We recently purchased a few computers but we are leasing to own over 48 month period. I am having trouble balancing the JE for the monthly payments.
I have put the original purchase price (total asset amount) into a "Lease Obligations" account. Then each month I have set up a JE to credit the Lease Obligation and Debit the "Computer Asset" Account. Where I am having trouble is balancing the actual payment that will come out of our account. Say it's $50, $50 will be credited to our bank account but I dont know where the debit should go.
If I put it back into lease obligations the total Lease will never decrease and if I put it in Computer asset it will double the amount.
any help would be apppreciated!
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Computer asset should be a fixed asset type account
open the register for the loan account, make a new first entry, or edit what is there, the full amount of the purchase agreement should be entered as an increase, and select the computer fixed asset account in the account block and save
when you make payments, you use the loan account as the expense for the payment, check or credit card payment.
Journal entries should be the exception when using QB, they often do not work as you think they should, and they never work for inventory, when you use inventory type items. It is much better to use the forms on the home page the way QB is designed to be used.
I'm not sure leased computer equipment should be recorded as a fixed asset . . . I think more questions would have to be asked. Is it an operating lease with a buy-out at the end, or is it a capital lease with a nominal $1 buy-out at the end or $0 buy-out at the end? Who is deemed to have the risk and material ownership? If you own the equipment outright at the end of the lease or have a $1 buy-out, then you assume the risk and material ownership and it is a capital lease. If you have no ownership at the end of the lease, then it could be safely called an operating lease.
If it's an operating lease, then the lease payments are simply expensed month by month, with the payment amounts and PST going to the lease expense account (not a liability account) and GST to input tax credit. Entry would be to decrease Bank account, and enter the lease expense account in the account block + applicable tax code.
If it's a capital lease, then yes, the computer should be recorded as an asset and depreciated accordingly. Then Rustler's instructions are correct. Just to perhaps make it clearer for you @vgotha , here are the steps if it is a loan or a capital lease if GST is included in the initial loan/lease amount:
- Create Other Current Liability account for the loan/lease payable.
- Create Fixed Asset account for Computer Equipment.
- You must use a General Journal Entry, as taxes cannot be entered from the register. On the first line, enter the Computer Equipment asset account and enter the total loan amount as a Debit. (Often I will split the lines between cost and taxes as I want to be able to see the breakdown in future if I search details on the transaction). On the GST line, make sure you tab over and choose your Sales Tax Item for GST (ITC's).
It is perfectly acceptable and probably more common to just put $10,600.00 on one line to Computers.
Monthly lease payments would look like this if you're paying out of your bank account (or credit card):
Your Computer Lease Payable register will now look like this, and will continue to decrease with each monthly payment.
The Computer Asset account looks like this and will be reduced each year when you post your entry for Depreciation Expense (DR) and Accumulated Depreciation (CR).
The entries will be slightly different, if GST (and possibly PST) is NOT included in the total lease at inception, but rather is paid on each monthly lease payment. If this is the case, then your original journal entry would remain the same, except with no taxes, and can be entered directly into the Computer Lease Payable account register. When you enter your monthly lease payment from the bank or credit card, you simply use your tax codes to add applicable taxes to each payment.
I hope this helps - good luck!