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MichelleMM1
Level 3

Setting up a loan to a vendor in QB desktop

I can only hope I explain this correctly.  We have a fully depreciated truck from prior to us utilizing QuickBooks.  We have a subcontractor (vendor) who is purchasing the truck but through a deduction of what we pay him on a weekly basis.  I imagine I need to set up a loan receivable but want to be sure I get everything set correctly since it is not your typical loan situation.  Also, since the truck had been depreciated years ago, is there anything I need to do other than accounting for the "income" we receive as payments.  Any suggestions on how to set all this up would be appreciated.  Thank you!  Michelle

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Best answer March 15, 2022

Best Answers
Rainflurry
Level 13

Setting up a loan to a vendor in QB desktop

@MichelleMM1 

 

Just to confirm: you have fully depreciated the truck and the sale price to your vendor is below the original cost?  If that's the case, you need to recognize all of the depreciation recapture as income in the year of the sale and because it was fully depreciated, it's all depreciation recapture.  You cannot defer income as you would in an installment sale.  Therefore, you will need to do the following journal entry for the sale:

 

 DebitCredit
Accumulated depreciation (should equal original cost of truck)XXX 
Note receivableXXX 
      Truck (to remove from books) XXX
      Gain on sale XXX

 

Then, you can create a bill credit each week/month for the principal and interest income portions of the "payment".  Then, apply the credit to the vendor's bill.  This will reduce the note receivable by the principal amount and book the interest income.  

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1 Comment 1
Rainflurry
Level 13

Setting up a loan to a vendor in QB desktop

@MichelleMM1 

 

Just to confirm: you have fully depreciated the truck and the sale price to your vendor is below the original cost?  If that's the case, you need to recognize all of the depreciation recapture as income in the year of the sale and because it was fully depreciated, it's all depreciation recapture.  You cannot defer income as you would in an installment sale.  Therefore, you will need to do the following journal entry for the sale:

 

 DebitCredit
Accumulated depreciation (should equal original cost of truck)XXX 
Note receivableXXX 
      Truck (to remove from books) XXX
      Gain on sale XXX

 

Then, you can create a bill credit each week/month for the principal and interest income portions of the "payment".  Then, apply the credit to the vendor's bill.  This will reduce the note receivable by the principal amount and book the interest income.  

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