,000.00
Old Vehicle (to close)		31,000.00
New Loan		48,617.72

Some of the fees charged on the new vehicle may be expenses and not part of the fixed asset cost but the CPA can confirm that.

View solution in original post

Rainflurry · ‎March 07, 2023

@NHBookkeeping1

Where is the depreciation? Did they not own the old vehicle through the end of a tax year? Also, you need the original purchase price of the old vehicle which I don't see. There is no correlation between gain/loss and the amount owed on the old vehicle. Without depreciation and the original purchase price of the old vehicle, unfortunately, you can't determine gain or loss. If depreciation was never taken but should have been, your client needs to contact their CPA.

NHBookkeeping1 · ‎March 08, 2023

The original price was $31k. My client has a new CPA this year, and he will calculate depreciation on a go forward basis. The former accountant did do depreciation on the vehicle in 2021, and recorded a gain/loss on the trade in of a previous vehicle. Her journal aroused my curiousity.

I just want to get this recorded as best I can. If I leave out any gain or loss & depreciation (per your comment); is the basic journal entry I've entered correct?

Rainflurry · ‎March 08, 2023

@NHBookkeeping1

Without knowing what the total accumulated depreciation is, the gain/loss is based solely on the difference between the purchase price ($31K) and the trade-in value ($21K) which results in a $10K loss. The JE below is the best you can do to remove the old vehicle and loan and book the new vehicle and loan. When you or the CPA gets the exact depreciation amounts, it can be adjusted:

	Debit	Credit
New Vehicle	43,351.13
Old Loan (to close)	26,266.59
Loss	10,000.00
Old Vehicle (to close)		31,000.00
New Loan		48,617.72

Some of the fees charged on the new vehicle may be expenses and not part of the fixed asset cost but the CPA can confirm that.

NHBookkeeping1 · ‎March 09, 2023

I appreciate the help. Will move forward as you advised and let the CPA know what I've done.

Thanks!

Beth

FritzF · ‎March 19, 2023

Hello, Rainflurry.

I appreciate you for always sharing your knowledge about QuickBooks. This will definitely help other users as well in the future. Please keep on posting here in the Community.

Take care and have a great rest of the day.

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Journal Entry for a car purchase (loan) with no downpayment but a trade in.