How to add car loan with down payment (expense) and record it as fixed asset?

nazeef.irrfan · ‎September 26, 2019

how to add car loan with down payment (expense) and record it as fixed asset? example: car cost 5000, down payment 1000, loan amount: 4000, monthly instalment: 400 (inclusive of interest) and fixed asset depreciation at year end.

Rustler · ‎September 26, 2019

@ nazeef

in the chart of accounts create:
fixed asset car
sub fixed asset account car accumulated depreciation
loan liability account car

and if you do not have depreciation on any other assets, create an expense account called depreciation expense

open the register for the loan account you created and make a new entry as an increase in the amount of 4,000 and use the fixed asset car account in the account block

write a check on the bank you paid the down payment from and use the fixed asset car as the expense for the check, enter the amount 1,000

You make payments to the loan using the loan account as the expense for the payment, when you get next months statement in, it will show the amount of the previous payment that was interest, do a journal entry back dated

debit interest expense for the amount shown on the statement
credit loan liability account

annually you calculate and post accumulated depreciation using a journal entry
debit depreciation expense
credit car accumulated depreciation

View solution in original post

Rustler · ‎September 26, 2019

@ nazeef

in the chart of accounts create:
fixed asset car
sub fixed asset account car accumulated depreciation
loan liability account car

and if you do not have depreciation on any other assets, create an expense account called depreciation expense

open the register for the loan account you created and make a new entry as an increase in the amount of 4,000 and use the fixed asset car account in the account block

write a check on the bank you paid the down payment from and use the fixed asset car as the expense for the check, enter the amount 1,000

You make payments to the loan using the loan account as the expense for the payment, when you get next months statement in, it will show the amount of the previous payment that was interest, do a journal entry back dated

debit interest expense for the amount shown on the statement
credit loan liability account

annually you calculate and post accumulated depreciation using a journal entry
debit depreciation expense
credit car accumulated depreciation

duvk · ‎September 26, 2019

purchasing the car is one transaction resulting in having an asset worth 5,000. (It is not an expense, but an investment & shows up on balance sheet not P&L)

having a loan is one transaction resulting in having a liability of 4,000. Loan Balance also shows up on P&L.

when you make a loan payment, you need to show the principle paid to the liability account so the Balance Sheet improves

& the amount of interest paid should be posted as an expense which will show up on the P&L.

At year end you can make a depreciation entry (our accountant gives us a list of adjusting journal entries for depreciation) I'm doubt if India's rules are identical to USA rules. Our depreciation shows in P&L as expense & also in Balance Sheet as a reduction in worth of car.

darwis_hussein · ‎September 26, 2019

Dr. fixed asset 5000

Cr- Shareholder / cash / bank 1000

Cr- Finance company 4000

at the time of paying to finance company

Dr- Finance Company 400

Cr- Shareholder / cash / bank

qbteachmt · ‎September 26, 2019

Don't rely on Debits-Credits. When you pay something from banking, that is a Check or Expense entry and typically Split into two lines: Principal (the loan) and Interest expense.

newbookkpr · ‎January 15, 2020

no matter what I do, the down payment on a vehicle doesnt shpw up on my p&l?

907 · ‎March 15, 2020

I really appreciate you taking the time to respond and add an answer. But no matter how many times I try to search for an answer, your response keeps coming up as the "best answer". Only challenge is that you wrote your answer in a way that is very difficult for a newbie to QB to decipher. I have spent hours trying to follow your notes and cannot seem to figure out why using your formula my payments are adding to my balance and not decreasing. Could you possibly create an answer that the average newbie can decipher? Thanks so much!!!

YanaSletten · ‎June 22, 2020

Hi, I am curious if you ever received the response. I also found the response confusion.

Yana

907 · ‎June 22, 2020

Good Day

Definitely confused since I’m not an accountant. I was able to find a video on YouTube. It was for the older desktop version so I was hesitating to review the video but I was able to navigate QB after watching the video a few times. Sorry I don’t have a link. But search for the video and keep a look for a video showing old QB desktop format. Super easy set up once the chart of accounts was added correctly.

asha_kanta_sharma · ‎July 04, 2020

Hello Guys,

This is a simple case. When we are purchasing an Asset in Installment Basis the entire Asset Value will be debited and shown in the books of accounts as an Asset. Like as for example in your case, when car cost is 5000 you will Debit entire amount as on Asset, credit your bank account with down payment of 1000, and create a liability to Vendor for rest of 4000.

The Journal Entry will be as follows :

Car - Dr. 5000

Bank - Cr. 1000

Vendor - Cr. 4000

Now when you will be paying monthly EMI of 400 which in inclusive of interest and capital payment, you need to break it up and show it under two different accounts. Interest will be debited to Profit and Loss Account. The below is the Journal Entry at the time of making payments:

Vendor - Dr.

Bank - Cr.

Interest - Cr.

Hope this is clear.

Ta9 · ‎August 16, 2020

When making the monthly car payment:

Debit. Interest Expense

Debit. Loan Payable

Credit Bank account/Cash

Karen

LNB · ‎December 06, 2020

please explain how loan balance shows up on the P&L

Mark_R · ‎December 06, 2020

The confusion ends here, @LNB.

Allow me to fill you in on everything you need to know about how loan balance is reported in QuickBooks.

A Profit and Loss report will not show a loan balance, most likely, payments of non-expense items from cash flow like liability reductions any more than borrowing the money in the first place would show as income. Since a loan balance is considered as a liability receipt, it'll appear on the Balance Sheet or Statement of Cash Flow reports.

To learn more about the Balance Sheet report, feel free to read this article: What is a Balance Sheet report?

Please visit our Community forums again for all of your QuickBooks needs. I'm always here to help. Have a wonderful day!

Thi Luu · ‎February 16, 2021

Loan balance doesn't show up on P&L but Balance Sheet

MelTilk · ‎January 28, 2022

Quick clarification please:

The GJE you submitted is simple EXCEPT that if we already wrote the check from the register it is already posted to the bank account & Car asset account (Bank DB 1000, Car CR 1000) so if I then go and create the GJE you outlined, I now have TWO $1000 debits to my checking account. So, that's not right.

Seems like there are two options... I think Option 1 is the way I would go. Thoughts?

Option 1: Since check is posted as CR to Car, the GJE could be

Car Dr 4000 (this is the Purchase Price less the downpayment of 1000 that was posted with check writing)

Loan CR 4000 (this is the loan opening balance)

Option 2:

I can post the downpayment check to Bank DB 1000, Loan CR 1000 and then my GJE for the asset would be

Car Dr 5000

Loan CR 5000 (since 1000 will be a cr posted with the check writing)